FreeCharge posts Rs 235 cr loss in FY16; paltry revenues erode net worth

While losses fell 12.7% in the present FY compared to previous year, revenue growth stood at 2.9%

FreeCharge, the digital payments company owned by e-commerce marketplace Snapdeal, reported a loss of Rs 235 crore on a revenue of Rs 36 crore in 2015-16, eroding the net worth of the company as losses mounted to play catch-up with larger rival Paytm.

While losses fell 12.7 per cent in the financial year compared to the previous year, revenue growth stood at 2.9 per cent, up from Rs 35 crore. This is unlike a lot of new-age Internet companies that forego profits but ensure hefty growth in revenues.

“The accumulated loss exceeds the paid-up share capital and the net worth of the company has completely eroded. The company’s ability to continue as going concern is dependent on success of operations and its ability to arrange funding for its business operations,” wrote FreeCharge’s auditors in the regulatory filings that were sourced by data firm Tofler.

The two biggest drains on FreeCharge’s balance sheet were spending on advertising, which stood at Rs 91.2 crore and business promotion at Rs 72.3 crore, which were mainly on cash backs to lure users to transact on the platform repeatedly..

This was also the first year for FreeCharge as a Snapdeal company after the e-commerce player acquired the Kunal Shah-promoted online recharge platform for $400 million in April 2015.

Snapdeal is likely to have recapitalised FreeCharge in the current financial year, while the company has also been rumoured to be looking at raising capital from outside. FreeCharge recently denied that San Jose-based payments giant PayPal would pick up a significant stake in the company.

Snapdeal declined to comment on the queries sent by Business Standard about FreeCharge’s losses.

FreeCharge appointed Govind Rajan, a former Airtel executive who had helped build the mobile service provider’s digital wallet, in May last year. Since then, Rajan has been expanding partners who accept the wallet. He has got Mastercard to issue virtual debit cards on the platform and increase the number of users on FreeCharge’s wallet. He also has focused on increasing the number of times they transact on a regular base.

The company has said the number of transactions went up 10 times immediately after Prime Minister Narendra Modi’s demonetisation scheme was announced. It, however, has not revealed the figures. In comparison, Paytm, the leader in India’s digital wallet space, says it has 150 million users and facilitates seven million transactions a day.

Year 2016 was a rough one for FreeCharge’s parent company Snapdeal, too. The firm lost the second spot in India’s e-commerce market to US giant Amazon. Further, the company’s largest investor SoftBank marked down its value, probably owing to its lack of profits and increased competition from Amazon.