Where losers are winners

The writer T.R.Jawahar is Group Editor of Chennai-based News Today, Maalai Sudar and Talk Media publications.

I was at once amused, astonished and aghast at a couple of news items that appeared one below the other in a national daily. PayTM, a much touted desi payment app, hogged the headlines for two diametrically opposite reasons. One proudly proclaimed that PayTM’s parent company would be bidding for a sizeable stake in the private sector Yes Bank. And another announced that the same parent has tripled its losses in three years between FY2016-19, from Rs 1,500 crore to Rs 4,217 crore. And lo! The company has had its valuation rise to $15 billion now.

Welcome to the world of modern novel accounting and finance.

Now, normal questions are bound to crop up in the minds of normal businessmen subscribing to normal commercial logic: How can consistent losses result in consistent gains in valuations? How is this loss funded? How long can a company keep losing? When will it be too late and what is the endgame? But then, these are not normal times. Such inversions and perversions riding on mind-boggling figures are littered all over the business landscape.

Here are more samples, all very hep brands that have caught the fancy of people and are also media darlings. PayTM is in very elite and exclusive company indeed.

  • Ola’s standalone losses stood at Rs 2,676.7 crore in 2017-18. It had registered a loss of Rs 4,897.8 crore in 2016-17. But its value rose from $5.7 billion to $6.2 billion in May this year.
  • In August, Uber reported its largest quarterly loss ever of $5.2 billion for the three months ended June. The company, as per the figures available on the net, is valued at $82 billion.
  • Swiggy’s loss nearly doubled to 397 crore in 2017-18 from 205 crore a year earlier. However, at a valuation of $3.3 billion, it emerged the fifth-most valued startup in the country.
  • Zomato reported a loss of $294 million (about Rs 2,035 crore) for the year ended March 2019. Earlier this year, HSBC Global Research had valued Zomato at $3.6 billion, or about Rs 2,500 crore.

Now, all these companies, despite their visible mounting losses, but purely based on perceived valuations, have consistently raised money from private equity investors, Indian and foreign. The funding is done in what is fancifully dubbed as ‘rounds’, with every round, almost coinciding with a bigger and more rounded loss. Now why would these investors keep pumping money down a bottomless blackhole? In fact, there is an ominous jargon for this seaming madness: Cashburn. I, for one, am unable to make sense, out of any of this.

But then, lose not hope, there are experts to explain even this inexplicable expensive financial adventures (or misadventures) by venture funds. Tech, they claim, is the future. And that is good enough, for starters. Next, the bigger the dream, greater the attraction. Also, these big ticket investors are smart and won’t put money for nothing.

Betting big on well chosen ‘ideas’ would eventually drive out competitors and then the one way road will become two with the traffic of returns flowing inward and Pooh, all past losses would be wiped out in a jiffy. Again, whoever remains in the field can always be bought over with a little more, you guessed it, Cashburn. Also, these companies will only get bigger in size, better in efficiency and broader in range of services. So why crib, buddies? After all, the valuation kite is flying high in stratosphere!

Businesses can face losses which is understandable. But, loss funding cannot be a business by itself. Ideally, this qualifies as a scam. But one runs the risk of being dubbed a spoilsport and regressive, not quite update on new rules of the game. So be it. For one, most of the investors in these new fangled companies are massive money bags, mostly foreign. There is no way of verifying their antecedents or intentions. The norms governing them are a maze. The funding transactions are most opaque, based on backroom negotiations and off-limits to any regulatory oversight.

Some of these companies are planning IPOs based on such rigged values, which means, gullible prospective shareholders, enchanted by the ritzy, glitzy promotions in media, will easily be dragged into the dicey spider web.

There is also not much information in public domain if Indian banks are also exposed to these loss making companies currently. Correction: Didn’t we mention in para 1 that banks themselves, including the payment banks recently approved by RBI, are potential investment opportunities for the insatiable PE players.

The government seems to be looking the other way. But it cannot for long. First, maximum money is coming from Chinese funders which is a cause of concern. Also less governance does not mean nil governance. Even by laissez-faire free market standards, competition is the essence of business. But the foreign PE funds’ investment in these Indian companies is predicated on the very ‘principle’ of killing competition. The micro, small and medium enterprises that form the backbone of Indian economy will be the worst hit by the predatory and unfair trade practices of the well funded, fattened biggies. The disruption in retail is already headed towards catastrophe.

For instance, Uber had been pulled up by the Supreme Court which ordered an investigation into the allegations that the taxi aggregator indulged in anti-competitive behaviour. The order was passed on a petition which alleged that Uber was intentionally suffering losses on the rides on its application, pricing them below cost, to gain customers (predatory pricing) and directly or indirectly forcing cab drivers to remain exclusively on its platform.

But not all small players can afford to take on the likes of Ola, Uber and Swiggy. Demolished by demonetisation, grounded by GST and strung up on a slew of legislations by the day, lakhs and lakhs of these units are already facing extinction with cascading effect on jobs and social security. The government’s obsession with virtual and digital fads at the expense of real and tangible businesses also indirectly fuels these maniacal and wholly ephemeral visuals, projected by out of focus financial instruments.

The nation must not buy into this illusion. Instead, it should stay warned that foreign funders, economic colonisers really, are not here for charity. One fine day, an incredulous India will wake up to find them all gone with bounties of booty via sale to some local suckers or through stock markets, even as we hold sacks full of ashes of cash burnt by them.
Now is the time to call this big-time bluff and burst the bubble ourselves before it does on our face sooner or later, sooner more probably.


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