Auditors Flag Material Uncertainty in Dunzo's Ability to Continue as a 'Going Conce

In a recent financial audit, Deloitte, the global audit and consulting firm, raised significant concerns about the financial health of the quick commerce startup Dunzo. Deloitte, which audited Dunzo’s financial statements for the fiscal year 2022-23 (FY23), flagged material uncertainty regarding Dunzo’s ability to continue as a ‘going concern.’ This term signifies that a company has enough resources and revenue avenues to remain solvent and avoid the risk of bankruptcy. In simpler terms, Deloitte’s report suggests substantial doubts about Dunzo’s future capability to generate sufficient revenues to sustain its operations.

Troubling Financial Results for FY23

Dunzo’s FY23 financial results have revealed a concerning picture. The company reported a nearly fourfold year-over-year rise in net loss, reaching INR 1,801 crore. In comparison, its operating revenue amounted to INR 226.6 crore. Deloitte’s report stated, “The group has incurred a net loss of Rs 1,801.8 Cr during the year ended 31st March 2023… These events or conditions, along with other matters… indicate that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern.”

The group, in this context, encompasses Dunzo Digital’s subsidiaries, namely Dunzo Merchant Services and Dunzo Wholesale.

Rationale Behind Deloitte’s Concerns

Deloitte justified its concerns by pointing out that, during FY23, the group’s liabilities exceeded its assets by INR 325.8 crore. This situation was primarily a result of “significant high operational costs for building customer base.” The auditor further emphasized that Dunzo’s ability to operate as a ‘going concern’ hinges largely on the availability of additional funding and improvements in business operations.

Dunzo’s Response

In response to Deloitte’s concerns, Dunzo issued a statement asserting that it had scaled up its operations since the period covered by Deloitte’s report. A company spokesperson stated, “The audit report is from six months back, and we’ve made significant developments since on business and funding.” The spokesperson highlighted that in FY23, Dunzo’s overall platform Gross Merchandise Value (GMV) crossed INR 1,500 crore, demonstrating the true scale of the business. Importantly, they noted that the business’s burn rate is now neutral due to successful cost-cutting measures and optimization of the store network, particularly for Dunzo Daily, where the company has transitioned to a hybrid model.

Dunzo also emphasized that its logistics and B2B verticals remain strong revenue generators, with growth exceeding 128%. However, they did not specify the time frame for this growth metric. The spokesperson added, “There’s a lot to be excited about – from our growing presence on the ONDC network, our strong logistics business, to the new avatar of Dunzo Daily. We are aiming to achieve corporate-level profitability within 12 months.”

Dunzo’s Financial Challenges

Dunzo’s financial challenges have been apparent for some time. The company last raised a financing round of $6 million in debt from Blacksoil in November of the previous year. However, reports suggest that Dunzo has raised additional debt since then. Auditors raised similar concerns during the last fiscal year, FY22, but the situation has worsened.

The startup has been grappling with a severe cash crunch in recent months. In July, the company deferred salary payments and capped payouts at INR 75,000 per month per employee. Subsequently, Dunzo continued to delay salary payments and initiated significant layoffs. Moreover, the company has incurred the wrath of vendors to whom it owes money.

Between 2018 and 2022, Dunzo accumulated cumulative losses exceeding $150 million against a revenue of $12 million. Even with a substantial funding injection of $240 million from Reliance to support its expansion, the startup burned through its funds.

Uncertain Future Amid High-Level Exits and Strategic Pivots

Dunzo has been actively seeking to raise approximately $100 million for nearly six months but has faced challenges in securing additional financing. Concurrently, the company has witnessed a series of high-level exits, including that of co-founder Dalvir Suri. As Dunzo trims its operations and pivots to a hyperlocal model, its ability to navigate the current financial crisis remains to be determined.

The coming months will be critical for Dunzo as it works to address its financial challenges, secure new funding, and redefine its strategic direction. The startup’s resilience and adaptability will be tested in its quest to regain stability and ensure its continued presence in the quick commerce market.