Can fintech unicorn BharatPe navigate the challenges to refocus on growth?

BharatPe

Indian Market
by 5paisa Research Team Last Updated: 2022-08-03T16:51:34+05:30

The bad news for BharatPe just keeps getting worse. Three months after co-founder and managing director Ashneer Grover was effectively ousted, co-founder Bhavik Koladiya has also quit citing disagreements with the four-year-old fintech’s management.

Koladiya, who managed BharatPe’s product and tech operations, reportedly had disagreements with chief executive officer Suhail Sameer.

A Mint report, citing unnamed sources at BharatPe, says that soon after Grover was ousted in March, after a three-month-long public spat with the company’s board, Koladiya decided to pursue criminal action against Ashneer to get back his shares (which Grover was holding on Koladiya’s behalf). The company’s investors also assured support to Koladiya from the outside, the report said.

BharatPe, though, has sought to sound a more diplomatic note, downplaying his exit. “Bhavik Koladiya has been associated with BharatPe as an independent consultant, guiding our product and technology teams. His contract tenure ended on July 31, 2022, and he expressed his desire to spend time on other assignments outside BharatPe,” the company told Business Insider.

The company’s bid to downplay the latest top-level exit does not do much to hide the fact that BharatPe has been imploding over the past year.

A good beginning

The fintech firm was set up by Koladiya and Indian Institute of Technology (IIT), Delhi, student Shashwat Nakrani. 

Both Koladiya and Nakrani were 50-50 owners of the new fintech startup. It was only in June 2018, three months after its founding, that Grover, incidentally another former IIT-Delhi graduate, joined as the third co-founder.

After Grover came on board, the shareholding structure changed with Grover getting a 32% stake, Nakrani holding 25.5%, even as Koladiya remained the biggest shareholder in the company with a 42.5% stake.

The startup has managed to snag almost $600 million in venture funding between October 2018 and August 2021 and was valued more than $2.8 billion last year. Its investors include the likes of Beenext, Sequoia, Insight Partners, Steadview Capital, Ribbit Capital, Coatue Management and Tiger Global.

Courting controversy

In December 2018, just before Sequoia backed BharatPe, Koladiya’s name went missing from the founders’ list as the investor was reluctant to invest in a company whose founder was convicted by a US court in 2015, according to the Mint report cited earlier. Koladiya was convicted of credit card fraud. 

Interestingly, Koladiya is still the biggest shareholder as a part of his shares are with Grover and another part with Nakrani, while 5.75% shares reportedly still remain in his name. Of Grover’s residual 8.4% stake, 3.5% is reportedly Koladiya’s while 2.25% of his shares were held with Nakrani, who has since apparently returned his shares.

Troubles at BharatPe came to light in January this year when an audio clip allegedly of Grover, abusing a Kotak Mahindra Bank employee went viral.

In the audio clip, which was circulated widely on social media, Grover accused the employee of failing to secure funds to buy shares of Nykaa during the company’s initial public offering (IPO).

While Grover said the audio clip was fake, on January 9, the bank said it will take legal action against him. After this, BharatPe said Grover had taken voluntary leave till March.

That opened a massive can of worms that embroiled not just Grover but also his wife, Madhuri Jain Grover, who was the head of controls at BharatPe.

Before he quit BharatPe in March, Grover filed an emergency petition against a review of how the company was governed, before the Singapore International Arbitration Centre. In his plea, he had alleged that the members of the committee reviewing the governance of the company seemed biased. The petition was rejected on all five counts that he had made.

Meanwhile, his wife was sacked from BharatPe on allegations of misappropriation of funds. She was accused of using company money for family trips abroad and for paying her personal staff.

Grover, an IIT-Delhi and IIM Ahmedabad graduate, was no stranger to the startup space. Before he became co-founder at BharatPe, he had been an investment banker and had served as the chief financial officer at Grofers (now Blinkit), which has since been acquired by Zomato.

On March 2, he was fired from all positions at BharatPe, after these accusations surfaced. BharatPe said that external advisors had reviewed the company’s internal controls, and Grover resigned shortly after he was informed that these findings will be presented to the board. 

Grover though, expectedly, denied all allegations of misconduct and misappropriation. He said that he was being “vilified and treated in the most disgraceful manner” and that the company’s investors have treated the founders as “slaves”.

On strong ground

To be sure, despite this imbroglio and all the high-level exits, it is not as if BharatPe is facing an existential crisis. As of March, the fintech reportedly had more than 75 lakh users across 150 cities, and was valued at $2.8 billion.

In fact, in July BharatPe said it had put l'affaire Grover behind and had closed one of the highest growth quarters in its history, facilitating over Rs 3,600 crore in loans in the first quarter (April-June period) of FY23.

This represented a 112% growth over the previous quarter. BharatPe said it also reached an all-time high of $18.5 billion in annualised total payment value (TPV) -- a growth of 50% over the last quarter.

“Post a successful FY22 that we closed with three times growth in merchant loans, 2.5 times growth in payments and a four-time jump in revenue, BharatPe has recorded its best ever quarter in Q1, FY23,” CEO Sameer said.

“We are on an incredible growth journey, driven by a huge shift in behaviour towards digital payment modes, rise of UPI and the increased acceptance of new-age fintech products,” he added.

The company facilitated disbursals to over 1.2 lakh merchants in Q1, FY23, up from 66,000 merchants in the last quarter of FY22.

Additionally, BharatPe's other product offerings, including the card acceptance POS businesses (BharatSwipe) and its investment platform for merchants recorded consistent growth (over 30%) compared to the last quarter.

“We are on track to achieve our target of $2 billion in loans facilitated (through our NBFC/bank partners) across both consumer and merchant business by the end of FY23 as well as scaling TPV to $30 billion by March 2023,” said Sameer.

What will also help BharatPe is its entry into the banking sector. In October last year, the Reserve Bank of India gave its final approval to Unity Small Finance Bank. Unity SFB is a joint venture between Centrum Group and Bharatpe that was formed to take over Punjab and Maharashtra Cooperative (PMC) Bank, which was under RBI control since mid-2019 after a Rs 7,000-crore fraud. Centrum owns 51% of Unity while BharatPe owns the rest.

For now, it seems BharatPe has seen off its biggest controversy yet, and if its numbers are anything to go by, has come out quite unscathed.

But it will do well to avoid getting into another similar controversy that could potentially threaten its existence.

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