Deloitte casts doubt on Dunzo's ability to continue as going concern

The development comes at a time when Dunzo has been trying to line up capital to the tune of $25-30 million.

There is material uncertainty that Dunzo will be a going concern, Deloitte, the hyperlocal delivery company’s auditor said in its latest audit report.

A company is typically considered a 'going concern' if it has sufficient resources to continue to operate indefinitely and to avoid any potential bankruptcy risks.  This is not, however, the case with Dunzo.

Deloitte’s comments were appended with Dunzo’s regulatory filings for FY23 which also showed that the company’s net loss ballooned to Rs 1,802 crore in FY23, a 288 percent increase from the previous year, when it incurred Rs 464 crore in losses.

The mounting losses also meant Dunzo’s “...current liabilities exceeded its current assets by Rs 325.8 crore primarily because of significant high operational costs for building customer base,” Deloitte said.

Since Dunzo’s total liabilities amount to more than its total assets, the company will be unable to repay its creditors in a bankruptcy event. To be sure, it is rare for auditors to raise such concerns.

“...the group’s ability to continue as a going concern is significantly dependent on the availability of additional funding, and improvement in business operations. 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,” Deloitte added.

The group here refers to Dunzo Merchant Services Private Limited and Dunzo Wholesale Private Limited, both of which are subsidiaries of Dunzo Digital Private Limited.

While Deloitte said a material uncertainty may cast significant doubt on the group’s ability to continue as a going concern, it also added that the management expects the group to continue as a going concern.

Dunzo confirmed the developments to Moneycontrol but said it has scaled its operations since Deloitte filed its report.

"The audit report is from six months back and we've made significant developments since on business and funding. In FY23, our overall platform GMV crossed Rs 1,500 crore representing the true scale of our business. Crucially, our business burn is now neutral as we successfully implemented cost cuts and more importantly optimised our store network for Dunzo Daily, moving to a hybrid model. Our logistics/B2B vertical, which reached maturity, continued to be a strong revenue generator, growing by over 128% while becoming GM neutral,” a company spokesperson told Moneycontrol.

Auditors had flagged similar issues around Dunzo being a going concern even in FY22 but since then, the company's problems have grown manifold which makes the situation even more grave.

Over the past several months, Dunzo has held back salaries, laid off over hundreds of employees, shut dark stores and even given up its office space to rein in cash burn.

“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 aim to hit corporate level profitability in 12 months," the spokesperson added.

The development comes at a time when Dunzo has been trying to line up capital to the tune of $25-30 million.

Dunzo has so far raised close to $500 million since 2015 from Reliance Retail, Google, Lightrock, Lightbox, Blume Ventures and several others. Reliance is the largest shareholder with a 25.8 percent stake in the company, and Google was the second-largest with around 19 percent ownership in Dunzo, according to Tracxn, a private markets data provider.

Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.