Despite Significant Revenue Growth, Losses Surge Due to Increased Expenditures
Keka, the Hyderabad-based HR tech platform, has announced impressive revenue growth for the fiscal year ending March 2024, but the company’s losses have spiked dramatically, raising concerns about its financial health. The SaaS startup saw its revenue from operations reach Rs 78 crore in FY24, marking a 62% increase compared to the previous fiscal year’s Rs 48 crore. However, this success came at a steep cost, with Keka’s losses soaring 2.8 times, reaching Rs 80 crore, up from Rs 28 crore in FY23.
Founded in 2015 by Vijay Yalamanchili, Keka has become a prominent player in the HR tech space, providing a comprehensive suite of solutions designed to automate and streamline various HR functions, including payroll, recruitment, leave management, attendance tracking, and performance management. According to the company, Keka’s software is now used by approximately 2.5 million employees across different industries.
Revenue Breakdown and Growth Drivers
Keka’s growth was primarily driven by its SaaS subscription income, which accounted for 97.4% of its operating revenue in FY24. The company’s closed-based HR and payroll management software, Keka HR, generated Rs 76 crore, a 60% increase from the previous fiscal year. This growth reflects the increasing adoption of Keka’s solutions among businesses looking to digitalize their HR processes.
In addition to its core subscription revenue, Keka earned Rs 9 crore from interest on deposits and current investments, bringing the total revenue for FY24 to Rs 87 crore, up from Rs 54 crore in FY23. The company’s performance demonstrates the strong demand for its HR tech platform, particularly in a market that continues to embrace automation and cloud-based solutions.
Rising Expenditures Lead to Increased Losses
While Keka’s revenue growth is impressive, the company’s rising expenditures have led to a significant increase in losses. Employee benefits, which make up the largest portion of Keka’s costs, accounted for 64.5% of its overall expenditure in FY24. This expense surged by 94%, totaling Rs 107 crore in the latest fiscal year. This increase was partly driven by a non-cash ESOP (employee stock ownership plan) cost of Rs 6 crore.
The company also ramped up its advertising efforts, with ad spend growing by 3.6 times to Rs 22 crore in FY24. Advertising costs are typically a major driver for SaaS startups as they look to expand their customer base and increase brand visibility. Alongside advertising, Keka’s spending on IT infrastructure, rent, travel, legal services, and other overheads pushed its total expenditure up by 100% to Rs 166 crore, compared to Rs 83 crore in FY23.
This surge in costs, combined with the increase in employee benefits and advertising expenditure, contributed to Keka’s losses growing by 2.8X, from Rs 28 crore to Rs 80 crore. The company’s Return on Capital Employed (ROCE) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) ratios were recorded at -85% and -89%, respectively, indicating significant operational challenges despite top-line growth.
Financial Health and Future Outlook
At the end of FY24, Keka’s total current assets amounted to Rs 97 crore, which includes a cash and bank balance of Rs 88 crore. This provides the company with a solid cash reserve to continue funding its operations and growth initiatives. However, with the rising losses, Keka will need to manage its expenditures carefully and find ways to optimize its cost structure to achieve profitability in the coming years.
Keka has raised a total of $59 million in funding to date, including a $57 million Series A round led by WestBridge Capital in November 2022. WestBridge Capital, which holds a 20% stake in the company, is the largest external shareholder, while founder Vijay Yalamanchili controls 66% of the company. With continued backing from investors, Keka will likely focus on expanding its customer base and improving its cost efficiency to steer the company toward profitability.
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