ZestMoney To Turn Operationally Profitable Within Months Post Deal, Says DMI Group

DMI Group's acquisition of ZestMoney will help the beleaguered fintech platform turn operationally profitable within a "handful of months", according to the group's Joint Managing Director and Co-Founder Shivashish Chatterjee.

"The transaction that DMI has done, should significantly shorten the time that it takes Zest to become profitable on a standalone basis. We think that there are significant synergies that we bring to the table, in terms of costs that we can save them both on the balance sheet side and in terms of operational expenses," Chatterjee told NDTV Profit.

"We expect that in a handful of months, the platform should become sustainable on a standalone basis, because it is profitable on an operating basis and at that point, there is a lot of leeway for both the platform and the employees to hopefully get the benefit of what they've built over the past six or seven years," he said.

Earlier in January, DMI acquired ZestMoney in a fire sale after the latter failed to secure funding.

"The history of ZestMoney's difficulties are pretty well chronicled at this point...Especially the PhonePe transaction that did not happen and fell apart earlier in 2023. From there, in some sense, they have been struggling to keep the platform afloat," Chatterjee said.

By early December, the startup ecosystem was rife with reports that ZestMoney was going to shut down.

"I understand that management at ZestMoney actually sent an internal letter saying that the platform is going to shut down at the end of December. Our thinking at the time was that, we know this platform, and we know how well it fits into what DMI does and so if there is an opportunity to acquire the assets and platform at a time when they were going to shut down anyway, then that was something worth doing," he said.

DMI engaged with the Zest leadership in early December and "essentially stitched the contours of a deal in 48 hours", Chatterjee said.

He conceded that an acquisition was not the best outcome for the platform, but for DMI, it made a lot of sense. "Zest has a stable of products that fit very well into what we do. As DMI, we focus a lot on younger consumers, on financial inclusion in tier-2 and 3 cities. Our current stable of products, prior to the Zest acquisition, was basically personal loans and consumption loans, but that will change now.

The acquisition will allow DMI to take Zest's customer base and continue to provide them with a credit home, and also give its own 2-crore strong customer base an opportunity to transact on the Zest platform, he said. "The Zest platform is basically all of e-commerce, a large number of about 15,000 live and active offline merchant networks."

Chatterjee expects the deal to be "extremely value accretive to DMI". The deal was a pure acquisition of assets from Camden Town Technologies Pvt., which is the registered entity that owns the ZestMoney brand and technology, he said.

"We have not acquired equity in the company. We have bought assets from the company and we have an exclusive right to continue working with the company and the platform as the preferred lender at the backend," Chatterjee said.

Since it is a pure asset-based deal, Chatterjee confirmed that DMI will not be taking on any of the loss and liabilities that are on ZestMoney's balance sheet. For FY23, the Bengaluru-based startup reported a loss of Rs 412.5 crore on a consolidated revenue from operations of Rs 243.7 crore from Rs 138.5 crore. With this, the company's accumulated loss increased to Rs 1,243 crore.

Zest's brands and logos will most likely be maintained, Chatterjee said.

"At this point, there is no reason for us to think that that will not be the case. We have acquired the brand, we own exclusive rights to it. Zest has obviously spent many years and a lot of money in building up that brand, so it makes a lot of sense for us to continue it as a customer-facing brand, with DMI as the backend lender."

On what will happen to ZestMoney's employee base, Chatterjee said they should "feel comfortable continuing to remain employees".

"In times like this, there's a lot of uncertainty and anxiety, but what I can say is that we have come into this with the intention of supporting Zest as a platform, as well as supporting their employees. The platform obviously needs its employees to continue functioning the way it has."