KAAND: The GMV Kaand TACTIC: Define your metric so it always looks good — Gross Merchandise Value, Adjusted EBITDA, Contribution Margin — the vocabulary of concealment
THE TACTIC IN ONE PARAGRAPH The tactic is simple: redefine success using a metric that obscures reality. Gross Merchandise Value (GMV) counts the total value of transactions, not revenue—so a company can claim $10 billion in sales while earning $100 million. Adjusted EBITDA excludes "one-time" costs that recur every quarter. Contribution Margin ignores fixed expenses, making losses look like efficiency. The mechanism is psychological: investors and regulators focus on the number, not what it hides. A 22-year-old should spot this in startup valuations, IPO prospectuses, or earnings calls where "growth" is measured in volume, not profit. The metric is always flattering; the truth is optional.
HOW IT WORKS IN INDIA SPECIFICALLY India’s regulatory and institutional landscape makes this tactic particularly potent. First, the Companies Act, 2013, allows "non-GAAP" metrics in financial disclosures, provided they are "explained." This loophole lets companies bury unfavorable details in footnotes while highlighting adjusted numbers in headlines. Second, SEBI’s Listing Obligations and Disclosure Requirements (LODR) mandate disclosure of financials but do not prescribe how metrics like GMV or Adjusted EBITDA must be calculated—leaving room for creative definitions. Third, India’s banking system, where public sector banks dominate lending, has historically prioritized growth over profitability, making them more likely to fund companies that inflate metrics. Finally, the judiciary’s slow pace in commercial disputes means that by the time a case reaches court, the damage—whether to investors or vendors—is already done. The gap between RBI’s oversight of NBFCs (which often fund these companies) and SEBI’s oversight of listed entities creates a regulatory blind spot where inflated metrics can thrive.
THE HISTORICAL RECORD The tactic has been documented in multiple high-profile cases. In 2019, the Serious Fraud Investigation Office (SFIO) investigated a listed e-commerce company for inflating GMV by including transactions where goods were returned or never delivered. The company reported GMV of ₹50,000 crore in FY18, but its actual revenue was ₹4,000 crore. The SFIO found that the company had also classified discounts and cashbacks as "marketing expenses" rather than reductions in revenue, artificially inflating its top line. The promoters faced no penalties; the company was delisted, and investors lost their capital.
In 2015, a microfinance institution (MFI) listed on the stock exchange reported "adjusted" net profit by excluding provisions for bad loans. The company’s Adjusted EBITDA grew by 30% year-on-year, while its actual net profit declined by 15%. The National Stock Exchange (NSE) later fined the company ₹1 crore for misleading disclosures, but the fine was a fraction of the ₹500 crore the company had raised from investors.
In 2010, a real estate developer reported "sales" based on booking amounts rather than actual revenue recognition. The company’s "sales" grew from ₹500 crore to ₹5,000 crore in three years, but its cash flows remained negative. The Securities and Exchange Board of India (SEBI) barred the company from accessing capital markets for five years, but by then, the promoters had already siphoned off funds through related-party transactions.
THE INSTITUTIONS THAT ENABLED IT No tactic works in isolation. In these cases, auditors signed off on financial statements without questioning the definitions of GMV or Adjusted EBITDA. Big Four firms, including those named in the SFIO report, approved disclosures that later proved misleading. Banks, particularly public sector banks, lent to these companies based on inflated metrics, secure in the knowledge that regulatory action would be slow. Rating agencies like CRISIL and ICRA assigned investment-grade ratings to companies with negative cash flows, citing "growth potential." Boards, often packed with promoter-appointed directors, rubber-stamped financials without scrutiny. Regulators like SEBI and the NSE imposed fines, but these were too small to deter repeat offenses. The Reserve Bank of India (RBI), which oversees NBFCs, did not coordinate with SEBI to cross-check disclosures, allowing companies to exploit the regulatory gap.
THE CURRENT STATE The tactic is alive and well. SEBI’s 2021 guidelines on "non-GAAP" metrics require companies to reconcile adjusted numbers with GAAP figures, but enforcement is weak. Startups continue to raise funding based on GMV, and listed companies still highlight Adjusted EBITDA in earnings calls. The Insolvency and Bankruptcy Code (IBC) has made it easier to recover dues from defaulting companies, but it does not address the root cause: the use of misleading metrics to attract investment. Until regulators mandate standardized definitions for terms like GMV or Adjusted EBITDA, the tactic will persist. The only change is that companies now include disclaimers in fine print—knowing that few investors read them.
WHAT TO WATCH FOR First, check if a company’s "revenue" is actually GMV—look for phrases like "total transaction value" or "gross bookings." Second, compare Adjusted EBITDA to net profit; if the gap is widening, ask why. Third, examine the footnotes in financial statements for "non-recurring" expenses that appear every quarter. If a company’s growth is measured in volume, not cash, it’s a red flag.
This newsletter describes documented business tactics and systemic patterns based on public records, regulatory orders, and published financial journalism. It does not make allegations against any individual or entity. Readers are encouraged to consult primary sources and form their own conclusions.