Bangalore: Flipkart India Pvt. Ltd , the wholesale business of India’s largest online retailer Flipkart , reported a loss of ₹ 281.7 crore in the year ended March, much wider than its loss of ₹ 109.9 crore in the previous year, as it significantly raised spending to increase revenues.

Revenue soared fivefold to more than ₹ 1,180 crore from ₹ 204.8 crore in the previous year, documents filed by the company with the Registrar of Companies show.

Flipkart India’s expenses jumped more than five times to ₹ 1,366 crore from ₹ 265.6 crore last year. Cash balance dropped to ₹ 166.2 crore on 31 March from ₹ 236 crore a year ago.

The deeper losses as well as soaring sales are in keeping with Flipkart’s winner-takes-all strategy, which involves pursuing revenue growth and market share at any cost, the same model followed by Amazon.com Inc. in the US.

To finance this, Flipkart has raised over $550 million in the past five years, including $360 million this year.

However, there are signs that Flipkart is finding it tough to keep up with its own pace of growth.

In their report, Flipkart India’s auditors S.V. Ghatalia and Associates Llp were critical of Flipkart’s accounting procedures on a couple of points, although they gave a clean chit to its key accounting statements.

“In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the company and the nature of its business with regard to purchase of fixed assets and sale of goods and services," the auditors said. “However, the internal controls with respect to purchase of goods needs strengthening to be commensurate with the size of the company and nature of its business. In our opinion, this is a continuing failure to correct a major weakness in the internal control system."

Flipkart India’s directors said in the annual report that the company “is in the process of making considerable investments in technology in order to have proper processes and financial internal controls".

A Flipkart spokesperson declined to comment.

“We’ve seen this often. When a company is seeing a major spurt of growth in turnover and business, sometimes the internal controls don’t keep up with that growth," said Harinderjit Singh, partner, PricewaterhouseCoopers India, an audit firm. “There is a time lag, but sooner or later, companies generally manage to improve their internal controls. So this is not an abnormal scenario."

Flipkart’s investors include MIH India, a part of South African media company Naspers group, Accel Partners, Iconiq Capital Llc and Tiger Global—firms that are backed by foreign money.

As India has banned foreign direct investment (FDI) in online retail, Flipkart, along with most other e-commerce firms, have created a complex holding structure. Flipkart India Pvt. Ltd—owned by Flipkart Pvt. Ltd, Singapore—is just one of the businesses of Flipkart. The others include its technology platform (on which it allows other retailers to sell), and its digital payment businesses.

Flipkart India sold its technology platform and related intellectual properties to another entity called Flipkart Internet Pvt. Ltd for an “agreed consideration" effective on 31 December 2012, the company said in its latest annual report. The value of the sale of business to Flipkart Internet was ₹ 94.15 crore, it said.

Flipkart is being investigated by India’s regulators for a possible breach of FDI regulations. Flipkart India acknowledged in the annual report that it had received letters from authorities seeking information related to its funding.

“The company has provided all the information requested by authorities from time to time. The company is confident that they are in compliance with applicable regulations and no material liability should arise in respect of aforesaid matters," it said in the report.

With its financial firepower and aggressive expansion into categories such as apparel, accessories and toys, Flipkart, which started out as an online book seller, is likely to become the leader in online sales in India, analysts say.

The company changed its business model in February, moving from online retail to the marketplace model, in which third parties use its platform to sell products to shoppers.

Companies following the marketplace model get access to overseas funds, and it allows e-commerce companies to save on inventory-related costs as the products are held by third parties.

Flipkart was on course to beat its target of generating $1 billion in gross merchandise value, or the total value of products sold on the site, by 2015, chief executive Sachin Bansal said in an interview in October.

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