The profitability of Indian unicorns — start-ups with a valuation of more than a billion dollar — remains a distant dream even as their numbers are on the rise.

A study by Hurun Report India shows that the top 10 unicorns of the country make up 78 per cent of the total value of Indian unicorns. Although behind the US, China and the UK, the number of unicorns is also on the rise with around six firms crossing the $1-billion threshold between March and August this year. However, the majority are yet to turn profitable.

A study by Inc42 shows that from a sample set of 30 Indian unicorns, around 70 per cent of them have negative EBITDA (earnings before interest, taxes, depreciation and amortisation) which means that they are losing money on a unit economic basis.

According to industry observers, factors both deliberate and external are behind the dichotomy between high valuation and low profits.

“Most companies don’t choose to be profitable as for them deploying capital to gain more market share and expand is a better use of the capital as in the longer term it helps them to achieve better unit economics of operations. The high valuation factors in the future potential of the business in terms of both profitability and scalability,” said Parthiv Neotia, director of Ambuja Neotia.

Anas Rahman Junaid, MD of Hurun Report India, said that most of the established start-ups in the country are focussed on increasing the revenue per customer even if it means burning existing capital. This is being achieved through a combination of new customer acquisition, adding more services to expand the offerings and managing pricing.

Despite losses, these firms are able to attract private equity and venture capital investors. “Private equity investments in start-ups are mostly based on higher valuations. However, actual profitability depends on ground realities and the execution of the projections and plans,” said Arindam Sarkar, partner, Khaitan and Co.