Urban ladder posts Rs 50 crore profit in FY19 but has a long way to go

In what could make for a major business realignment turnaround story of the year, online-cum-offline furniture retail platform Urban Ladder has posted a profit of Rs 50 crore for FY19. However, losses that the firm has stacked up over the years run into several hundreds of crores, which may take a long time to set off. 

As per RoC filings, the company’s revenue from operations has increased by 95.5%, from Rs 152.52 crore in 2018 to Rs 298.17 crore in FY19. Likewise, its non-operating incomes also increased 2.6x from Rs 52.21 crore in FY18 to Rs 135.8 crore in FY19, which included interest on deposits, rentals and gain on sale of investments.

For Urban Ladder, the rise in income has largely been due to change in its business model from being an online marketplace service provider and to commence operating as a retail seller of its own brand of furniture both online and offline in FY18. A hybrid sales model helped the company to cater to a larger audience and processed more sales orders in 2018-19.

This is reflected clearly in the income statement of the company as the cost of materials consumed rose by 66.42%, from Rs 124.5 crore in FY18 to Rs 207.2 crore in FY19. 

The furniture retailer has also attempted to control its expenses. Employee benefit expenditure reduced by 5%, transport cost diminished by 16.7% to Rs 52.5 crore and Rs 11.87 crore respectively during FY19.

Meanwhile, finance cost increased by 2.2 times, from Rs 2.21 crore in 2018 to Rs 4.86 crore and expenses incurred on the account of rebates, discounts and marketing promotions increased by 17.3%, to Rs 92 crore in FY19 from Rs 78.4 crore in FY18.

The overall total expenditure hiked by 33.85%, to Rs 381.5 crore in 2019 from Rs 285 crore in the previous year.

With the increasing scale, the company harnessed its resources on operations and divested heavily from financial assets and at the end of FY19 total current financial investments stood at Rs 20.33 crore as compared to Rs 66.7 in FY18.

On achieving profitability, the newly adopted hybrid model has paid off, which has a major contribution in posting a profit of Rs 50.22 crore in contrast to last year’s loss of Rs 117.33 crore.

Net cash outflow from operations also reduced by around  49% in FY19, amounting to Rs 54.6 crore, from Rs 107.21 crore in FY18.

Earlier in July, the furniture retailer had claimed to turn profitable at the EBITDA level.

That said, Urban Ladder has a long way to go. It will have to make up for the outstanding losses in its balance sheet which stood at Rs 846.87 crore at the end of last fiscal.

And due to these outstanding losses, total equity is negative Rs 822.13 crore. Of the total liabilities of around Rs 960 crore, 91.3% are attributable to outside borrowings of the company in contrast to assets of only Rs 136.8 crore.

As per its latest Balance Sheet, Urban Ladder is heavily leveraged and dependent on debt to function .It would likely need to raise fresh capital to maintain the functioning of operations and working capital needs as working capital is only Rs 8.04 crore as on 31 March 2019.

This development comes amidst Urban Ladder facing funding crunch and departure of its many senior executives in the past six months.

In October, Urban Ladder co-founder Rajiv Srivastav had quit from an active operational role in the company. In the same month, Vani Kola, one of the directors, also quit its board with immediate effect. This is after the resignation of Ajit Joshi, who resigned from President and COO roles in April.

The competition in the space has also intensified with the entry of Swedish giants like IKEA in the Indian market. Urban Ladder already faces competition from Pepperfry, which claims to become profitable by FY21 and is eyeing a public listing. 

In the last six months, Urban Ladder has seen a drastic downfall in transactional volume after cutting down several verticals and costs on marketing, promotion and discounts. The company's Bengaluru headquarters Meanwhile, the company has continued to invest in offline stores in cities including Chennai, Bengaluru, Pune and Delhi.

Urban Ladder has got backing from marquee investors such as counts Ratan Tata, Sequoia, Steadview Capital, SAIF Partners and Kalaari Capital. The seven-year-old firm has raised about $105 million in total funding till date.