Udaan’s growth stalls mid-flight, losses down 19% in FY24

B2B e-commerce platform Udaan has encountered challenges in scaling, with revenue remaining flat in FY24. The Bengaluru-based company also faced difficulties in raising equity capital, resulting in a valuation drop of over 59% to $1.3 billion from its peak of $3.2 billion. Even as revenues remained steady, Udaan reduced its losses by more than 19% in the last fiscal.

Udaan’s gross revenue (GMV) barely grew 1.7% to Rs 5,706.6 crore in the fiscal year ending March 2024 in contrast to Rs 5,609.3 crore booked in FY23, the company’s consolidated financial statements filed by its group company, Trustroot Internet in Singapore show. For context, Udaan’s GMV was significantly higher in FY22, standing at Rs 9,900 crore.

Udaan generates revenue through the sale of traded goods, platform fees, logistics services, credit services, and advertising. The firm also earns income from the sale of returned goods as scrap and from collection services related to credit transactions. It also charges processing fees for loan disbursal on Udaan Capital.

The sale of traded goods remains the largest revenue driver, forming 98.5% of the total GMV (gross merchandise value). Interest on loans and service fees are other major income contributors for the firm in FY24.

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Founded in 2016, Udaan is a B2B trade platform enabling supply chain and logistics operations, for small & medium businesses in India. It connects traders, wholesalers, retailers, and manufacturers via its platform. As per its website, Udaan operates with over 30 lakh retailers and 25k plus sellers across more than 900 cities.

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Moving over to the spending, the cost of materials is expectedly the largest cost element forming 75.3% of the total expenses. Somewhat worryingly,  despite flat revenues, the cost of materials managed to rise 4.2% to Rs 5,576.8 crore.

That meant a fiercer focus on other costs with the company successfully reducing expenses across several other areas: employee benefits decreased by 35.4%, logistics and packaging by 16.8%, outsourced manpower by 39.3%, and legal and professional expenses by 18.8%. 

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During the year, the company also made share-based payments (ESOP cost) worth Rs 307.1 crore. Udaan’s total expenses went down 4.4% to Rs 7,407.6 crore during FY24 from Rs 7,750.8 crore in FY23.

In the end, Udaan managed to control its losses by 19.4% to Rs 1,674.1 crore in FY24 as compared to Rs 2,075.9 crore in FY23. Its operating cash flows also improved by 28.8% to Rs -920.5 crore during the period.

The highlights of the improved bottom line can also be seen in the EBITDA margin which strengthened by 576 BPS to -37.13%. On a unit level, Udaan spent Rs 1.3 to earn a rupee of operating revenue in FY24.

Udaan's FY24 financials reflect a proactive approach by the directors and management to navigate financial challenges through strategic revenue growth and cost-cutting measures. The Directors’ Report emphasizes confidence in the company’s ability to maintain solvency.

Last week, Udaan secured Rs 300 crore (over $35 million) in debt funding from Lighthouse Canton, Stride Ventures, InnoVen Capital, and Trifecta Capital. The company has raised around $1.9 billion in debt and equity funding to date. Its valuation dropped by 59.3%, settling at $1.3 billion in December 2023, down from a peak valuation of $3.2 billion. 

Reducing losses without growth is hardly a recipe that will please investors, and underscores just how tough the B2B e-commerce category can be. Thin margins mean that investor-funded growth and scale are possible, but converting that to actual profitability is another ballgame, as many firms besides Udaan are also discovering. 

Udaan looks like another case where a fresh funding round is not a distant requirement anymore, which will pile on the pressure across the board. The sharp cost cutting has stopped short of making incisions into growth completely, but a stalled revenue number will not be what the firm wants. It is safe to say that the toughest decisions for this unicorn still lie ahead.