SUMMARY
In an internal mail to employees, Vaibhav Gupta said that Udaan has made ‘strong’ improvements in gross margins and operating costs
Udaan slashed its cash burn by more than 40% in the first half of 2022: CEO
However, Gupta also warned about market volatility and high inflation, and said that the startup is looking to tighten its purse strings
Business-to-business (B2B) ecommerce platform Udaan is on track to have positive unit economics by the end of June 2022 quarter, its CEO Vaibhav Gupta said in an email to the employees of the startup.
The email, seen by Inc42, said that Udaan has improved its unit economics by more than 1000 basis points (bps) over the last year. Besides, it said that the startup has made ‘strong’ improvements in gross margins and operating costs.
Gupta also said that Udaan slashed its cash burn by more than 40% in the first half of 2022. He attributed this to the startup’s active work on cost structures to create a sustainable business model.
“We started the unit economics journey almost 3 quarters ago and the transformational results are now in front of us! We achieved CM1 and CM2 profitability in Q4’21 and Q1’22 respectively, and are on track for our goal of CM3 in Jun’22,” Gupta said in the mail.
Contribution margin (CM) level 1 of profitability essentially refers to gross margin, while CM2 or level 2 includes logistics and payment gateway costs. CM3 refers to the cost of marketing, among other things.
“…like the way we took on the goal of unit profitability and solved for it over the last 3 quarters with steady QoQ (quarter-on-quarter) movement from CM1 -> CM2 -> CM3, we now have to build the muscle for the next challenge of driving and delivering steady + accretive 10% QoQ growth,” the mail said.
Founded in 2016 by Flipkart alumni Gupta, Sujeet Kumar and Amod Malviya, Udaan is an ecommerce platform designed to connect small and medium-sized businesses with manufacturers, wholesalers and retailers to sell goods.
In the mail, Gupta said Udaan’s visible and invisible wastage hovered around 200 bps and that it was working towards reducing it.
However, he also warned about the economic slowdown, market volatility and high inflation.
“…we will also have to make the right adjustments/choices in our investment outlook and cost structures given this materially different new forward looking reality,” Gupta said.
The startup is looking to tighten its purse strings amid global market volatility, high inflation and disruption in supply chain management, the CEO said. “What this means is that our cost of capital will increase and we have to stay tight & be judicious about our capital spend.”
The statement comes at a time when there are predictions of a looming recession and whispers of a ‘funding winter’ amid the Russia-Ukraine war. With a decline in funding, many startups have shelved their expansion plans, while a lot of them have also laid off their employees.
Udaan has raised $1.5 Bn in funding so far. In January last year, the ecommerce platform raised $280 Mn in funding from investors such as Octahedron Capital and Moonstone Capital. In January this year, Inc42 reported that the unicorn raised $250 Mn via debt and convertible notes.
The IPO-bound Udaan competes with the likes of IndiaMART, Flipkart Wholesale, among others.
According to a report by investment bank Jefferies, India’s B2B ecommerce market is estimated to scale to $100 Bn in size by 2032, growing at a compounded annual growth rate (CAGR) of 40%.
