One of the common traits of Indian startups has been their loss-making tendencies. Hence, when a company gets breakeven or achieves profitability on scale, there is a special interest to know how it achieved the feat. This is mainly because profitability is always hard and long-way for even the biggest brands of Indian startups, like Flipkart, Ola and OYO.
In the furniture rental industry, Urban Ladder has created the wave of profitability becoming one of the first few startups to join the club in the financial year ending March 31, 2019. The Bengaluru-headquartered company had announced a shift in its business model from online retail to a furniture brand in July 2017. Since then, it claims to have greatly improved its business economics and accelerated its growth.
Urban Ladder Home Decor Solutions Private Ltd-owned online platform for home furnishings, Urban Ladder, in FY19, said that it has earned revenues of INR 434 Cr — a 1.87X growth as compared to last year. With the strong growth in revenue, the company has narrowed down its expenses by 64% and has hence turned losses of INR 118.66 Cr of FY18 into profits of INR 49.4 Cr in FY19.
The journey has been a long one, as the company had been focusing on becoming more robust and self-sustaining while it continues to grow the business over the last few years. At the time of firing of around 60 employees in February 2019, an Urban Ladder spokesperson emphasised that the pursuit for profitable growth will be relentless and continuous.
Urban Ladder offers over 3000 products across 35 categories to more than 90 cities in India, with offline stores in Bengaluru and Delhi-NCR. The company has raised $112.8 Mn from investors such as Kalaari Capital, Steadview Capital, Trifecta Capital etc.
Identifying The Surge Of Revenue In FY19
Even though it is interesting to note that Urban Ladder has turned in profits, one of the bigger feat here is generating the profits through revenues. Urban Ladder in its filings has explained that it derives revenues primarily from sale of traded goods and related services.
This is further narrowed down to revenue from contracts with customers. The company said that “revenue is recognized on satisfaction of performance obligation upon transfer of control of promised products or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those products or services.”
Hence, the company’s operational revenue, which has grown 2.08X, has reached INR 298.17 Cr from INR 96.64 Cr in the previous year.
Narrowing Down Expenses: Did Layoffs Lay The Path To Profitability?
In February, reports surfaced that Urban Ladder has laid off about 90 employees to cut back its losses, which may increase as the days progress. At that time, it employed 800 people. However, the company spokesperson clarified that there were 60 employees who were laid off as the company is restructuring its business to become leaner and improve its business economics.
However, when we zoomed into the company’s expenses, the employee benefit expenses narrowed down by merely 3% in FY19. The company spent INR 53.66 Cr on employee benefits in FY18, which came down to INR 51.98 Cr in FY19. Hence, the real impact of these layoffs, which continued till June 2019, will be seen majorly for FY20.
To further understand how and where the company has cut down on its expenses, we examined other major expenses for the year. One of the biggest increases for Urban Ladder expenditure came for purchase of inventory, which increased 1.79X reaching INR 207.19 Cr in FY19, as against INR 74.19 Cr in the year before.
Further, the company has shown depreciation costs of INR 5.21 Cr for FY19, but since it is a non-cash expense, it doesn’t have much relevance for the company’s business.
One of the other cut downs came into information technology. Urban Ladder has narrowed down IT expenses to INR 6.78 Cr from INR 8.97 Cr in FY18. Further, interestingly, the company’s advertising expenses have decreased by 20% reaching INR 37.65 Cr from INR 47.54 Cr in FY18.
The cut down on major expenses, which were seen as a burden as well as a key driver for the growth of businesses has an interesting story behind. We have reached out to Urban Ladder to understand how the company surged its revenues while cutting major expenses. The story will be updated as and when the reply comes.
Further, with layoffs and exit of cofounder Rajiv Srivatsa, FY20 will be an year to look out for Urban Ladder and see if it sticks around the profit club.
Correction: November 25, 2019| 12:27 PM
The original version of this article was titled ‘[What The Financials] From Loss Journey To A Profitable Biz, Urban Ladder Is Rewriting Furniture Rental Industry’. We have updated the headline to more accurately depict the facts of the report. We apologise for the mistake.