3 friends set on a new path of building Udaan into a global public company

India's largest business-to-business e-commerce platform said it has achieved positive unit economics and gearing up for an IPO

Nine months ago, three friends Amod Malviya, Sujeet Kumar, and Vaibhav Gupta, who founded Udaan in 2016, again reached a turning point, where they had to make a critical decision for the firm. The company had already become India’s largest business-to-business e-commerce platform amid coronavirus pandemic. The former top Flipkart executives had an intense discussion about how to achieve their next audacious goal of turning Udaan into a publicly listed entity in 18-24 months and become a large global public company. It was then the three co-founders came up with a strategy of having a sharp focus on positive unit economics and behaving like a ‘publicly listed company’ by tracking ‘quarter-on-quarter’ performance.

“We are feeling good about the changes that we made. We are feeling that it was the right call and it has made us stronger. It is a muscle that we are building in the company, and which is needed for a successful IPO,” said Vaibhav Gupta, co-founder and CEO of Udaan, in an interview. “From the last three quarters, we have improved not just our unit economics but also profitability and have a very strong handle over our cash flow through these times.”

Positive unit economics cover all the direct variable costs associated with servicing an order, according to the experts. Over the last year, Udaan said it has improved its unit economics by a total of over 1000bps (basis points) with equally strong improvements in both gross margins as well as operating cost. 

The firm said that the gross margin percentage has gone up 2.5X year-on-year (y-o-y). It said the company’s revenue is now at about Rs 10,000 crore for FY22, a 1.6X increase compared with that of FY21. Also, the firm said the implementation of right business design and unit economics, has helped the company bring down the cash burn by about 45 per cent y-o-y. 

“The design choice on how you want to go ahead as an organization is the key,” said Aditya Pande, chief financial officer, Udaan. “The quarter-on-quarter execution allows you predictability. It puts the organisation on a firmer footing not only for IPO but beyond that as well.”
 

For instance, the first phase of Udaan (2017- mid2021) was largely about driving accelerated market adoption and early scale-up. In the second phase, over the last three quarters, Udaan dedicated its energy in solving unit economics at scale by adopting a design-first approach. This includes doubling down on core customers and the right buyer mix for Kirana e-commerce.

There is margin unlock through backward integration like sourcing and value-added services like lending and advertising. Udaan also designed supply chain architecture and logistics natively for b2b (business to business) trade and Kirana e-commerce. The company said it provides the largest small ticket shopkeeper lending at the lowest collection cost.

Udaan achieved a valuation of $3.1 billion during its last round of funding of $280 million in January 2021 from existing and new investors. In April, this year Microsoft, one of the world’s biggest technology companies, joined the convertible note funding round of Udaan, which was launched in October 2021 and has now reached $275 million via convertible note and debt. According to industry sources, the valuation of this round of the fundraise will be derived at a future date either at the time of the IPO or during the pre-IPO rounds of funding.

Udaan co-founders Malviya, Kumar, and Gupta, who are all engineers from the country’s top Indian Institute of Technology (IITs), hail from small towns in the states of Uttar Pradesh and Bihar, where, growing up, they didn’t have access to supermarkets, and had to travel to the nearest big city large purchases. The trio, who became friends at Flipkart founded Udaan with the aim to help small businesses, especially in the tier-III cities and rural India, improve their sourcing and earnings.

Now Udaan is tapping a huge opportunity. Business-to-business e-commerce players including Udaan are expected to disrupt $1 trillion consumer retail market in India, according to Bernstein, the US-based research powerhouse. The startup is competing with e-commerce giants such as Amazon, Flipkart and Reliance’s JioMart which are also betting big to tap B2B e-commerce, especially in Bharat (tier 2 and tier 3 cities and rural India).

Udaan now has a network of over 3 million registered users about 30,000 sellers across over 900 cities in the country covering more than 12,000 pin codes. The platform has over 2 million retailers, chemists, kirana shops, HoReCa, farmers, etc. doing over 5 million transactions per month. The company operates one of the largest logistics networks with over 200 warehouses spread over 10 mn sq ft space across the country delivering over 8000 tons of products everyday.