Udaan Reduces Cash Burn; Focuses on High-Performing Categories, Micro-Cluster Strategy, ET Retail

New Delhi: Leading B2B e-commerce services provider Udaan has reduced its overall EBITDA losses by almost 33 per cent during the January-March quarter of 2024, Udaan co-founder and CEO Vaibhav Gupta informed ETRetail.

Gupta added that the company’s revenue grew by 43 percent quarter-on-quarter and contribution margin improved by 200 basis points during the quarter.

“Q1 was very good and we exceeded our expectations. Q2 is going well both in terms of dimensional growth and profitability. We have been on track for the last 2 years to drive growth and profitability. I think we are feeling good now with the machines.”

The comments come after Udaan focused on achieving profitability ahead of its planned IPO. In December last year, the company laid off 100-120 employees and restructured its business segments.

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With a focus on profitability, Udaan is focusing on high-profit categories such as FMCG and consumer goods, and has discontinued operations in some segments such as electronics and fashion.

Commenting on this, Gupta said, “There is a mix in our Grocery segment. In Pharma and Fresh categories, which currently account for around 20% in operating clusters (like Bengaluru), we are seeing a healthy month-on-month growth of 8-10%. Our primary focus is to drive efficiency and profitability while fully growing existing categories in each cluster before expanding into new ones.”

Interestingly, last year the company consolidated its discretionary and core businesses into one segment, which now includes FMCG, consumer discretionary, pharmaceuticals, consumer goods, lifestyle and electronics categories.

Further, to improve its margins, Udaan is working on a micro-cluster strategy under ‘Project Iota’. The company operates across 15 major clusters and is working on optimizing each geographic cluster separately to maximize profitability.

Responding to questions about scaling down operations in certain markets as part of a micro-cluster strategy, Gupta said, “The overall geographic rationalization or the strategic process of determining where to focus is more about investment, resource allocation and EBITDA decisions. By carefully selecting where to invest resources, our intention is to ensure that each cluster contributes effectively to the overall financial health and growth strategy of the company.”

Gupta further emphasised that in the coming years, Udaan’s private label brands will account for around 30 per cent of the overall business and will expand across all 15 major operational clusters.

“Our private labels have grown 5x. We see that store owners are willing to accept private labels, and private labels typically have a 2X gross margin. With multi-category brands and private labels, we’re able to increase our gross margin but also build stickiness with the consumer.”

Currently, private labels account for about 10 percent of turnover in Udaan’s early markets.

In FY23, the B2B e-commerce platform’s gross revenue declined 43.1% to Rs 5,629 crore from Rs 9,900 crore in FY22. Udaan’s losses narrowed nearly 34% to Rs 2,076 crore in FY23. The company also raised $340 million in Series E last year and is planning an IPO in 2025.

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