vaibhav gupta: Udaan on track to hit positive unit economics in June quarter: CEO to staff

Bengaluru: Udaan chief executive Vaibhav Gupta told his staff in an internal note that the business-to-business (B2B) ecommerce firm hit a positive contribution margin in the last quarter of fiscal 2021 and was on track to become unit economics positive in the ongoing quarter ending June 30.

Gupta said Udaan’s cash burn had come down by around 40% in the first half of 2022. ET has reviewed the note, sent on Monday.

Gupta said Udaan had also reported contribution margin ‘level 2’ of profitability — it includes the cost of logistics and distribution — in the first quarter of last fiscal. It had achieved contribution margin ‘level 1’ in the last quarter of FY21, which included the cost of warehousing and manpower. Internally this is referred to as CM1.

“Over the last year we have improved our unit economics by a total of 1,000 bps (10 percentage points), with equally strong improvements in both gross margins as well as operating cost,” Gupta wrote in his email.

“…like the way we took on the goal of unit profitability and solved for it over the last 3 quarters with steady quarter-on-quarter (qoq) 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,” Gupta, who became the CEO of the company last year, wrote in the memo.

“It is good to talk about steady growth now that we have our house in order,” he added.

A spokesperson for Udaan declined to comment on Gupta’s note.

Udaan recently closed a $225 million debt financing through convertible notes and Microsoft is one of the investors,
ET reported on April 18. The company is
aiming to go public by May 2023.

In an interview with ET in February, Gupta had said the DST Global-backed startup had made “massive improvements” in its unit economics. But he did not give any specific details.

In his memo, Gupta said same-store growth would be critical and key for continuously strengthening its unit economics and continue to grow.

Pharma and fresh have emerged as its biggest categories now, aided by demand during the Covid-19 period. These two verticals are now 70% of Udaan’s total business, according to a person aware of the matter.

While Gupta’s note focused on Udaan’s performance in the previous quarters and its plans for the upcoming ones, he said the company’s cost of capital would increase, citing macroeconomic changes globally. “…we have to stay tight & be judicious about our capital spend,” he wrote.

“Companies across the world are revisiting what the current environment and macro crisis means for them. As of now capital markets volatility and uncertainty is fairly high, and outlook on return-to-macro-stability is varied, ranging from 12-36 months. Given our last three quarter journey, we are in a better position to handle and keep progressing towards our agenda through these challenging times,” Gupta wrote, adding that Udaan also would have to make the right adjustments or choices in its investment outlook and cost structures.

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