But that was another deliberate strategy Udaan’s founders picked up at Flipkart—fund aggressive growth through aggressive losses, in turn, funded via aggressive venture capital money raised at aggressive valuations. As Flipkart’s $20 billion acquisition by Walmart showed, it can sometimes work.
What does the logistics claim?
To be sure, Udaan started only in late 2016 and had not yet ventured into logistics. Acquiring customers without charging them anything meant Udaan’s top line was blank. Its income that year totaled Rs 1.69 crore ($244,000) of which Rs 1.63 crore ($235,000) came from interest on its bank deposits and the rest from again on the sale of some investments.
In 2017, Udaan began charging its users for logistics and credit services, for the first time making it apparent how the varied experiences of its founders fit together. Malviya had been Flipkart’s chief technology officer, while Kumar headed the e-retailer’s in-house vendor WS Retail and Gupta was vice president of finance and analytics. Logistics, finance, and technology were their respective domains.
The first move made by Udaan was around finance when in December 2016 it set up Hiveloop Capital Pvt Ltd to offer credit facilities to its customers. Then, in September 2017, it set up Hiveloop Logistics, and in a regulatory filing, said it was in the process of setting up its logistics network across India.
Between September and October 2017, two more units were incorporated. Hiveloop Apps to provide app-related solutions, and Hiveloop Internet to provide pan-Indian payment services.
Udaan declined to respond to multiple requests from The Ken for this story but a blog post by the company in April 2018 underscored the importance the company places on the potential of its credit business. “It would be interesting to see how the $300 billion SME lending market gets impacted through efforts such as ours. It’s a market that has not been meaningfully addressed yet and we certainly hope to make a large dent,” it read.
Pending since a long time
With an NBFC license pending, Udaan teamed up with DAR Credit & Capital, a non-banking financial company (NBFC) based in Kolkata, to provide credit to buyers and working capital to sellers. Regulatory filings show it loaned DAR Credit Rs 6.10 crore ($880,000) at an interest rate of 12% per annum for the year ended March 2018. DAR Credit refused to comment, saying it cannot disclose internal information on Udaan.
But Udaan’s partnership with DAR Credit appears to have been a trial balloon, as recent reports indicate it has finally been granted an independent NBFC license.
One of the beneficiaries of Udaan’s credit facility is Pramod Gupta, a wholesaler of kitchen supplies in Uttar Pradesh. Gupta has been on Udaan for about eight months and has used their credit services four times. When asked why he chose to borrow from Udaan, he said credit is available quickly and can be paid off interest-free in 30 days, after which a 10% interest rate is applicable.
The time for free lunches is over
Gupta claims to get daily orders worth Rs 40,000-50,000 ($580-720) through Udaan. He is not present on IndiaMART, saying it’s “too hi-fi” for him to use. Usually, these orders come directly through Udaan’s app, while Udaan representatives occasionally visit or call with additional orders.
In the past week, however, he noticed that Udaan has begun levying a service fee. He says that when he received his payment, 6% had been deducted from the final amount. Gupta, however, is planning to circumvent this by increasing his prices by 6% as well, and then if “we continue to get orders that are good, otherwise it’s God’s wish,” he laughs.
Even when a buyer orders on credit, a 3.75% commission is taken from sellers on those orders, a digital marketing executive for Pranera Textiles in Tamil Nadu’s textile hub of Tirupur said.
It isn’t clear yet how much money Udaan has made from its credit operations.
Meanwhile in 2018, Udaan’s logistics business—which has grown to 500 hubs in as many cities—also started to generate money. In 2018, 95.5% of its revenue came from its logistics business. Udaan charges buyers 1-2% as delivery fees, while sellers pay for warehousing when around 30-40% of their sales are driven by its platform. These charges, however, are not uniform and are undertaken on a case-by-case basis, like with Gupta.