Bigbasket re-evaluates fundraising plan as demand and profit rise

The start-up in Jan had appointed Morgan Stanley and Goldman Sachs to assist it in raising $150 mn by July

Online grocery firm Bigbasket is having a relook at its earlier plan to go for a funding round in July because of the changed business environment. The company, which has started generating profits, is also seeing a huge spike in demand after the relaxation of the lockdown.

The Bengaluru-based firm in January had appointed Morgan Stanley and Goldman Sachs to assist it in raising $150 million in a funding round towards June-July. 

While these bankers had initiated talks with perspective investors, the grocer is in two minds whether it actually needs to go for such a large funding round now, Hari Menon, co-founder and chief executive officer of Bigbasket, told Business Standard.

“We planned for the fundraising in January, much before the outbreak of the Covid-19 pandemic. Based on that we raised a $60 million in April, which was mostly led by Alibaba, ahead of the proposed larger rounds in June-July. However, we are now relooking at the whole thing because we are generating money at the ‘contribution margin’ level and the business is also growing much faster than before,” said Menon. “We are now figuring out whether we should go for a funding round at all and how much should we raise,” he added.

The online grocery platform has already become positive at ‘contribution margin’ level, which means all its expenses, except for staff salary at its corporate headquarters, office rent, customer support and above the line advertising, are taken care of through internal cash. 

 

 

“When we say contribution margin positive, it means we are able to support all the fixed and variable costs across 26 regions we operate in, including the selling expenses, warehouse and last mile expenses, and all the below the line marketing, including vouchers, discounts.”

After the initial hiccups during the lockdown period, Bigbasket is now seeing unprecedented surge in business. According to Menon, the company in May clocked Rs 650 crore in gross sales, growth of 20 per cent over the previous month while the month-on-month growth for the previous two months — March and April — were much higher at 35 per cent each. “20 per cent month-on-month growth is good. Even if we continue to grow even at half that rate in the coming months, we will cross the $1 billion sales (GMV) mark,” Menon said.

The grocery firm delivers 350,000 orders daily, as compared to around 220,000 it was executing during the pre-Covid time.

According to Menon, this kind of growth is easily sustainable for a couple of reasons. 
 

First, while more people are coming online on month-on-month basis, the company is also seeing a strong retention rate, as most of them are staying back on the platform. Second, despite the spike in orders, several cities, including Mumbai, Chennai, Pune, and Kolkata are still underserved owing to local restrictions to contain the pandemic. 

“In these four cities, we are operating at 50-60 per cent level of our potential, which means that there is immense room for growth and to sustain it.” Also, in terms of selections, the company offers 18,000-20,000 stock keeping units (SKUs) on its platform, as compared to 35,000 in pre-Covid times. During the initial phases of lockdown, the company had brought it down to 3,000 SKUs as only essential items were sold during that time.

“So, especially in a situation when you are generating money, you need to think harder if you really require fresh funding as it also means you are diluting your equity,” Menon said.
 

The company, he said, would take a final call on the funding plans in the next couple of weeks.

Regarding the role of Alibaba, if Bigbasket goes for a fresh round given recent regulatory hurdles, the firm said that it would evaluate the situation. “If Alibaba decides to participate we will have to evaluate the situation. We have to follow the norms set by the government. Until now, Alibaba has participated in every round we raised,” Menon said.

While the company has taken a conscious decision not to enter into any new city/market for now, it would require investing only on expanding its presence in existing cities. 
 

That would require setting up new dark stores (smaller warehouses from where things are picked up for delivery). The company currently operates 54 such stores.

“Actually, we are still scratching the surface in the existing 26 cities. Online is just 1 per cent of the whole grocery business. So, we have huge opportunities in these existing cities,” Menon said.