M&G Prudential, a UK savings and investment firm, is in talks to lead a new fundraising round of $80-100 million for Bengaluru-based B2B ecommerce platform Udaan, according to several people familiar with the matter.
The latest fundraising round, when completed, will increase the UK-based company's stake in Udaan from roughly 15% today, according to the persons named previously. M&G Prudential is the company's second-largest shareholder, following Lightspeed Venture Partners, which owns over 40%.
Udaan, which witnessed a 44% drop in valuation to about $1.8 billion last year, may see the latest round at the same flat valuation, according to the sources, who added that a term sheet has been signed and the deal details are being negotiated.
"The term sheet has been signed, and the round could reach $100 million, depending on whether any major new investors join. There are some conversations with some family offices as well", according to sources.
A term sheet is a non-binding proposal to invest in a firm following due diligence.
This will be Udaan's first big equity investment round since raising cash in 2021. The $340 million capital round in December 2023 was mostly achieved through the conversion of debt to equity. Over the last 7-8 quarters, the company has focused on reducing operating expenses and implementing its reorganized goals under Gupta.
According to sources, Udaan still owes over $100 million after restructuring its debt late last year, and the payment dates have been further postponed.
In order to reduce its burn in a market with tightened liquidity, Udaan has been reducing its operations. Gupta, who became CEO in 2021, founded the business in 2016 alongside Amod Malviya and Sujeet Kumar, who were coworkers at Flipkart. Malviya and Kumar have been gone from the company's activities for over two years, yet they still serve on the board.
According to a person with knowledge of the figures, Udaan's net merchandise value run-rate is significantly lower than it was previously, at about $600-700 million. Naturally, the company's scale has shrunk somewhat, but it has been improving on Ebitda margins. They are growing about 4-6% on a month-over-month basis.
In terms of the markets it serves, the company has now adopted a cluster approach and narrowed its focus to a few categories. It currently serves towns surrounding these large metropolitan clusters and its largest markets are Hyderabad and Bengaluru.
There is some growth in pharma and general merchandise, but the focus areas are primarily grocery, fresh, staples, FMCG, and dairy.
According to someone with knowledge of the funding discussions, "the objective is to turn Ebitda profitable and that's why this round is being raised to get there and strengthen the balance sheet."
The parent company of Udaan, Trustroot Internet, has its headquarters in Singapore. According to those familiar with the company's strategy, it seeks to shift its domicile to India in order to pursue an initial public offering (IPO). However, they stated that any public issue would not occur for at least two years.
The FY23 financial statements of Udaan in Singapore demonstrated the reduced operational scale. For the fiscal year that concluded in March 2023, it reported a 43% decrease in gross income, totaling Rs 5,629 crore, and a reduction in losses to Rs 2,075 crore from Rs 3,123 crore in FY22. The Singaporean authorities have not yet received the FY24 earnings.
