Shipway Technology Pvt. Ltd. (UNIECOM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Unicommerce eSolutions Limited Business Update Call to discuss the acquisition of Shipway Technology Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kapil Makhija, Managing Director and CEO of Unicommerce eSolutions Limited. Thank you, and over to you sir.

Thank you, Neha. Hello, and good morning, everyone. It's a pleasure to meet with you all, and I would like to thank everyone for joining the call to discuss our acquisition of Shipway Technology Private Limited, a Software as a Service or a SaaS company dedicated to e-commerce enablement, much like Unicommerce. I am pleased to be joined today by Anurag Mittal, our CFO; and our Investor Relations advisory firm SGA. Before we discuss the specifics, I wanted to share the context behind the proposed transaction. In our market outreach for our platform, UniShip, several clients expressed an interest in courier aggregation capabilities, leading us to explore acquisitions in this space. E-commerce businesses today face several challenges managing logistics in a fast-paced market. It becomes difficult for them to show real-time visibility of shipments to end customers while managing multiple couriers and optimizing shipping costs and delivery times. It becomes a nearly impossible task to handle operations manually even at a modest scale. Manual processes, particularly for managing frequent disputes, rate discrepancies, nondeliveries and COD reconciliation with multiple couriers add significant operational burden and limited scalability. This is where courier aggregation as a SaaS product becomes valuable by providing plug-and-play integration to many courier providers and enables an e-commerce business to provide a seamless delivery experience to its end customers. We believe that the courier aggregation product is highly complementary to our existing offerings. In an e-commerce business, logistics costs are one of the largest expenditures on the P&L as a core part of the experience for the end customer. This presents a sizable revenue potential as well as an opportunity for a healthy gross margin in absolute terms for players in this industry. Let me now give you a full overview of Shipway. Shipway Technology Private Limited, founded in 2015 by Gaurav Gupta and Vikas Garg, is an e-commerce enablement SaaS company with software products across both the pre- and post-purchase journey. It offers 3 SaaS products across 2 platforms, Shipway and ConvertWay. Focusing first on the Shipway platform, it provides 2 key SaaS products. Courier aggregation and shipping automation. Its primary offering is a feature-rich courier aggregation product with a user-friendly interface that contributed to 84% of revenue from its operations in FY '24. The SaaS platform helps businesses automate shipping processes, manage multiple courier partners and track deliveries efficiently. Shipway's technology platform facilitates shipments to over 29,000 pin codes and is a well-regarded name in the industry, integrating with all prominent courier and order channels. Key features include order imports from various sources, automated allocation of couriers, delivery tracking and value-added features like return to original RTO reduction, cash on delivery or COD verification and early COD disbursement. The revenue model for this SaaS product operates on a per shipment basis with pricing varying based on the selected courier shipping mode, shipment location and destination location. While we haven't initiated an external research study, our internal estimates set the revenue potential for courier aggregation alone at INR 3,800 crores to INR 4,300 crores annually, driven by the growth of direct-to-consumer or D2C e-commerce. Although the percentage-wise gross margin for this product is lower than that of Unicommerce's core business, a much higher revenue per transaction significantly enhances the gross margin potential in absolute terms and makes this business an attractive proposition for us. On the other hand, some larger e-commerce businesses prefer maintaining direct relationships with couriers, but may lack the technology for seamless operations across multiple couriers. This is where Shipway platform's second product, shipping automation comes into play. It allows clients to use only the technology layer of the courier aggregation platform to automate operations while retaining complete in-house control. The platform also offers features such as branded tracking pages, notifications, returns and exchange management along with order review or feedback. This app product operates on a usage-linked subscription revenue model with various plans tailored to client needs. Similar to Unicommerce, these clients come with a transaction allowance and as transactions increase, clients incur incremental charges. As client transaction volumes grow, the revenue of this SaaS product grows as well. Now please allow me to share some background on the ConvertWay platform. The ConvertWay platform positions us within the prepurchase or the customer engagement layer of the e-commerce ecosystem. Although ConvertWay is still early stage, we are optimistic about its potential to unlock new opportunities for supporting e-commerce sellers and brands, strengthening our role as a one-stop e-commerce enablement provider. ConvertWay is a customer data and marketing automation SaaS product with AI-enabled features specializing in WhatsApp and SMS. It helps e-commerce businesses grow subscriber list, set up event-based messages like abandoned card reminders and run targeted campaigns to boost conversion. Recently, we added prepurchase chatbots to drive sales and postpurchase chatbots for customer support, enhancing subscriber growth, conversion and retention. The revenue model for ConvertWay is also usage-linked subscription based with multiple plans for different e-commerce needs. Usage for SMS and WhatsApp are charged separately to clients and hence, the revenues for ConvertWay are closely linked with the increase in the usage of the SaaS platform over time by clients. Coming to the financial performance of the company as per audited financials, revenue from operations rose from INR 49.9 million in FY '22 to INR 101.7 million in FY '23, reflecting a year-on-year growth of 103.8% and further to INR 425.6 million in FY '24, a growth of 318.5% year-on-year. The business has an annualized revenue run rate of INR 550 million to INR 600 million as of September 2024. Gross margin for the company stands at approximately 20%, with courier aggregation contributing around 85% of the total revenue in FY '24. Courier aggregation will remain a primary revenue contributor going forward as well. The company incurred a loss after tax of INR 21.9 million or 43.9% of revenue in FY '22, INR 42.8 million or 42.1% of revenue in FY '23 and reduced this to INR 22.3 million or 5.2% of revenue in FY '24. The loss in the company is steadily reducing over the years, and our objective post transaction is to reach a breakeven point quickly, primarily through accelerated sales growth and realizing synergies across both direct and indirect costs. Shipway currently serves a diverse client base of approximately 3,000 businesses, which include prominent brands such as Durex, Lenskart, Juicy Chemistry, Remo, Dot & Key, Amante, Libas, [indiscernible] and Sennheiser to name a few. When combined with Unicommerce's existing network of over 3,550 clients, we will serve a robust selective customer base of around 6,500-plus e-commerce businesses. This expanded client base offers significant potential for cross-selling and growth opportunities, allowing both companies to leverage complementary strengths and achieve efficiencies. Under the terms of the transaction, Unicommerce intends to acquire an initial approximately 43% equity stake in Shipway Technologies through a cash consideration of INR 684 million, and the entity will become a subsidiary of Unicommerce. We believe that the deal is at an attractive valuation and following this, Unicommerce intends to acquire the remaining stake through a noncash transaction either by a merger or a stock swap executed through a preferential issue of equity shares. Shipway offers a strong strategic fit for Unicommerce with complementary SaaS products across both the pre- and post-purchase e-commerce journey and helps us straddle the entire e-commerce value chain across all the 3 layers: customer engagement layer, transaction processing layer and order fulfillment layer. This transaction significantly strengthens Unicommerce's product portfolio and is in line with our vision to become a one-stop shop for e-commerce enablement. As we emphasized in our last earnings call, the long-term outlook for the Indian e-commerce market is promising, and we remain confident in Unicommerce's strong growth trajectory. Our vision is to provide e-commerce sellers with a comprehensive suite of software products under a single umbrella, enabling us to continue achieving a robust growth rate. With this acquisition, we anticipate maintaining our momentum well into the future. We'll now open the floor for Q&A.

[Operator Instructions] The first question is from the line of [ Rajvi ] Shah from [ Bright ] Securities.

I have two questions. Is the acquired business in some way similar to our existing new business lines? And the second question is, will the existing team of Shipway continue to work with us?

I couldn't follow the first question. Could you please repeat that?

Yes, sure. Is the acquired business in the same way similar to our existing new business lines?

So today the core products that we have -- the offerings of Shipway are fairly complementary to that. The core products that we have, which is order management, inventory management and warehouse management are all in the transaction processing layer, while the offerings of Shipway help us expand into the order fulfillment layer through the courier aggregation and shipping automation product as well as through the customer engagement layer through the ConvertWay product. So the offerings are fairly complementary. There is some overlap with the new offering that we had launched UniShip, but we are in the early stages of assessment on figuring out the overlap. UniShip was our endeavor to expand into the order fulfillment layer with Shipway's shipping automation and courier aggregation product. We are getting a significantly enhanced offering and UniShip did not even have courier aggregation capability, which is nearly 85% of the revenues of Shipway. So in a way, the capabilities of Shipway are fairly complementary to what Unicommerce has, both with the core products as well as the new offerings that we launched. And on the second question that you had about the teams working together. So the idea is to derive synergies. We have a comprehensive customer base on the mid-market and enterprise segment. So we want to drive the cross-sell synergies to be able to sell these complementary offerings to our customer base as well as sell Unicommerce's core offerings to the Shipway's customer base. And we'll figure out some synergies on the direct and indirect cost, but Shipway will continue to operate as an independent company, and we will try to figure out whatever synergies possible for betterment of the combined entity.

[Operator Instructions] We'll take the next question from the line of Sumeet Jain from CLSA.

Interesting acquisition, Kapil. I just wanted to understand, I mean, why going for such a big acquisition rather than building these products internally over, let's say, a 2- to 3-year period? Just want to understand the rationale for this quick growth in the next 1 to 2 years.

Sure. Sumeet, the idea is that as we have described multiple times that our vision is to become a one-stop shop for e-commerce enablement. The choices are always for [indiscernible] out the capabilities that help us become a one-stop shop is to either build those in-house or to do the acquisition. M&A was always a part of our strategy. And I think with the Shipway's ready products on the courier aggregation and the shipping automation along with ConvertWay gives us sufficient solutions to become a one-stop shop. So the idea is to -- because the products are readily available and have very complementary capabilities, it helps us simplify the e-commerce ecosystem because increasingly, as you mentioned before, brands in the ecosystem are looking for all the software solutions under single umbrella. Since these solution are readily available, we thought it was prudent to offer this to the entire ecosystem. And instead of waiting out for a long time to build this organically, we thought that this was a strategic fit to be able to offer a one-stop shop solution for the entire e-commerce ecosystem.

Got it. That's helpful. And just want to understand, I mean, it's a pretty big acquisition you are undergoing. And typically, we have seen for a services or a software business, the integration challenges are quite significant, particularly in the initial 2- to 3-year period. And I don't think you that guys are paying any earn-outs depending on the -- any milestones to be achieved over the next 2 to 3 years by this entity. So how are you ensuring this cultural integration aspect, especially where the acquired entity is loss-making consistently for the last 3 years.

Sure. I think -- first thing is the products are fairly complementary. So I think there are a lot of synergies for us to be able to cross-sell these products to our customer base and vice versa to be able to cross-sell some of our products to Shipway's customer base. We've already put an integration plan in place to ensure that we are able to drive these synergies effectively for both the organizations. The focus will be on accelerating sales. As I mentioned before, the idea of [indiscernible] the acquisition is to ensure that we are able to accelerate the time to market with the solutions that we have and help simplify the ecosystem. So I think on both the sides, both the founders of Shipway and us, are equally excited about the combined entity's potential to the entire ecosystem. And that's why there's a thoughtful integration plan that's already in place, and we will be executing that to ensure that we are able to derive the synergies quickly in terms of accelerating sales growth as well as driving synergies on both the direct and the indirect costs.

Got it. And can you briefly tell me, remind me, I mean, I think you mentioned about that during your initial prepared remarks, how many clients are actually common to both Unicommerce and Shipway.

So this is, Sumeet, a very initial phase for us. So I think complete assessment will take time on this in terms of the overlap. But we'll be updating the investor community on this in due course of time. But right now, I think our initial assessment suggests that the overlap is fairly low, but a detailed assessment, we can present in subsequent calls.

Got it. And will it actually lead to acceleration in your organic growth as well because of the upsell, cross-sell opportunity given that you are mentioning that this product is complementary to your existing offerings. So can you just highlight how your existing TAM increases because of this acquisition.

So let me address the first part. So given that now we have a wider set of offerings to offer to the ecosystem, I think it will help accelerate both the organic growth as well for both the organizations because if stand-alone, they are solving part of the problem. But together, we are solving an entire problem set for the brands and brands will prefer to have everything under a single umbrella. Sorry, what was the second part of the question? On the TAM, I mentioned earlier, that the courier aggregation alone has a market size -- well, this is our internal estimate. We haven't done an external study. As per our estimates, the market size for courier aggregation alone is about INR 3,800 crores to INR 4,300 crores annually. And it's growing even further given the growth of the direct-to-consumer e-commerce. And plus, we've got a shipping automation as well as a market solution that will further add to the market. And hence, we feel that it is a large enough opportunity that's available and it can add a meaningful value to both the organization and to the entire ecosystem.

So the TAM you mentioned for courier aggregation around INR 4,000 crores at the midpoint. What will be the TAM for the shipping automation since this entity is into both the things.

See the shipping automation is similar to the TAM that we had mentioned for the order fulfillment layer, which was about [ $420 million ], which was for both for [indiscernible] and for order fulfillment layer, which includes shipping automation, reconciliation, et cetera. Plus marketing -- I think this is initial phase for us. We'll come back with the detailed assessment, but it will be on top of the INR 4,000 -- near about INR 4,000 crores of TAM that we mentioned about courier aggregation.

Got it. And last two questions. One is, I mean, how are you enabling to retain the top management because certainly we have seen after such kind of acquisitions, in 1 to 2 years, there are chances for the previous management to leave. So how are you retaining them? And secondly, how will you be funding this transaction?

So on the funding of the transaction, we are funding this through our internal accruals. In terms of motivating the management, I think the vision of both the management teams, like, the founders of Shipway and us are fully aligned to become a one-stop shop of e-commerce enablement. And they fully believe this overall vision, and that's one of the reasons that they have joined hands with us to ensure that we are able to offer a meaningful value to the ecosystem. Like I said, if we are stand-alone, we are solving a part of the problem for the brands. But as we join hands, we are able to solve an end-to-end problem for the brands. And I think the founders of Shipway are fully committed to this vision and want to achieve greater heights together, which we feel that as we take this end-to-end offering to the ecosystem, I think it will simplify a lot of things for e-commerce brands and sellers.

[Operator Instructions] The next question is from the line of Shankar Narayanan S from ithought Financial Consulting.

Can you repeat the financials of the new company?

Sure. So in terms of the revenue growth, the business has seen 318.5% revenue growth from INR 101.7 million in FY '23 to INR 425.6 million in FY '24. The business currently has an annualized revenue run rate of INR 550 million to INR 600 million as of September 2024. Gross margin for the company stands at approximately 20%, with courier aggregation contributing around 85% of the total revenue in FY '24. In terms of the losses, company has improved the losses from INR 42.8 million in FY '23 to INR 22.3 million in FY '24, which is approximately 5.2% of the revenue. Hope that helps.

The next question is from the line of Sonal from Prescient Capital.

So I just wanted to understand the competitive landscape for Shipway. That's the first question because I see [indiscernible], I think, logistics and there are a whole host of other, I think, courier providers for which you have also provided your tech integration guidelines. So is this a disaggregated market? If you could explain who is the largest player? That's the first part of the question [indiscernible].

So in terms of the competitive landscape, we wouldn't have [indiscernible] the business strategy. But our vision is to become a one-stop shop for e-commerce enablement. And with the combined Unicommerce and Shipway entity, brands will be able to get a comprehensive post-purchase solution to get all solutions under an umbrella. And with the ConvertWay product, while it is new, there is an opportunity for it to be able to cater to the prepurchase needs of the e-commerce sellers as well. So in terms of -- the combined entity becomes a very comprehensive solution for e-commerce enablement. In particular, in courier aggregation space, we believe that there is a large opportunity and we'll be able to achieve a large scale through our existing customer base and through our synergies. Hope that helps.

I just [indiscernible] wanted to understand what was the reason that Shipway basically helps open because the second part of the question -- because I see Shipway already integrated with your platform. As I said, there are a whole host of other courier providers who are already integrated. So there is a fair bit of integration, I'm assuming that has happened in the past. What percentage of your clients who are using Shipway because there is a tech stack [indiscernible] for integration already doing website. That's one. And secondly, just wanted to understand them versus the other peers in the market, why are they better comparatively. These are two basic questions.

So as you rightly pointed out, we integrate with multiple courier partners, courier aggregators. And as I mentioned earlier on, we need to do a detailed assessment to understand the overlap. But prima facie, the overlap seems low because Shipway has largely been catering to the mid-market clients and our clients are largely in the mid-market and enterprise segment. The combined offering of Unicommerce with Shipway becomes a compelling offering for the brands because they are able to get an end-to-end e-commerce enablement solution, having everything under a single umbrella and having to work with different vendors and trying to integrate with them. And that way, we feel that the combined entity will be able to derive a lot of synergies across the multiple offerings and offer a one-stop shop solution for the entire brand ecosystem, both the existing as well as prospective customers for the combined entity.

[Operator Instructions] The next question is from the line of Ankur Pant from IIFL.

My first question is around the profitability of the assets that you are acquiring. Could you shed some light there, especially on the EBITDA margin front, provide some quantification around the synergies that you are seeing and what kind of a EBITDA margin that you can see as a combined entity? That's the first question. I'll proceed with the second question after this.

Let me answer this question starting explaining you about the numbers of our core business first. In quarter 2 FY '25, we have reported there about...

I'm sorry to interrupt, sir, we are not able to hear you.

So sorry.

Yes. Can you please repeat.

Yes, sure. So let me answer this question starting explaining the core numbers first. In our core Unicommerce business, in quarter 2 FY '25, we reported near about 21% of adjusted EBITDA margin, which is 322 basis points increase year-on-year from quarter 2 FY '24. Secondly in H1 FY '25, we reported around 18.7% of adjusted EBITDA margin. For the full year, we expect this kind of operating leverage to pay out, as in our core business, a large part of our cost is fixed. Accordingly, we will be able to grow our adjusted EBITDA margins for the FY '25 versus FY '24 in our core business. Coming on the acquired business, while FY '24 as per the statutory auditors' financials was approximately 5% loss. Our objective post transaction is to reach breakeven point quickly. But given -- it's very early to comment upon the full year numbers and would be difficult for us also to give any guidance on full year numbers at stand-alone and consol level. At this point in time, we'll give you some numbers in the quarter 3 earning call.

And the loss that you are mentioning, that is at the PAT level, right? So can you give me the EBITDA margin number?

Yes. That's almost similar actually.

Okay. That's similar. My second question is regarding the second tranche of investment. So what -- any thoughts on the valuations that you're thinking of on that front? Or any thoughts around that? How are you looking to price the asset for the second tranche?

So second tranche -- at this given point in time, would be difficult to confirm the number. We are expecting to complete the second tranche in a period of 12 months either through swap or merger of the acquiring entity.

And the valuation could be higher than or relatively similar to what you are planning [indiscernible].

The valuation would be almost in the similar range, but slightly higher.

Okay. And just a final question. 85% of your revenue is courier aggregation. I'm assuming that the remaining 15% is through automation and marketing segment is negligible at this point. Is that correct? And how do you see it in, say, 2 to 3 years down the line? What kind of a mix from that -- not exact, any approximation on that front given the growth rate [indiscernible]?

Yes. Courier aggregation, as pointed out, is nearly 85% of the revenue. The remaining is contributed by the other 2 solutions. We believe that the aggregation will continue to be a primary revenue contributor going forward as well. It will be difficult for us to share our revenue mix at this stage subsequently. I think it's initial phase for us. We are also trying to get a better handle on the business and understand the dynamics. But at this point, we can mention that the courier aggregation will continue to be a primary revenue contributor going forward as well.

The next question is from the line of [indiscernible].

So my question was regarding the courier aggregation business dynamics. Our stronghold is there in the transaction processing layer, and we've done a fantastic job, Kapil, over there. But if we look at the order fulfillment layer, within that, is it difficult to scale up the business? Is it harder to get economies of scale? If you could throw some texture in light of how the business is different vis-a-vis the transaction processing layer? And is it because of that, the different dynamics that Shipway not being able to be profitable? So if you could throw some color on that, that would be great.

Sure. There are 2 solutions or the 2 layers have very different problem statements. In the transaction processing layer, the problem statements rely around inventory management, managing different demand channels. And in the order fulfillment layer, it's about managing different couriers and the respective dynamism among the pricing, serviceability, et cetera. So the complexity of the problems on both legs is significant. And that's why today, there are stand-alone solutions that exist. And as I described that the gross margins in percentage terms, the margin profile is different, where the gross margin in percentage terms for courier aggregation is lower than that of the Unicommerce's core business. But if you look at the absolute cost and take a percentage of that in absolute terms of gross margin is significantly higher. I think the business today is [indiscernible] Shipway's business and with a minor loss. But as the scale increases, I think there are significant economies of scale in the business. And that's why we are confident that as we join hands, we will be able to drive these synergies in terms of accelerating sales growth as well as getting the synergies in terms of both the direct and indirect costs, and we look to accelerate the path to profitability. And we have seen the business itself has been on a path of reducing losses, where the losses have significantly come down if you compare FY '23 to FY '24, where we have closed the business -- Shipway has closed FY '24 with a very nominal loss. And with the synergies that we bring on the table by joining hands, we will be able to drive faster sales growth and be able to drive synergies on the cost, and that's why we'll be able to accelerate the path to breakeven even from here.

Okay. So also, I wanted to understand UniShip that we've introduced will be kind of stalled it? What are our plans when it comes to UniShip now that Shipway is going to be part of Unicommerce? Some thoughts over there?

Sure. So we are actually in a very initial stage with respect to the technology assessment of both the platforms. It will be a little early for us to reach to any conclusion either way, but we'll be able to update you in subsequent quarters once our detailed technological assessment is complete for both the platforms. There is an overlap in both the shipping automation and the UniShip platform. So we will be able to come back after the detailed assessment on the path forward with the UniShip.

Okay. And my last question is regarding the pricing since we offer a combined solution, let's say, whatever 6, 8 months down the line when everything is up to speed and we are through with that. Will the pricing increase given the kind of consolidation that we have? It kind of ties in with the competition as well. Are there any competitors that have a complete full stack solution end-to-end as you were talking about in the case of combined entity that Unicommerce plus Shipway will have. So some thoughts on that and [indiscernible].

Sure. So the combined entity creates a very unique offering where we have a very comprehensive end-to-end product suite to be able to enable simplification of e-commerce selling for all the brands. So today, there are point solutions that exist for different players. So there are point solutions -- in order fulfillment layers, there are point solutions in transaction processing there. With us joining hands, it becomes a comprehensive offering, being available under a single umbrella. And the pricing for the different products of Shipway vary for courier aggregation. It may depend, as I mentioned, on the selected courier, shipping mode, shipment location, destination location. And similarly on both UniShip and on Shipway -- shipping automation and on ConvertWay, the pricing could be a function. With the combined entity, we are hopeful that the price per transaction will continue to increase because as was our vision with the launch of UniShip [indiscernible] we are able to add revenue line on top of the same transaction or same shipment that's going out with the Shipway's product suite, which is shipping Shipway and ConvertWay [indiscernible] able to add revenue lines on top of the same shipment that's going out and hence, we'll be able to increase the realization per shipment as opposed to what we do stand-alone today.

So if I understood you right, 2 things, simplification will lead to better realization vis-a-vis it's going through entities as standalone. And secondly, there aren't any entities right now in the ecosystem that are combined like Shipway plus Unicommerce. Is that a fair conclusion?

Yes, that's a fair conclusion.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mr. Kapil Makhija for closing comments. Over to you, sir.

Sir. Thank you all for joining the call today. We hope we have provided a comprehensive overview of the transaction and addressed your questions. Should you have further queries or require clarification, please feel free to reach out to Strategic Growth Advisors, our Investor Relations adviser. Thank you and have a great day.

Thank you very much, sir. On behalf of Unicommerce eSolutions Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.