Dipanjan Basu, co-founder of early-stage venture capital firm Fireside Ventures, said, “I think there is a positive change in the overall shape of business thinking. Companies today are proactively looking to grow in a sustainable fashion, and this is happening across all stages.” He added that many companies are looking to get their unit economics right from the start, although they will continue to focus on growth.
Sustainable growth
Cloud kitchen startup Rebel foods, which saw its operating revenue rise 39% to ₹1,195 crore in FY23 after nearly doubling the previous year, saw a moderate increase to ₹1,420 crore in FY24. However, its net loss narrowed to ₹378 crore in FY24 from ₹657 crore in FY23.
Co-founder Ankush Grover told Mint, “We were able to significantly better Ebitda margins from higher SKSG (same kitchen sales growth) and improved margin profiles, and benefit from economies of scale.” He added that large food categories were addressed from a single piece of infrastructure, and that technology continued to be a strong enabler in terms of simplification and eliminating inefficiencies. In January, Mint exclusively reported on the company’s ambition to list on the public exchanges next year.
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Earlier this month, omnichannel beauty retailer Purplle posted a 43% increase in its revenue from operations to ₹680 crore while its loss nearly halved to ₹124 crore. This contrasts with its financials in FY23, when it saw nearly a 116% increase in operating revenue and a 13% wider loss from the previous year.
Purplle’s finance chief Vijit Anand told Mint, “We have focused on several key levers that have contributed to reducing burn and improving overall efficiency. Some of these initiatives are in the areas of order processing, logistics, warehousing and marketing. We’ve also achieved stability in manpower costs, which has played a crucial role in maintaining financial discipline.” The company has also been harnessing technology to streamline its operations. “These efforts, which began two years ago, are aimed at improving both the top and bottom lines, ensuring that operational leverage kicks in for sustainable growth,” Anand said.
Agritech startup Dehaat has clocked a steady 40-50% increase in revenue in recent years. It came in at ₹2,700 crore in FY24, with losses halving from the previous year. “Over the past two to three years we’ve added a lot of geographies such as Madhya Pradesh, Maharashtra, Haryana and Rajasthan on the input side and established our presence across multiple countries in exports,” co-founder Shashank Kumar told Mint. “Growth has been part of the trajectory for us, and we’re now reaping the benefits of scale across businesses, allowing us to significantly improve our bottom line.”
Eyeing IPOs
Other startups such as Inframarket, Oyo, Bigbasket and Swiggy also have been placing greater emphasis on profitability, their FY24 financials indicate. Some of these are expected to launch initial public offerings (IPOs) in the near term.
One of these is hospitality startup Oyo, which posted an operating revenue ₹5,389 crore in FY24, a 1.4% decline from the previous year. However, it recorded its first-ever full-year profit of ₹230 crore after posting a net loss of ₹1,286 crore the previous year. The company has consistently focused on reducing burn in recent years, albeit with slower revenue growth. While Oyo added about 5,000-6,000 hotels and vacation homes during the year, the two businesses need more time to achieve their full revenue potential, with growth expected to become evident going forward, a spokesperson for the company said.
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“Several startups that have gone public in recent times have been profitable. There is a general understanding that companies that are profitable are more highly valued so many of those that are looking to IPO in the near term are trying to replicate that,” Basu said.
Pandemic hype
Startups raised huge amounts of capital during the pandemic, clocked high burn rates, and saw revenues grow at 90-100%, which many investors said was unsustainable in the long run. Indian startups raised a combined $38.5 billion in 2021, but this fell to $25.8 billion in 2022 and $10.8 billion in 2023, according to data from Tracxn.
Only a few startups are able to attract funding in the current climate, with investors increasingly favouring only those that can deliver a healthy pace of growth between 30-50% with less burn, or with a clear path to profitability. However, early-stage startups are still expected to show a higher pace of growth so that investors can determine if the market they are addressing is large enough.
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“For several companies, we understand that the pandemic valuations were just unrealistic through any lens. This has resulted in multiple problems, including raising the next round of funding. However, it has been more than three years, and the markets have changed for the better,” he said.
Basu expects the current financial year (FY25) to be a continued period of growth for consumer-facing businesses. “In the second half of the year, startups will look to consolidate and establish leadership in their respective fields, which could potentially lead to more sustainable growth,” he said.
