Logistics-tech unicorn BlackBuck’s revenue skids, cash burn rises. Can it drive its way back?

Eighteen months ago, logistics-tech startup BlackBuck said it raised $67 million in a Series E financing round that drove its valuation past the $1-billion threshold required to turn into a technology unicorn.

US-based venture capital firm Tribe Capital, International Finance Corporation’s Emerging Asia Fund and Sweden-listed investment firm Vostok Emerging Finance (VEF) led the round. Existing investors Wellington Management and Sands Capital also participated in the round.

This made BlackBuck, operated by Zinka Logistics Solutions Pvt. Ltd, India’s third logistics unicorn after SoftBank-backed Delhivery and Warburg Pincus-backed Rivigo. This was in the good old 2021, the year that witnessed peak year for startup funding that created several scores of unicorns.

Year 2022 started on a good note. Delhivery, which issued shares in its public offering last May at Rs 487 apiece had a short-lived celebration with its share price shooting up around 50% within weeks. In July, Delhivery commanded a market cap of around Rs 51,000 crore or around $6.5 billion then.

Then came the reality check as the growth and earnings picture deteriorated. Delhivery has seen its share price crumble below its IPO price and is currently valued at around Rs 22,000 crore.

As one of the largest logistics tech ventures in the country, BlackBuck and its investors would have high-fived when Delhivery was having a party but any plans to go public soon may have been put on the backburner.

Backstory and business model

BlackBuck was started in 2015 by IIT-Kharagpur alumni Rajesh Yabaji, Chanakya Hridaya and Ramasubramaniam B. The company claims it is India’s largest online trucking platform with lakhs of truckers and well over a million trucks on its platform.

It started its journey with an asset-light full-truckload model for long-haul trucking. At present, the company’s business operations can be broadly divided into freight and services/marketplace.

The freight segment follows an asset-light business model and operates only in long-haul, full truck-load, open-truck, standard-delivery and inter-city freight services. The company’s online platform, ‘Blackbuck’, acts as an interface between shippers and truckers as a marketplace, wherein it acts as an intermediary for any on-the-spot shipment a shipper is looking to place.

Prices are discovered through market participation with scores of truckers bidding for a shipment. By eliminating the middlemen, the company seeks to enable the truck driver to earn better realisations per tonne of shipment. Its services segment, meanwhile, also offers tracking (GPS) devices, Fastags and fuel cards to its customers.

BlackBuck’s Series E funding round in mid-2021 had come two years after the startup secured $150 million (about Rs 1,040 crore then) in its Series D round led by Goldman Sachs and venture capital firm Accel. IFC, B Capital, Sequoia Capital, and Sands Capital had also participated in the round. BlackBuck also counts Apoletto Asia, Flipkart and Tiger Global in its cap table.

So how has BlackBuck’s parent been performing?

The company’s liquidity position was boosted with the last funding round and remains strong. The firm also has moderate customer concentration risk as a reputed client profile, including names like Hindustan Unilever, Reliance Petrochemicals, Hindustan Zinc and Marico, among others mitigates counter-party credit risk to an extent.

This is largely true for the freight segment, which drives around three-fourth of its revenues. But this is expected to grow at a slow pace as the firm is now focusing more on the services segment.

On the flip side, the firm continues to bleed. What’s more the company is yet to demonstrate that it can reduce the losses.

In the year ended March 2022, the company’s revenues declined by a tenth to Rs 767.1 crore, in part due to the curtailment of certain lossmaking lanes in the freight segment. At the same time, the company’s operating losses rose as the company was ramping up its sales force for the acquisition of new customers and was incurring selling expenses in the services segment.

Operating losses as a percentage of income rose to over 35% from around 21% in the previous year.

In addition, debtor provisioning and significant employee benefit expenses in the form of stock options (concurrent with last round of equity raise) added to the losses in FY22.

In the first six months of the current fiscal too the company incurred operating losses. But the firm has devised a multi-pronged approach to reduce the cash burn, which includes focus on higher margin accretive services segment.

Meanwhile, the high competitive intensity limits pricing flexibility as the Indian logistics industry is fragmented with several logistics companies—mainly unorganised players and a few large market participants. Given the intense competition fuelled by sizable private equity investments in the sector, both existing players and newcomers face heavy pricing pressure. This tends to restrict the company’s ability to improve its gross margins.

The way ahead

How Blackbuck manages the costs while improving efficiencies remains a key factor to see it scale new heights and possibly join the public market in the near future.

The firm also faces high working capital intensity led by a long receivable cycle and the firm’s operating cash flows continue to remain strained due to its negative operating profits. But its liquidity position is supported by free cash and cash equivalents of over Rs 500 crore in FY22, mostly parked in liquid instruments. This would have reduced with the lack of fresh equity funding and continued operational losses but analysts expect it to reduce cash losses in the medium term.

The company did face a setback as its topline declined in FY22 and cash burn increased with operating losses as the firm invested more to boost its business. But with a reasonable balance sheet and strong financial investors backing it, BlackBuck’s parent has the right fuel to drive its way back while focusing on the higher margin business could lift it into the black and prepare it for the public market.