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(Long read) Meesho: A logistics giant masquerading as an e-commerce platform 🛒🚚 A lot of effort went into writing this - please RT if it adds value, will help my business grow! ♻️ One of India’s largest e-commerce businesses, Meesho is getting ready for listing later in the year. It has published a 667 page DRHP outlining its business - and we went through it to bring you cutting edge insights about the business. Part A: Bottom of pyramid consumption play? For ages the investing community has lamented about a lack of opportunities to play the bottom of pyramid growth. Options were limited to rural staples businesses or gold backed financiers with reach. But India’s BoP is consuming more than just staples - they are buying apparel, footwear, home & kitchen appliances and beauty products. And there now seems to be a business to play it! Meesho now reaches 21cr+ users in India, and each of them make 8+ orders a year on the app! That is a non-trivial portion of India’s population (15%+) using the app on an almost monthly frequency This market however is not without its challenges. Being a largely cash on delivery market (75%+ orders are CoD) cancellations and return to origins are high. Out of every 100 orders placed, less than 70 are actually successfully delivered. This combined with the low average order value for this segment, makes this an extremely challenging market to cater to! The average apparel sold on the platform sells for 300, the average beauty product just 160! [To highlight the contrast - Nykaa, a platform focussed on Tier1 India, has a beauty AoV of 2000+, and a fashion AoV of 4500+.] Part B: Peeling the onion- the order vs AoV trade off! Most players in the ecommerce race are hyper-focussed on increasing average order value. And it makes sense - a higher order allows your larger contribution margin to cover your fixed cost base, and take you to coveted profitability. But Meesho seems to be taking a different path. Over the last two years, the business mix has moved away from the (relatively) higher priced apparel segment towards lower priced home and kitchen appliances and beauty segments. This has driven a whopping 38% CAGR in successful order growth, even as NMV per successful order dropped from 281 to 230 And this tradeoff is telling! What the business appears to be doing is optimizing for order growth - that will bring economies of scale to its logistics business - as it attempts to deliver deeper into India’s hinterlands. Part C: The logistics play Unlike most e-commerce platforms that charge their sellers a commission - Meesho runs a commission free business model - instead charging its sellers a delivery charge. Meesho today has 58 lakh+ sellers on its platform - each making ~40,000 a year after delivery fees. Given that it’s sellers sell low value items - getting their delivery costs down is critical to make business lucrative for sellers. Meesho to it’s credit has been doing that quite well. The cost per order shipped has moved from ₹66 in FY23 to ₹52 today. For context - Delhivery, one of the largest purely logistics players in the country - and Meesho today has a close to 30% advantage over it on average cost per delivery. While part of this could be attributable to difference is shipment size etc. - the improvement in the Meesho cost of delivery is undeniable. More impressive is that this advantage has been built without compromising on margins. Logistics cost, while the largest cost head for the business, have remained steady as % of marketplace revenue (delivery fee) - indicating strong operating level changes that the business has executed starting FY23. Part D: Ye Valmo Valmo kya hai? In 2021, Meesho conceptualized an asset light way to play logistics in India. They would own no warehouses or trucking assets - instead letting logistics partners compete amongst themselves to bid to service the orders (increasing their utilization, but crushing margins). In FY23 it covered just 2% of Meesho’s total order volume. That number has now scaled to 62% and the benefits that the business generates via this fierce competition between India’s fragmented logistics players is passed on directly to their sellers. The average Valmo order goes through 4 different handovers across firstmile, middle-mile, last mile and warehousing - with each participant in the logistics chain bidding for the business. The business today has 85,000+ delivery agents and 13,500+ active logistics providers. Interestingly, this lower cost of delivery has allowed the sellers to sell a lot more faster on the platform. It took the FY22 cohort 3 years to triple their NMV. It takes the latest cohorts just 1. Part E- Putting it all together! Which brings us to the most critical question - how do you think of Meesho as a business and how would you value it? Because both those questions have a profound impact on the TAM for the business, and the multiples that business gets. The Indian e-commerce shipment market is booming - growing north of 30% for the last 5 years, and poised to growth 25%+ till FY30. Of the 700cr+ orders that are delivered in India every year - Meesho controls ~180cr (or roughly 25%). As more and more of it’s orders go to Valmo instead of other third party logistics players, the smaller players with a heavier dependence on Meesho like EcomExpress will fall away, or be subsumed by one of the larger players in the industry like Shadowfax or Delhivery. In the long run, once Valmo has started catering to the bulk of Meesho business - it will likely venture outward to take external clients, making it a strong player (~25-30% captive revenue) in a oligopolistic end-market. Back of envelope, in five years (FY30) this is a 1 lakh crore opportunity, in which this business could have a third of market share, and a thin low single digit margin (industry is still reasonably competitive) on that sales. Given that most logistics plays in India trade at ~2-4x sales, entry valuations doing the rounds in the media do look punchy. That being said - a phenomenally well build business and definitely one to keep in your radar. Disc: This is a purely educational post and is NOT intended as an investment recommendation. Please consult a SEBI Registered professional or do your own diligence before taking any investment decision. About me: If you’ve landed on this blog for the first time, do subscribe. We do a lot such business deep-dives. You can also read up more about my research here : gsninvest.com/ (SEBI Registered RA)