Meesho’s Valmo to aid profitability growth, concern for third party players

In February this year, Meesho, the Bengaluru-headquartered social commerce platform, announced the launch of Valmo, its own logistics marketplace. The intention was to democratize third-party logistics and reduce delivery costs, especially for the smaller players.

Four months later, analysts say the impact is being felt by large third-party logistics players.

“In India, the logistics and supply chain is largely unorganised, consisting of local and regional players which serve limited geographies. Through Valmo, Meesho intends to remove the entry barriers for these players and create a national logistics solution,” said a person aware of the new system.

Indeed, Valmo has quickly grown to manage 900,000 orders a day, on average, which is about a fifth of all third-party ecommerce shipments in India. 

It has expanded its reach to 6,000 postal codes across more than 20 cities. 

The marketplace has at least 3,000 micro entrepreneurs.

For Meesho, Valmo brings down delivery costs, which have already come down by 5 per cent. The firm is confident that the costs will come down further, by 10 per cent or so.

Meesho has potentially made money from logistics; it has started meaningfully growing the share of insourcing beyond 20 per cent, impacting growth for third-party players, says a Kotak Institutional Equities report. According to the report, Meesho accounts for about 20 per cent of Delhivery’s Express Parcel and 45 per cent or higher share of revenues of its key players (other large ecommerce players like Flipkart, Amazon and others).

Elara Capital said in a note: “The ecommerce industry is expected to grow at 15-20 per cent. However, Meesho (handling 24 per cent of total shipments in India in FY23) has increased its share of captive logistics, leading to lower outsourcing to third-party logistics service providers. We believe this may restrict segmental growth in the future.”

Delhivery, however, denies any such impact on its operations. 

“Neither do I anticipate significant volatility coming any further from here from various players deciding to experiment with various logistics models in terms of volume nor do I anticipate it having a material impact on our EBITDA,” said Sahil Barua, Delhivery’s co-founder and chief executive officer, during a call with analysts after fourth quarter results.

He pointed out that starting a logistics company was harder than growing it beyond a point. And that for Delhivery, logistics was a core business. “The ability to run a Part Truckload network, the integrated network allows us to have lower costs even in the Express Parcel business, which is partly what allows us to deliver the margins that we do. I mean, if we were a parcel only player right now, dependent on a single company who forms a large percentage of our volumes and is launching self-logistics and putting price pressure, sure, I mean, life would be pretty hard. But fortunately, for us, that’s not the case,” Barua said in the analyst call.

Meesho, in a statement in December last year said it had achieved profitability for the July-September quarter of FY24.

First Published: May 29 2024 | 11:34 PM IST