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Last Updated : Jul 07, 2016 12:11 PM IST | Source: CNBC-TV18

Biggest challenge is to bring down product returns: Palred Tech

Direct cost breakeven is the biggest milestone in this quarter, says Srikanth Palem Reddy, Chairman of the company. The biggest challenge is bring down the product returns.

E-commerce firm Palred Technologies reported an 18 percent drop in its revenue in the first quarter of FY17. However, the losses have narrowed to Rs 2 crore in this quarter from Rs 5 crore in the previous quarter.

Direct cost breakeven is the biggest milestone in this quarter, says Srikanth Palem Reddy, Chairman of the company. The biggest challenge is to bring down product returns.

The current conversion rate is 3 percent which translates to 4000-4500 orders a day.

Product returns for the company stands at 35 percent. The target is to bring it down to 25 percent and once that is done, we could work to become the first profitable e-commerce firm, Reddy says.

The company is re-working its business model to generate orders and add new customers.

Below is the verbatim transcript of Srikanth Palem Reddy’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.

Nigel: You are almost moving into an operating profit. Now in fact you have cut down your losses at that level, next quarter could we see green at operating profit?

A: The expectations have to be realistic because we have to look at any number in the context of many other parameters. Firstly, I would classify this as a tech start-up in a slightly more advanced stage. Number two, it is a vertical forecast e-tailer, it is an e-commerce company. The mount of money raised by this company or what the parent company has put in there is only Rs 30 crore so far.

If you look at e-commerce company with only Rs 30 crore investment so far that has already come to at Rs 12.50 crore net revenue run rate which is almost a Rs 50 crore revenue company I think it is a huge milestone because if you look at other vertical forecast e-commerce companies unfortunately most of them are not listed like for example furniture vertical or apparel vertical or whatever they would have invested about 10 times the amount. However, their revenues would still be about the same.

The second and a more important milestone that we have achieved is we have achieved what I call a direct cost, breakeven point. So, if you look at e-commerce companies most of the complaints have been around deep discounting and heavy advertising and loss on even fundamental expenses, not able to recover even cost of goods in some cases.

However, if you look at LatestOne.com as of this quarter we have achieved, when I say margin contribution positive if I say that net revenue is about Rs 11.5 crore our cost of goods plus entire cost of sales, marketing or what you call customer acquisition cost plus the entire cost of delivery and logistics has been covered and is been about Rs 15-20 lakh a gross margin there. So, only thing indirect cost that have to be covered.

That brings us to your second question can we turn fully green in one more quarter. I think that is a tall ask because two reasons the company is facing only one challenge right now which is the undelivered returns. However, that is the bane of e-commerce in India and I don’t think you can isolate that as an issue facing only LatestOne.com. The returns are currently that is undelivered returns that means impulse purchases, irrational behaviour or whatever, people place the order and refuse to take delivery when delivery boys shows up at the door, that is around 35 percent.

We have set a target to bring it down to about 25 percent. I guess that will take a little bit of time. The day we get to that 25 percent returns even at the current revenue run rate we will become the first Indian e-commerce to break even on the fully EBITDA basis.    

Reema: If you could just tell us what was the reason for the 18 percent revenue drop that you have seen if I look at it on a quarter-on-quarter (QoQ) basis? Yes, on a year-on-year (YoY) basis it is looking good at 67 percent but at QoQ it is dropped. Could you tell us the key reason, why?

A: If you see there are two things one the bottom line which is the losses have come down from more than Rs 4 crore down to less than Rs 2 crore in the same quarter. The revenue might have dropped about 15-20 percent but the losses or what I call the bottom-line improvement is more than 55 percent. So, like I said just now the important objective right now is to get to a full EBITDA breakeven basis which means we have to go through re-engineering of the business model right now.

So, what we have to do is we have to find ways to generate sales or customers or orders which result in less returns. So, what we do is we have converted a lot of pin codes almost 10,000 pin codes only into a prepaid basis. We are not doing cash on delivery (COD) risk there anymore. Number two we have also started allowing the cancellation process in the orders. We have implemented what we call as suspect database in which there are almost 40,000 ids where the orders are passed through and if any of those orders are coming from those 40,000 records than we automatically cancel it.

So, we are taking all of these measures to come to a more robust business model from which we will scale up. So, we have taken a short-term revenue drop but a much more stronger bottom-line approach. From here we will re-build the business and you can certainly expect a growth quarter-on-quarter current quarter as compared to last quarter.
First Published on Jul 7, 2016 12:05 pm