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Kapil Makhija, CEO of Unicommerce eSolutions said, Unicommerce’s primary rationale for the acquisition is to create a comprehensive, end-to-end solution for e-commerce brands and sellers.
Unicommerce is acquiring Shipway through a share swap (issuing equity shares) rather than a cash transaction. The swap ratio is 1:8.9.
The acquisition will significantly expand Unicommerce’s total addressable market (TAM), particularly in courier aggregation, which is a ₹4,000 crore market.
Below are the edited excerpts of his interview with CNBC-TV18.
Q: What was the rationale behind taking this decision to acquire the remaining 57% stake and also why did you not pay cash for this transaction? If you could also tell us the resultant dilution that will take place because of this share swap?
A: Our vision is to become a one-stop shop for e-commerce enablement and our acquisition of Shipway is in line with that vision. We want to offer an end-to-end solution for e-commerce brands and sellers. If you look at the entire e-commerce value chain, there are three key layers and with the Shipway acquisition, we now have solutions across all the three key layers, customer engagement layer, transaction-processing layer and order fulfillment layer.
Now we are able to offer an end-to-end solution. We have done the first tranche in December where we had paid our cash already to acquire 42.7% stake and now we have acquired the remaining state. We had mentioned that at the time of first tranche itself that we are very committed to acquire the remaining state and make this a wholly owned subsidiary. We already had board control in the first tranche itself and we have already all started to operate like one entity because ultimately want to offer a single one-stop solution to all the e-commerce brands and sellers.
Q: We wanted to understand why you did not pay cash and dilute equity, what would the net dilution be once this is acquired?
A: Unicommerce is issuing equity share of the tune of 60.3 lakh (60,33,189). The swap ratio is 1:8.9 that depends on the valuation of both the companies. With this Shipway is now becoming a wholly owned subsidy ultimately it helps open a large total addressable market (TAM) for us. Courier aggregation alone is a ₹4,000 crore TAM and with 35,000,000 shipments, that Shipway is already doing it is a clear no 2 in the market already.
With the two largest peers, I think the market is ripe as its fast growing. The market is ripe to continue to drive growth in the overall system and it becomes a big growth engine for Unicommerce as well with the Shipway acquisition.
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Q: What about the profitability path for Shipway because as of December of 2024, profit after tax (PAT) margins were a negative 3% and as of FY24, the PAT margins were a negative 5%. Do you have a timeline as to when Shipway turns profitable and what steps are you taking to ensure that it happens?
A: Shipway is already on a path to profitability. As you already mentioned it is the PAT, margin has improved from -5% to -3% and we see many synergies. One is a sales synergy. Today the overlap between Uniware and Shipway customer base is less than 5%. There is a significant cross sell opportunity. It will help drive sales acceleration.
Second, we see synergies on both the direct and the indirect cost side. We have relationships with the Korea partner not just at Uniware but also at a group level. So that helps us drive synergies on the direct cost and plus with combined forces, we see synergies on the indirect cost as well. We hopefully will be able to turn the business profitable soon with the synergies that I just outlined for you.
Q: Even if it does turn profitable, it perhaps may remain a drag on your profitability, because your own margins are close to around 14 to 15%. Even if it does break even, it will be 0% at best 1 to 2%. it will continue to be a bit of a drag. If you could give us a sense on what kind of further synergies do, you foresee out here. You did speak about your TAM expanding by about ₹4,000 crore, but of that the increment revenue that you would generate could be how much?
A: How we are viewing Unicommerce as an overall entity is our flagship platform Uniware is extremely sticky. We have very large enterprise customer base so it continues to drive and has significant operating advantage. It continues to drive profit growth for us. While the new products those Shipway Courier aggregation convert away, both of these have come, as part of the Shipway acquisition will continue to be a growth driver for us. It helps their operating in large TAM with relatively new entrants, while they are no 2 player in the Courier aggregation space, there is a significant headroom for growth. These become growth engine for us so as a combined entity, we will continue to deliver consistent growth in revenues and profits and we have always historically grown faster than the market and we will continue to do that. This acquisition helps us offer a unified suit, which has been the demand from all our customers. That is why this makes sense to be able to offer a one-stop shop e-commerce enablement suit to all our as well as the new e-commerce brands and sellers that come onto the e-commerce brand wagon.
Q: The reason why I ask this is that earlier you said you would be issuing about 60.33 lakh equity shares. At the current number of shares that you have and if you look at the number of more shares that you would issue, it would be a dilution of anywhere between 5.8 to 6% on a pre or post money basis depending on the way you calculate. So for a 6% equity dilution, could there be a concomitant EPS move on the way up for it to be neutral and value accretive for shareholders?
A: That is our intent as well; let me talk about how it is going to be valuable creative. So the idea is that like I said, it’s in a large ₹4,000 crore market, and it’s, it’s today at a run rate of about roughly 70,00,00,000 ARR to that if there’s a significant headroom for growth. There will be a significant revenue growth potential for the business and to top it on, we have because more and more brands and sellers in the e-commerce ecosystem in India prefer a one-stop solution. We see many sales synergies that are coming in, particularly given that the overlap is less than 5%.
There is a significant growth that we can drive in the business through the new products that we have gotten on board plus the existing relationships that we have with nearly 7,000 customers across 10,000 plus brands. I think there will be a significant growth in revenues and as a result, of that, we will continue to see a consistent growth in profits as well.
Q: When do you expect it to be value creative from a shareholder standpoint, EPS standpoint? The second part is of all the solutions that you are offering, how much of that are agnostic to whether it is e-commerce or quick commerce. The belief is that quick commerce will drive overall e-commerce growth as well. So is there any synergy there?
A: Our solutions are aligned with quick commerce. Quick commerce is another form of online selling. We are already integrated with all the quick commerce, so including likes of Blinkit and others. Because we are a one-stop shop for e-commerce enablement so a brand whether they are selling on e-commerce marketplaces or quick commerce market places, they need a single window solution to be able to manage their e-commerce offering. So irrespective of whether a particular horizontal or a vertical marketplace grows or a quick commerce channel grows, we stand to gain because we are a one-stop shop for e-commerce enablement.
As e-commerce continues to grow and become a way of life, we will continue to reap benefits of that. In addition, we continue to add new products as we have done through this acquisition plus the other new products that we have been working on. We will continue to serve this vision of being a one-stop shop and serve this entire ecosystem of ecommerce brands and sellers in helping to simplify their ecommerce selling.
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