Meesho's IPO Faces Headwinds as Cash on Delivery Dominates Small-Town Orders

CONSUMER-PRODUCTS
Whalesbook Logo
AuthorWhalesbook News Team|Published at:
Meesho's IPO Faces Headwinds as Cash on Delivery Dominates Small-Town Orders
Overview

Meesho, preparing for its Initial Public Offering (IPO), faces a significant challenge with a high percentage of Cash on Delivery (COD) orders, especially in smaller Indian towns. Despite a gradual decline, COD still accounted for over 76% of its FY25 shipments. This preference for doorstep payment over digital methods in tier-II and tier-III cities poses risks of high returns, increased logistics costs, and delayed payments, impacting the company's profitability and IPO valuation.

Meesho, an e-commerce platform with a strong presence in India's smaller towns, is encountering a significant operational hurdle as it gears up for its Initial Public Offering (IPO). Updated draft IPO papers reveal that over 76% of the 1.59 billion orders shipped in fiscal year 2025 were paid for using Cash on Delivery (COD). While this percentage has decreased from 85% in FY24 and 88% in FY23, it remains alarmingly high, particularly for businesses aiming for efficient financial operations.

COD is prevalent in India, especially in tier-II and tier-III cities, due to lower digital payment penetration and lingering trust issues with online transactions and digital fraud. Many shoppers, particularly older customers, prefer the security of paying only upon receiving their product, mitigating risks of receiving incorrect or damaged items.

However, a high COD rate translates into substantial challenges for e-commerce companies. It often leads to higher Returns to Origin (RTO), where deliveries fail and products are sent back, incurring significant reverse logistics costs. Furthermore, vendors collecting COD payments may delay or fail to remit funds to the e-commerce platforms, impacting their cash flow and profitability. Meesho has even filed police complaints against vendors for non-payment.

To combat this, Meesho is actively encouraging prepaid orders. Initiatives include offering refunds as gift cards via "Meesho Balance," restricting COD for repeat offenders, and imposing convenience fees for customers with high return rates. These efforts have shown promise, with the share of prepaid orders growing to 23% in FY25 from 14.6% in FY24.

Impact: This situation directly affects Meesho's financial health and potential IPO valuation by increasing operational costs and return rates. It also highlights a systemic challenge for the Indian e-commerce sector, especially companies targeting the vast but complex market of smaller cities. The success in mitigating COD risks will be crucial for investor confidence.
Impact Rating: 8/10

Difficult Terms:

  • Cash on Delivery (COD): A payment method where customers pay for goods in cash at the time of delivery rather than in advance.
  • IPO (Initial Public Offering): The process by which a private company first sells shares of stock to the public.
  • Returns to Origin (RTO): When an e-commerce package cannot be delivered to the customer (due to refusal, address issues, etc.) and is returned to the seller or fulfillment center.
  • Reverse Logistics: The process of managing the return of goods from the customer back to the seller or manufacturer, often for reasons like defects, dissatisfaction, or damage.
  • Tier-II and Tier-III Cities: Cities in India that are ranked by population and economic activity below the major metropolitan areas (Tier-I cities).
  • Unified Payments Interface (UPI): An instant real-time payment system developed by the National Payments Corporation of India (NPCI) for mobile devices.
Disclaimer:This content is for educational and informational purposes only and does not constitute investment, financial, or trading advice, nor a recommendation to buy or sell any securities. Readers should consult a SEBI-registered advisor before making investment decisions, as markets involve risk and past performance does not guarantee future results. The publisher and authors accept no liability for any losses. Some content may be AI-generated and may contain errors; accuracy and completeness are not guaranteed. Views expressed do not reflect the publication’s editorial stance.