TCS shuts down eCommerce business, takes impairment loss of Rs1.2bn 

LAHORE: After a series of half-hearted attempts to sell off its eCommerce business,, TCS has finally decided to pull the plug and shut down operations of the Daraz-style marketplace, credible sources have confirmed to Profit.’s shutdown may prove to be a big hit for its parent company TCS, which is expected to face an impairment loss of Rs 1.2 billion — which translates to a dip of 10-20% in valuation. Impairment is an accounting concept that applies when an entity considers that the balance sheet value of its assets is more than the amount which is recoverable from using or selling them — essentially a fallout from a bad loan in this case. 

TCS had made investments into Yayvo posted as loans in its accounts. 

At present, a straightforward Google search for Yayvo will show the link to the Yayvo website at the top of search results, along with a message: “Dear valued customers, the website will be offline from 1st October due to scheduled maintenance.” However, sources have confirmed that Yayvo will not be going live again. 

Screengrab from Google search on Yayvo

The situation at has been dire for a while, and in recent months had been hurtling towards the inevitable. TCS has intermittently either laid off staff from or has been transferring them to other departments within TCS as the eCommerce businesses had been cash-strapped. The remaining core team members, 17 in number, were laid off last week, according to a source. Another source said that the eCommerce business literally had no growth in the last three years. 

The decision to shut down Yayvo comes after a bumpy ride for TCS with financial troubles at the company choking investment for Yayvo, failure to raise investment, and buyers backing out. Founded in 2014, Yayvo was launched as an eCommerce marketplace that aggregated products from different sellers on one platform.

The logic behind the concept was that since eCommerce marketplaces like Daraz had the eventual goal of forming a marketplace and then going into logistics, a legacy company like TCS with an existing logistics infrastructure could simply set up a marketplace of its own (which is the easy part) and get a massive head start and make some serious money along the way.  

The fulfillment and logistics operations were powered by TCS’ warehouse infrastructure and logistics fleet. However, the eCommerce business ended up being more complicated than the management at TCS had figured, and the parent company had to regularly bail out due to thin margins. Yayvo needed continuous financial support because of the high cash-burn model of a marketplace business – a commitment Yayvo’s parent company TCS did not see through. 

Because of the low margins on products, marketplaces like Yayvo and Daraz need to have millions of dollars in funding to be able to keep the business running until they find more profitable avenues or see the company through to a successful exit. Daraz managed to do that through its acquisition by AliBaba.

A high-ranking former official of the company told Profit that by 2018, TCS had found itself in a cash crunch in its courier business and could not fund the Yayvo venture any further. “When the core business itself started having a lot of issues with money, of course, they could not afford to invest money into Yayvo,” said a source familiar with the matter. 

Troubles had begun for Yayvo soon after TCS CEO MA Mannan left the company abruptly in 2018. According to Profit’s earlier report on TCS, people in the pro-Mannan camp argue that the board of directors did not allow the CEO to adequately fund that venture, as a result of which it never stood a chance of succeeding. They also claim that Yayvo was the brainchild of Khalid Awan himself and Mannan was only asked to implement his idea.

Observers outside the company agree that an inadequately funded venture would be tantamount to burning cash. “It takes $20-30 million to set up a proper e-commerce business in Pakistan, and nobody aside from Daraz has been willing to do that,” Hamaad Ravda, former chief marketing officer at had said. “If you’re not willing to do that, then you’re wasting time and resources.”

According to multiple sources, TCS pumped approximately Rs2-2.5 billion into Yayvo between 2015 and 2018, the year company faced a serious funding crunch. The eCommerce business on the other hand would not have been profitable on its own because of thin margins.

Moreover, scaling the company would have required more cash burn at a time when the parent company was unwilling to put more money into the venture. According to sources, TCS had been actively searching for investors in early 2019 and by the middle of 2019 managed to find a Pakistani investor who would take the venture from TCS completely, but at a price that would have turned TCS a net loss on the Yayvo sale, leading to an impairment that the company took now. 

Yayvo had earlier received an offer from Jang Group which proposed to buy Yayvo at an Rs1 billion valuation. TCS management decided not to sell at that point. 

A source indicated that while Yayvo had interest from buyers which included the AliBaba Group as well as Pakistan’s Jang Group, Brainchild Communications got to the advanced stages of the negotiations to acquire Yayvo and proceeded ahead with its due diligence. 

“The prospective buyer put a small price on the venture which would have turned a big loss to TCS on its Yayvo investment,” a source told Profit.  From the year Yayvo started operations to the time this sale was proposed, TCS, according to two sources, had invested about Rs2-2.5 billion in Yayvo. Brainchild Communications was offering only Rs500 million for 100% of Yayvo, according to the source.

Furthermore, TCS was unwilling to sell Yayvo under TCS E-Com Pvt Ltd, the company which owned the Yayvo brand and which was owned by TCS. Instead, TCS wanted to create a new subsidiary to park Yayvo assets and then sell that subsidiary. 

Our source speculates that TCS wanted a buyout for Yayvo under this arrangement because TCS had made investments into TCS E-Com Pvt Ltd for Yayvo as loans on TCS’ accounts. 

The creation of a separate purpose vehicle (SPV) would involve the transfer of assets to a new company which would ultimately be sold to an interested buyer. The SPV would serve as a means to divest Yayvo from TCS E-com and protect the latter’s financials as a massive loss is expected on the sale.  

To put it in simpler terms, the book value of Yayvo on TCS financials was in excess of what it could have been sold for. Therefore, once a sale transaction would have taken place, TCS would have to book the massive differences as a loss in its books which would have not fared well with the company’s investors and lenders.

In an earlier report, Profit covered that TCS owed as much as Rs5 billion to banks and other lenders, an amount that constituted 75% of its capital structure in 2019. Posting a loss of billions of rupees on a portfolio company would have spooked off its lenders, who would be skeptical of restructuring loans to TCS and reject any new loans. 

Banks usually sign covenants while lending to corporate clientele. One such term in these covenants is profitability which requires borrowers to ensure a certain level of profitability and if they fail to do so, the loans become repayable immediately. 

The investor, Brainchild Communications, rejected TCS’ arrangement to process the sale through a subsidiary, because, according to our source, Brainchild wanted to acquire Yayvo and present it as a success story as and how its trajectory was and raise subsequent rounds. A new subsidiary would have eclipsed all of that.

The company had further tried to raise funding from external investors but was never able to successfully complete it. According to our source, the higher management of the company would reach advanced stages of negotiations with external investors to sustain Yayvo, but after commitments from investors, the TCS management would stall the raise. 

One of the conditions that the investors put forward according to our source was that investors would ask TCS high-ups to turn over control of Yayvo to professional management that understands tech businesses such as eCommerce. 

TCS owned over 95% of TCS E-Com and Yayvo, and this equity structure did not sit well with external investors. Our source argued that a professional team that could have been given the helm to run the company could not be adequately compensated in this arrangement. 

According to an earlier report, problems had been reported by vendors TCS did deliveries for, who complained that launching Yayvo created natural conflicts of interest after TCS’ eCommerce business started becoming a competition for vendors TCS worked with. 

It has also been reported that TCS began using the cash it collected on behalf of eCommerce vendors for cash-on-delivery orders to fund its own working capital requirement, delaying payments by up to several months to vendors who were owed payments.

According to sources familiar with the matter, TCS, back in 2019, owed as much as Rs100 million to eCommerce vendors on account of cash-on-delivery payments, which pushed vendors to start using other delivery services like Leopard Courier, M&P and others, affecting TCS’ eCommerce logistics business.

For the last three years, another source that had been affiliated with the company said that the company literally had no growth in the last three years.  “The company, however, was paying salaries of all the staff on a timely basis.”

Our source further said that following Mannan’s departure, the top management of the company showed less enthusiasm in taking the venture forward and despite multiple strategies and suggestions provided to high managers like taking an impairment loss in the early days of Yayvo or spinning it off to a different model, the management showed lethargy in taking any decision. 

The immediate impact on TCS from this saga is that the banks will start inquiring about the loans to TCS, according to a source, which insinuates that TCS’ troubles will be compounded. “The company had shown projections based on which bank loans had been restructured, that the company [Yayvo] will be doing really well over the next two to five years. Now you have taken the impairment, whatever rescheduling had been done, lenders would ask to reverse it,” the source says. 

TCS has not yet responded to Profit’s request for comments.

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