After Trimming Fat, Ecomm No More Cuts a Sorry Figure
Switch to marketplace model, increased flow of funds inject new life
RADHIKA P NAIR, BISWARUP GOOPTU & HARSIMRAN JULKA
BANGALORE | NEW DELHI
If India’s ecommerce firms had been health freaks, they would have made the perfect before-and-after shot. From just a year ago, when they were huffing and puffing with the flab of company-owned inventory and the strain of high costs, they have now become almost fighting fit.
In many ways, this turnaround was not a matter of choice but of life and death. Funds were down to a trickle and without trimming the fat, they would have completely stopped. In turn, the increased flow of funds helped them reduce costs and raise efficiency which brought in more investment, creating a virtuous cycle.
The switch to a marketplace model from an inventory-led one and the rise of the online shopping trend in the country has also helped.
But it is Flipkart’s raising of $360 million (. 2,230 crore) in July 2013 that is widely regarded as the turning point. The multi-category retailer’s founder, Sachin Bansal, calls it “the great validation” and one that dismissed scepticism about his company and Indian ecommerce. Bansal’s company, which expects to post sales of $1 billion (. 6,200 crore) by fiscal 2015, has raised over $560 million (. 3,467 crore) of risk capital so far.
In all, Indian online firms have received almost $840 million (. 5,190 crore) in funding since January 2013. Such fundraising has allowed them to take on global leaders in the space like Amazon and eBay. Bulk of Money in Ecommerce to Toppers
The sector is expected to grow to $56 billion (. 3.46 lakh crore) by 2023.
Amazon, which launched its Indian operations just six months ago, is counted among the country's top three retailers while eBay last week increased its holding in online marketplace Snapdeal by investing about $133 million (. 824 crore). The bulk of the money in Indian ecommerce has gone to the toppers. “Investors have realised that profitability is linked to scale in ecommerce. It is not eitheror,” said Mukesh Bansal, cofounder of fashion portal Myntra, which raised $50 million (over . 300 crore) last month in a round led by billionaire Azim Premji’s family office Premji Invest. Myntra aims to cross . 800 crore in sales this fiscal and turn profitable by the end of the year.
Many of the ventures have invested heavily in technology to make their sites more efficient and enter new platforms such as mobile. Alongside customers, shopping through mobile devices now make up for up to a third of sales at online retail sites, up from 7% even a year ago.
Experts said the gloom and doom until 2013 forced companies to rethink strategy. “They began to look at bottom lines and not just the top line,” said Ashish Jhalani, head of advisory firm eTailing India. “This helped bring back investor confidence.”
Flipkart, for instance, changed its heavily capital-intensive inventory model in late-2012 into a hybrid model. Today, the company has over 1,000 merchants on its site. In May, it discontinued music downloads as it was not growing as much as expected.
Snapdeal, which too is targeting sales of $1 billion next fiscal and is aiming to be profitable in 2016, has converted its portal into a multi-lingual one and introduced tools like SafeShip, a platform that automatically chooses the appropriate logistics provider for a seller of a particular shipment.
Enthused, investors are opening their wallets wider. The total amount invested since January 2013 is roughly the same as the total in the previous three years, according to financial advisory firm Allegro.
“Category leaders who can demonstrate a path to such scale will continue to get funded,” said Prashanth Prakash, a partner in venture fund Accel Partners that has backed both Flipkart and Myntra.
Apart from Flipkart and Myntra, those in the thick of the fray are Snapdeal, fashion portal Jabong as well as several single-category online retailers, such as lingerie firm Zivame and babycare venture Firstcry. Funding has also flowed into online services startups like restaurant guide Zomato and real estate portal CommonFloor.
“Right now there are no (clear) winners, these are the early leaders,” said Prashanth Tandon, cofounder of Healthkart, an online portal for wellness products which raised . 86 crore from Sequoia Capital and Intel Capital last year. “Investors made it quite clear that they were on the lookout for ventures with sustainable business. That became the mantra, and we are seeing the effects of that now.”
The revival has also meant that investors are willing to offer steep valuations. “Unlike Japan or South Korea, we don’t have multiple scaled assets. That’s why investors are ready to still pay a premium,” said Ashish Kashyap, chief executive of Ibibo Group, which backed by its parent South Africa’s Naspers, acquired online ticketing portal redBus last year.
Flipkart received a valuation of $1.6 billion (. 9,880 crore) last year from growth stage investors like Dragoneer Investment Group, Morgan Stanley Investment Management and Sofina along with existing investors like Naspers, which backs Ibibo as well. Flipkart commanded about 30% premium, according to an investment banker who did not want to be identified.
Zomato, which had revenue of . 11.5 crore in fiscal 2013, received a valuation of . 1,000 crore when it raised about . 225 crore last November from Sequoia Capital and Info Edge. Snapdeal’s latest funding values the company at about $750 million (. 4,600 crore). This has had a direct impact on the personal fortunes of entrepreneurs.
At current valuation, the about 20% stake held by founders of Flipkart, Sachin Bansal and Binny Bansal, along with management, is now valued at $320 million (over . 1,975 crore).
While the fortunes of the Snapdeal’s promoters, Kunal Bahl and Rohit Bansal, is now at about $150 million (over . 900 crore), the stake held by founders of Zomato –Deepinder Goyal and Pankaj Chaddah—is now worth about . 328 crore.
Similarly, the stake of Myntra’s promoters, Mukesh Bansal and Ashutosh Lawania along with the management, is valued at $40 million (about . 250 crore). Experts like Kaushik Guha Thakurata, director at financial advisory firm Resurgent India, believe the concentration of risk capital in just the leaders will lead to further consolidation. “The large pool of invested companies in this sector would be a natural driver for M&A activity,” said Accel's Prakash. “We will also potentially see some IPOs if the current pace of adoption is sustained.”