Does tweet spat herald consolidation?

28 Mar,2016

 

By Sagar Malviya

 

Future Group CEO Kishore Biyani said the Twitter spat between India’s ecommerce poster boys Sachin Bansal and Kunal Bahl could indicate a consolidation wave triggered by Alibaba’s imminent entry into the space.

 

Biyani, who runs the country’s largest brick-and-mortar retail company and is known to disparage ecommerce rivals, said social media had become the medium of engagement for many entrepreneurs. “Very often I see conversation as a precursor to hint something strategic or big. In this case, it could even be consolidation or something more,” he said.

 

Flipkart’s Sachin Bansal vs Snapdeal CEO Kunal Bahl: Right guys stuck in a tough ecommerce battle

 

By Biswarup Gooptu & Madhav Chanchani

 

Three months into 2016 and the battle lines between India’s top two ecommerce companies are being drawn deeper. The exchange of barbs between Flipkart’s executive chairman Sachin Bansal and Snapdeal CEO Kunal Bahl on Twitter on Friday evening wasn’t merely a spillover of their rivalry but emblematic also of the significant pressure they are under with investors’ becoming tightfisted. It portends more ugly confrontations.

 

“While in 2014 it looked like the game had consolidated between Flipkart and Amazon, the market suddenly opened with Snapdeal, Paytm and Shopclues jumping into the fray,” said Harminder Sahni, founder of retail consulting firm Wazir Advisors. “Now investors are evaluating (ecommerce firms) closely, so it becomes (important to establish) not only how good you are but also how bad the other players are.”

 

This year is expected to be an inflection point for Flipkart and Snapdeal, which, along with Amazon, have dominated India’s $23-billion (Rs 1.5 lakh crore) market but are yet to show paths to profitability.

 

Investors who have poured billions of dollars into Flipkart and Snapdeal are pressurising the firm’s managements to optimise their operations, curb discounts and focus on improving margins as they seek ways to sell their investments and maximise returns. Both Flipkart and Snapdeal are scouting for new investors to back them as they compete for top honours in India’s ecommerce industry while staving off the challenge from Amazon.

 

Flipkart has been in the market awhile to raise $1.4 billion and, according to media reports, had approached Alibaba for funding, but investors have become fussy amid growing uncertainty.

 

Snapdeal was able to raise $200 million in February in funding led by Ontario Teachers’ Pension Plan at a valuation of about $6.5 billion. A lot of that money, though, went to existing investors selling their shares in the company. “The pressure is too much,” said Sahni. “I don’t think we have seen this kind of a public spat between people from the industry in the modern times.”

 

India’s ecommerce industry, though, is not in a position of uncertainty. In February, Morgan Stanley raised its forecast for the gross merchandise value of Indian online retailers to $119 billion by 2020 from its earlier estimate of $102 billion, indicating that more consumers are buying online.

 

Source:The Economic Times

Copyright © 2016, Bennett, Coleman & Co. Ltd. All Rights Reserved

Licensed to republish

 

While the Chinese ecommerce giant is a fringe player in its core business-to-business online trade in India, it has an indirect presence in the country’s ecommerce segment. It invested more than $500 million for a 40 per cent stake in One97 Communications, which runs Paytm, a wallet and ecommerce company, while Snapdeal raised $500 million from a clutch of investors including Alibaba last year.

 

Alibaba said recently it will make a direct entry into India’s online space and is said to be looking at several options. One could be increasing its stake in Paytm and spinning off its marketplace into a separate venture.

 

It has also been reported that it (Alibaba) was talking to the Tatas for a broader strategic alliance besides deepening its relationship with Snapdeal.

 

The consolidation buzz in the ecommerce space has been strengthened by talks swirling around Flipkart. The Economic Times (ET) had reported on failed talks between the company and Amazon. Flipkart founders Sachin Bansal and Binny Bansal denied this.

 

ET and a few other newspapers have also reported that Flipkart was in funding talks with Alibaba. The founders of Flipkart and Snapdeal had lashed out at each other on Twitter Friday night over Alibaba’s entry plans.

 

Bansal, executive chairman of Flipkart, indirectly criticised the companies in which Alibaba has invested. “Alibaba deciding to start operations directly shows how badly their Indian investments have done so far,” he tweeted.

 

Bahl responded with. “Didn’t Morgan Stanley just flush $5 billion worth market cap in Flipkart down the toilet. Focus on ur business not commentary :)”

 

The reference was to a mutual fund managed by Morgan Stanley marking down the value of Flipkart’s shares by 27 per cent, signalling that global investors believe India’s largest Internet company may be overvalued. Flipkart had said in a press statement that it is valued at $15.2 billion. A 27 per cent drop would put this at $11 billion.

 

In comparison, stocks of Biyani-owned entities — Future Retail, Future Consumer and Future Lifestyle Fashions — have gained 14-80 per cent on the BSE and have a combined market capitalisation of $1.5 billion. Biyani had accused online retailers of adopting predatory pricing two years ago. Earlier this month, he released a series of ads targeted at the three main online marketplaces — Flipkart, Amazon India and Snapdeal.

 

Last month, investor Rakesh Jhunjhunwala said ecommerce companies were attracting too much investment without any meaningful retail disruption and was bearish on the business model. “I will consider buying Flipkart’s stake if it is valued at $100 million,” he had joked.

 

The combined losses of the three leading online retailing platforms widened to Rs 5,052 crore in FY15 as they spent heavily on infrastructure and discounts to woo consumers.

 

Source:The Economic Times

Copyright © 2016, Bennett, Coleman & Co. Ltd. All Rights Reserved

Licensed to republish

 

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