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Business News/ Industry / Retail/  Flipkart raising another large round of funds
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Flipkart raising another large round of funds

Less than seven years after setting up shop, India's e-commerce poster child Flipkart has already guzzled nearly $2 billion of venture capital money

Flipkart may exceed monthly sales of $250 million by the end of the current financial year, according to people familiar with the matter. Photo: BloombergPremium
Flipkart may exceed monthly sales of $250 million by the end of the current financial year, according to people familiar with the matter. Photo: Bloomberg

Bengaluru: Less than seven years after setting up shop, India’s e-commerce poster child Flipkart has already guzzled nearly $2 billion of venture capital money. To replenish its firepower in the bruising market share battle with its role model Amazon as well as local rival Snapdeal, the company is already raising another large round of funds.

Mint reported on 8 November that Flipkart is in talks with investors to receive fresh funds, barely four months after it raised a record $1 billion. The Times of India newspaper reported on Monday that Flipkart closed a $500-$600 million financing at a valuation of $10 billion. Flipkart declined to comment.

In the space of one year from July 2013, Flipkart raised as much as $1.6 billion in cash. Within that time, the company’s valuation jumped to an eye-catching $7 billion from roughly $1.5 billion and it’s become one of the most sought-after start-ups globally.

In March 2011, Flipkart was selling goods worth less than $1 million on a monthly basis (excluding discounts and sales returns). By March this year, that number soared to $83 million. Flipkart may exceed monthly sales of $250 million by the end of the current financial year, according to people familiar with the matter.

Even by Silicon Valley standards, these sales and valuation numbers are impressive; for a company in India’s exit-starved start-up world, they are magical.

It seemed impossible even two years ago that Flipkart could achieve such status. In 2012, the company was close to running out of funds and some media reports raised doubts about its survival. Tiger Global, its deep-pocketed early investor, coughed up a majority of the $150 million that saved Flipkart in August 2012. Some analysts again worried about Flipkart’s viability barely 10 months later, when Amazon.com Inc., the world’s largest online retailer known for its kill-thy-rival ethos, launched its marketplace in India.

Flipkart responded by adding new product categories, increasing discounts and advertising and hiring senior talent. Its existing investors Tiger Global and Accel Partners were joined by big names such as Naspers, Morgan Stanley and DST Global. Hope turned into self-assurance so much so that Flipkart even put up ads to mock Amazon chief executive officer (CEO) Jeff Bezos on his recent visit to India. Flipkart CEO Sachin Bansal told the Times of India newspaper that Bezos’s visit in India was “a panic reaction to the fact that Amazon is not able to make any inroads in India."

That is a dubious claim.

Sales at Amazon India rose 50.2% to 168.9 crore for the year ended 31 March, according to regulatory documents. Amazon is here to stay in India, as it’s important for the company to establish a large business in the country, one of the last of the potentially large e-commerce markets in the world. Amazon has lost out to Alibaba in China, which overtook the US last year to become the largest e-commerce market in the world.

Along with Snapdeal, another Indian marketplace that has raised large amounts of capital, Amazon has emerged as the biggest threat to Flipkart. Its fast expansion in India since launching in June 2013 even prompted common investors to merge online fashion retailer Myntra with Flipkart in May.

What Amazon’s expansion has also done is made the e-commerce battle significantly more expensive.

According to several industry executives and analysts, among the three large marketplaces, Amazon offers lowest prices and highest discounts in several categories including books and electronics. The company also introduced next-day and same-day product deliveries.

Flipkart has largely matched Amazon in delivery and prices—which is reflected in its loss numbers for the last financial year as well as its continued fund raising efforts. Losses at two of the largest Flipkart entities soared to 716 crore in the year to March even as revenue jumped to 3,025 crore, according to regulatory documents. These two entities, Flipkart India Pvt. Ltd and Flipkart Internet Pvt. Ltd, comprise the wholesale business and the marketplace business of Flipkart, respectively.

Typically, as an e-commerce company matures, its spending-to-sales ratio significantly declines due to economies of scale. In Flipkart’s case, the decline seems to be happening at a slower pace. The two entities referred to above had reported losses of 344 crore on revenue of 1,200 crore in the year to March 2013.

Earlier this year, Flipkart’s Sachin Bansal said the company had changed its role model to Alibaba—a record-breaking IPO (initial public offering) helps change one’s mind. Alibaba went public two months ago at a valuation of more than $250 billion. Unlike Amazon, which sells its own goods apart from connecting third-party merchants with buyers, Alibaba is a pure marketplace and generates significantly higher margins than the American online retailer.

Flipkart, too, started hosting third-party merchants on its site last year, but it still gets three quarters of its business from WS Retail, a seller with which it has close ties. And though this number will surely decrease over time as Flipkart adds thousands of sellers, WS Retail will continue to be Flipkart’s biggest seller by far for a long time.

So despite Flipkart’s ambition to be Alibaba, its business model will continue to be closer to the low-margin one of Amazon’s (minus the significantly more profitable cloud business).

Profitability is a distant dream for Flipkart, especially as Amazon is snapping away at its heels.

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Published: 24 Nov 2014, 06:51 PM IST
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