The latest business leader to turn investor in the Indian e-commerce space is Ratan Tata, chairman emeritus of the salt-to-software Tata Group, who picked up a minor stake in online marketplace Snapdeal.com on Wednesday for an undisclosed sum. Some of the other well-known business leaders to have invested in Indian e-commerce include Wipro chairman Azim Premji and Infosys chairman emeritus NR Narayana Murthy.
This is a very proud and exciting moment for the entire Snapdeal family. An investment by a legendary and respected figure like Mr Tata is an excellent validation of our focused strategy on building a long-term enterprise and marks the start of a very important phase for the company, Snapdeals co-founder and chief executive Kunal Bahl said on Wednesday.
IT pioneers Premji and Murthy have already extended the turf war between Wipro and Infosys in the $118-billion domestic IT industry to e-commerce. Murthys private investment firm Catamaran Ventures had announced in June a joint venture with global e-commerce major Amazon named Taurus Business and Trade Services, where Catamaran will hold a 51% stake and Amazon the rest.
Besides also being an investor in New Delhi-based Snapdeal, Premji led a $50-million investment round through his family office, Premji Invest, in online fashion retailer Myntra.com. Myntra was later acquired by another online marketplace, Flipkart.com.
Industry experts state that the involvement of such marquee investors in e-commerce is a big endorsement of the credibility of the sector and is likely to spur future investments as well as mergers and acquisitions (M&As) in the segment.
A number of online retail ventures raising significant sums of money from investors, mostly private equity funds, have led some to question the valuations being ascribed to such businesses. This is because while these ventures are clocking higher revenues every year, they are yet to turn in profits.
Ratan Tatas decision to invest in Snapdeal came a day after the company announced a tie-up with Tata Value Homes to sell apartments across five Indian cities: Mumbai, Pune, Ahmedabad, Bangalore and Chennai.
Murthy and Premji realise the value in backing new ventures in a sunrise sector, being veterans of the Indian information technology (IT) industry themselves. When they started building their IT ventures in 1980s, the sector was considered a sunrise sector too. The Indian IT sector, which offers technology-driven business solutions to global corporations, has revenues of $118 billion at present. The Tata Group has a significant present in the IT sector as well, with Tata Consultancy Services being Indias most valued company.
More than the quantum of investment, it is Ratan Tatas involvement that matters, said Rutvik Doshi, principal at Inventus Capital Partners. Participation of traditional business houses in e-commerce has been minimal or insignificant. Tatas participation is a positive signal for the ecosystem and may lead to a lot more investment from traditional Indian business houses. There is belief that e-commerce is here to stay and grow.
So far, Snapdeal has raised around $410 million in private equity investment, while its nearest domestic rival Flipkart has raised $1.7 billion, including the latest of round of funding in July through which it raised $1 billion. A day after Flipkart its mega fund-raising exercise in July, Amazon went one up, with its founder Jeff Bezoz announcing an investment of $2 billion in India. Snapdeal had raised $100 million in May.
Besides lending credibility to Snapdeal, Tatas investment could lead to greater collaboration between the e-tailer and the $103-billion conglomerate, said Ashish Jhalani, founder of eTailing India, an industry website.
I feel this association with Snapdeal will help Tata ramp up its electronics play via Croma, as Snapdeal is very big in the electronics segment, Jhalani said.
Other traditional e-tailers have been trying to establishing a toehold in the e-commerce sector with textile and apparels company Arvind announcing its entry into e-commerce two weeks ago. Its aim is to generate Rs 1,000 crore of sales online in the next three years. E-commerce has also caught the attention of the $40-billion Aditya Birla Group, which is likely to explore business opportunities in the space.