E-retailer Flipkart announced on Monday that it had raised $1.4 billion from three new investors — Tencent, eBay and Microsoft — in what is the biggest ever fund-raising by an internet start-up in India. In the process, the e-commerce player has acquired eBay’s India business; e-Bay has infused $500 million into the business founded by Sachin Bansal and Binny Bansal. The funds will give Flipkart the much-needed financial muscle to fight global e-commerce giant Amazon in India.
The transaction values the company at $11.6 billion and while this may be about 25% lower than the peak valuation of $15.2 billion, it is nevertheless commendable for a company hit by a series of markdowns. In late February, Morgan Stanley had valued the business at a mere $5.37 billion. With Amazon India snapping at its heels, the e-retailer will need all the cash it can lay its hands on. Jeff Bezos, founder and owner of the US-based e-commerce giant, has said it will invest $5 billion in Amazon’s India operations.
The confidence of investors, industry watchers observed, probably stems from their faith in the abilities of Kalyan Krishnamurthy, the current Flipkart CEO and a former Tiger Global hand. Since Krishnamurthy took charge in January, leaving the founders with diminished responsibilities, the business is believed to be doing better.
In 2016, Sachin Bansal was replaced by Binny Bansal as CEO and elevated to the position of chairman. Subsequently, Binny Bansal was replaced by Krishnamurthy and is now group CEO. The second factor that may have convinced investors to invest in Flipkart is the possible exit of the third biggest e-retailer, Snapdeal.
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Indeed, Flipkart is reportedly acquiring the near-bankrupt Snapdeal, nudged by the latter’s biggest investor SoftBank. As part of the transaction, the Japanese internet and telecom major could infuse a big chunk of capital into Flipkart, say persons familiar with the development.
Sandy Shen, research director, Gartner, said the funds would, at least in the short term, help keep the competition especially Amazon at bay. “This round has seen investments by strategic investors who will bring technology and market expertise that Flipkart earnestly needs,” Shen said.
Flipkart reported a loss of Rs 2,306 crore in FY16, more than twice the losses in the previous year, although revenues grew to Rs 1952 crore from Rs 772 crore in FY15.
The $1.4-billion fund-raising takes the total investments into Flipkart to $4.55 billion; the company’s fashion portal Myntra had acquired rival Jabong a few months back.
The new pack of investors in Flipkart brings with it various kinds of expertise. Microsoft recently signed a cloud partnership deal with Flipkart. Tencent brings experience in linking social networking and e-commerce. “This strategic partnership enables Tencent to participate in the exciting opportunities in e-commerce and payments in India,” said Martin Lau, president, Tencent.
Tencent also gets a strong foothold into the Indian market; its Chinese rival Alibaba has already made headway here through its investment in Paytm.