Flush with funds, Flipkart can now up the ante in the high-stakes battle against Amazon India in what is probably the world’s fastest growing e-commerce market. While Amazon’s Jeff Bezos has committed $5 billion to the Indian business, Flipkart now has $4 billion in the bank after Japanese investor SoftBank’s infusion of close to $2.5 billion. In April, Flipkart raised $1.4 billion from Tencent, eBay and Microsoft at a valuation of $11.6 billion.
It is not immediately clear whether SoftBank has infused the $2.5 billion into Flipkart alone or some of this will go to private equity player Tiger Global in return for a stake.
What is clear, though, is that the competition between the two for market share will become more keen. Propelled by rising smartphone penetration, the launch of 4G networks and increasing consumer wealth, the Indian e-commerce market is expected to grow to $188 billion by 2025 from around $16-17 billion currently. With Snapdeal having all but fallen by the wayside, it’s now a two-horse race.
In an assessment made some time back, Bank of America Merrill Lynch had noted Amazon’s share was expected to rise from 28% in 2016 to 38% by 2020. Armed with a foreign direct investment approval, Amazon is expected to make a splash in the food segment while Flipkart is likely to focus on fashion where it has an edge. Grocery is the largest segment of the retail market in India with an estimated annual turnover of $350 billion annually.
However, the market is extremely fragmented, with organised retail (offline plus online) accounting for less than 5%.
Compelled to offer big discounts to lure customers to shop online, both Amazon India and Flipkart have been incurring losses. Flipkart reported a net loss of Rs 2,306 crore for the year to March 31, 2016, on revenues of about Rs 1,952 crore. Amazon Seller Services — the marketplace arm of Amazon India — posted revenues of Rs 2,275 crore in FY16, up 122%. During the period, its losses increased to Rs 3,572 crore.
Amazon India recently claimed it has overtaken Flipkart (excluding fashion units Myntra and Jabong) both in terms of value and volume over the past 18 months. In the June quarter, Amazon’s gross merchandise sales (GMS) grew 59% year-on-year while unit sales rose 88%. According to Flipkart the retailer was growing at 60-70% in terms of GMS.
On Thursday Flipkart said SoftBank’s investment, a mix of primary and secondary capital, is part of the previously announced financing round with Tencent, eBay and Microsoft. With this, the total amount raised by Flipkart is almost $7 billion, the biggest raise by an Indian Internet start-up.
SoftBank’s investment, via its $100-billion Vision Fund, makes it the largest shareholder in Flipkart, displacing Tiger Global, which is likely to make a partial exit following the deal. Ten days ago, the merger negotiations between Flipkart and Snapdeal failed; as the majority stakeholder in Snapdeal, SoftBank is believed to have written off its estimated $900-million investment in the firm.
Flipkart co-founders Sachin Bansal and Binny Bansal said very few economies globally attract such overwhelming interest from top-tier investors. Harish HV, partner, Grant Thorton, believes the infusion is a vote of confidence for the Indian e-commerce industry. “ Flipkart will now be able to attract talent after seeing a churn in the management,” he said.
SoftBank has been an early and aggressive investor in the Indian e-commerce and start-up space, investing in companies such as Paytm, Snapdeal, Ola, Inmobi, Oyo, Grofers and Housing.com, to name a few. It had recently invested $1.4 billion in Paytm.