E-commerce major Snapdeal has been spending tons of money to offer huge discounts to customers. That means profits have been elusive. While the e-retailer is flush with funds, there is a limit to how long it can stay out of the green. Looking to allay fears, Snapdeal has revealed that it expects to be operationally profitable in the next three years and that it is investing heavily in building infrastructure to scale up its business even further.
“More specifically in the next three-year period, at least in our business, I feel fairly confident that we will be at that point of profitability,” Snapdeal CEO Kunal Bahl said at an International Chambers of Commerce event recently.
He was responding to a query on when the company would become operationally profitable.
Bahl said that there are large infrastructure gaps, which the company and other players in industry are trying to bridge with investments.
“We have to frontload a lot of our investment to build infrastructure, but I don’t think we will have to do that forever. Today we are building essentially highways of e-commerce, but there are only cars on it. As number of cars increases on it, the economics will start marking sense,” Bahl said.
He said that global e-commerce giant Alibaba was also not profitable for many years and last year they generated EBIDTA (operational profit) of USD 5-6 billion.
“Once profitability starts in these (e-commerce) businesses then they tend to become very profitable. Arguably most profitable company in the world, but until then you have to front load capability because if their no capability these business will disintegrate over a period of time,” Bahl said.
He said that while building capacity, e-commerce segment is generating lot of jobs and also leading to optimum utilisation of existing infrastructure.
“We would have created direct-indirect jobs of around 3-4 hundred thousands of jobs just as one company. As an industry the number would be over a million,” he said.
When asked if Snapdeal is exploring alternate business options, Bahl said the company is looking to work in partnerships to grow its business.
“We now work with 60-70 logistics companies across the country. We work with India Post very successfully where they are delivering hundred thousands of packages daily. Growing up everyone use to tell me India Post service is not great. We have been pleasantly surprise how good their network is,” he said.
Talking about business statistics, Bahl said two years ago 5 per cent of Snapdeal orders were made from mobile phones which has now increased to 75 per cent.
“Much of it is incremental. It is not that PC got cannibalised but mobiles added to it. Top selling non-electronic item in small towns of India is blood sugar monitor. Unfortunately we have rampant diabetes and diabetes susceptibility,” he said.