Well be the first e-commerce firm to turn profitable: Kunal Bahl, CEO Snapdeal

Written by Aveek Datta | Updated: Sep 17 2014, 15:51pm hrs
SnapdealRevenues of e-commerce players and funding received from investors have been growing phenomenally.
Online market place Snapdeal.com, in which veteran business leader Ratan Tata invested in his personal capacity, will be the first e-commerce company in India to turn profitable, its chief executive Kunal Bahl is confident. In an interview with Aveek Datta, Bahl states this is because the company he founded in 2010, along with his friend Rohit Bansal, has taken a conscious decision to stay away from diversifying into developing and selling private labels and stocking inventory, like some of its peers. Edited excerpts:

Revenues of e-commerce players and funding received from investors have been growing phenomenally. But when can we expect to see the first signs of profitability in this sector

I cannot comment on the industry since everyone has a different way of running their business. But one thing is for sure that we will surely be the first e-commerce company to turn profitable in India. This is because of the business model we follow and our commitment to it. Even if FDI (foreign direct investment) opens up in multi-brand e-commerce in the future, we will not start buying any inventory we never have and never will. We will also not create our own label since that is in conflict with the relationships that we have with other brands. Why would a brand share its product roadmap with us, if we were creating our own products They will be sceptical of us replicating their offerings and selling them cheaper. We have been focused in our approach even when it comes to saying no to certain things. We have said no to inventory and private labels and will maintain that position. We want to focus on building the best online marketplace, along with an ecosystem consisting of sellers, merchants and courier partners.

So when do you expect to breakeven and make profits

If we wanted to breakeven, we could do so in two quarters. When it comes to the cost structure of our business, there are only two main components technology, which is really the engineers that work for us, and marketing, which is a completely discretionary spend. As revenues grow, the amount of margin that we earn cumulatively on what we sell becomes enough to pay for all this. But today, because the market is growing really fast, the trade-off is between market share and profitability. In the last one year, e-commerce in India grew 88%, but we grew at 600%, which means that a disproportionate share of new e-commerce came to Snapdeal. So it is not about if we will turn profitable, but when. And that point in time will come when we are happy with our market share stabilising at a certain level and the focus will shift towards driving better economics.

What is the future outlook

In the last one year we have grown 600% year-on-year. We clocked a billion dollars in annualised sales earlier this year, two-and-a-half years after starting the current line of business, with an investment of less than $100 million and around 1,000 people. What we have done exceptionally well is to build the largest network of sellers online. We have 50,000 sellers already and our goal is to have a million sellers in next three years. We have merely scratched the surface in terms of tapping potential sellers. In terms of the categories that are doing well, we are seeing phenomenal traction in home categories including furnishings, furniture, hardware, fixtures and sanitary ware. For example, three months ago we launched hardware and sanitary fixtures as a category. Based on the current run rate, it is going to be a R100 crore business in the next 12 months.

The sector has faced some hurdles recently with confusion on who is liable to pay value added tax (VAT), as well as the Enforcement Directorate (ED) probing foreign investment in e-tailers. What are your views

The ED issue is different. The regulations are very clear about what is possible and what is not. But the liability of paying VAT lies with the seller. We have always complied with whatever laws exist and whatever the interpretation of these laws is in the most conservative sense possible. We havent had any of these concerns and if they ever come up, we will address them very objectively. Any new industry will always have a bit of catch-up to do with regulations. Companies have to communicate their position appropriately to the right government authorities and impress upon them that the intention isnt to do something wrong. I have seen that if intentions are clear, government authorities are receptive to hearing you out, especially so in the last four-five months with the new government in place.