E-commerce in India: From Tiger Global to Sequoia, top private equity investors tighten purse strings

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New Delhi | Published: January 23, 2017 6:29:22 AM

Tiger Global Management isn't having what one would call a roaring time. Its biggest bet in India— e-retailer Flipkart—posted a loss of R2,306 crore in FY16, following it up with a loss of R1,296 crore in the nine months to December.

e-commerce-reuters-lTiger itself hasn’t invested in Flipkart since it last put in $one billion in 2014 along with Naspers, GIC, Accel Partners and others even though the e-retailer is rumoured to be looking to raise money. (Reuters)

Tiger Global Management isn’t having what one would call a roaring time. Its biggest bet in India— e-retailer Flipkart—posted a loss of R2,306 crore in FY16, following it up with a loss of R1,296 crore in the nine months to December.

In what seems to be serial downgrading, T Rowe Price last week marked down the shares of Flipkart valuing it at just short of $ 10 billion. Before that, in November 2016, Morgan Stanley had lowered the valuation by a steep 38% to just $5.54 billion.

Tiger itself hasn’t invested in Flipkart since it last put in $one billion in 2014 along with Naspers, GIC, Accel Partners and others even though the e-retailer is rumoured to be looking to raise money. Indeed, in 2016, Tiger did not invest in its Indian ventures although in 2015, it had put in $2.378 billion, according to Tracxn data.

That seems the story across for the e-commerce sector where ventures are not turning profitable as fast as investors were hoping. Several top private equity (PE) funds were not been as generous last year with funds as in earlier years. Sequoia Capital, for instance, invested a lot less—just $531 million—last year whereas in the year before it had picked up stakes in Cardekho, Stayzilla, Practo, Dailyhunt, FreeCharge, amongst others, spending $1.2 billion in all. Sequoia has betted on ventures such as Mobikwik, Byju’s Classes, Zoomcar, and Voonik.

Similarly, Accel Partners, an investor in online cab aggregrator firm Ola Cabs since 2014, has been a lot less active; its investments shrank to less than $400 million in 2016 from $1.3 billion in 2014 (the year is correct)
In recent months, the supply of capital has tightened, forcing players especially in hyper-competitive segments to settle for lower valuations. Companies, such as Housing.com, Jabong and Commonfloor, were sold at a valuation lower than their last funding rounds. Myntra acquired Jabong at nearly one seventh of its last announced valuation a couple of years back. Fabfurnish was sold at a distressed valuation of US$3 mn to Future Group—the company had raised US$30 mn in three rounds until 2014. Housing.com is valued at about US$70-75 mn in the recently announced merger with PropTiger (it was valued at over US$200 mn in the earlier rounds in 2014).

While companies such as Snapdeal, Hike, Shopclues and Bookmyshow managed to get decent valuations in their funding rounds during 2016, there were few and far between. The slowdown in funding is not surprising given the large losses posted by e-commerce players in 2015-16. A clutch of 14 companies, which included e-retailers, furniture sellers, travel portals and food ordering and delivery players, reported losses of R10,670 crore in 2015-16, up 138%, according to Kotak Institutional Equities. Snapdeal posted losses of close to Rs 3,000 crore nearly twice its revenues.

Money raised by Internet companies dropped to a three-year low in the December quarter, with less than $300 million coming in, research from Jefferies showed; the $2.7 billion invested in 2016 as a whole was 50% lower than that invested in 2015. For perspective, they had infused $2.6 billion in a single quarter in the three months to September 2015. According to Jefferies, consolidation in the sector would continue even as companies focus on profitability.

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While players were able to grow their top lines, the increase in FY16 was similar to that in the previous year, indicating that businesses were not being scaled up quite as fast as expected. In fact, going by the sharp jump in expenses on advertising and promotions, revenues were heavily dependent on these. The share of e-tailing in the fund-raising in 2016 shrank from a peak of 74% in 2014 to 37%. Among the segments that gained share were travel, social networks, services, fintech and classifieds. For instance, Hike was able to pull in $175 million while Ibibo attracted $250 million. Mobikwik raised $90 million and Byju’s Classes mopped up $140 million.

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