Flipkart, Amazon bleed: E-commerce burns cash, but investments keep pouring in

By: |
New Delhi | Updated: June 06, 2019 10:29 AM

Even as Amazon and Flipkart slug it out for the top spot in India’s e-retailing arena, profit and loss statements across the sector remain a sea of red.

That may be a little less than the $8 billion they bet during this time last year but it’s nonetheless impressive.

Even as Amazon and Flipkart slug it out for the top spot in India’s e-retailing arena, profit and loss (P&L) statements across the sector remain a sea of red. Losses for a clutch of 30 companies in the year to March 2018 nudged Rs 17,000 crore. That’s about a 100% rise over the losses of Rs 8,000 crore or so reported in 2014-15.

If that seems somewhat smaller than anticipated, analysts at Kotak Institutional Equities (KIE), who did the analysis point out, it’s because some accounts are yet to come in; once added, the losses, they believe, would comfortably hit Rs 19,000 crore or thereabouts.

The top line is a lot less troubling. Revenues jumped an impressive 250% plus in three years to around Rs 62,000 crore in March 2018. Nonetheless, the rising losses, at a time when the pace of revenue growth is slowing, should have discouraged investors given customer acquisition costs remain high as players try to grow market share.
But they aren’t put off and are willing to wait it out till they see money as can be seen in the fairly strong infusions this year. “Data pertaining to funds raised by e-commerce companies indicates that PE/VC funding is fairly robust until October, 2018,” analysts at KIE wrote.

According to data sourced from Tracxn, PE and VC firms invested a chunky $7 billion in online ventures between
January and September. That may be a little less than the $8 billion they bet during this time last year but it’s nonetheless impressive.

Private internet companies have done well for themselves, picking up over $6-billion estimates by Jefferies say. Of this, over a third of the investments or $2.4 billion flowed in during the September quarter alone. Apart from SoftBank and Alibaba, which continue to make big bets in India, clinching evidence in India’s internet space came from the $16-billion investment that Walmart made in Flipkart earlier this year.

The cash burn may be high but e-retailers believe it is money well spent. It’s not only customers they’re catering to by making things more affordable, they’re looking out for vendors too. Amit Agarwal, senior vice-president and country manager, Amazon India , for instance, has said his firm often looks to give sellers the maximum return on investments by building products and services for them that bring down their costs and boost sales. Agarwal noted in a recent interview that over the last 12-18 months, more and more of their sellers were choosing to sell on Amazon. That shows that sellers are broadly successful on Amazon’s marketplace and not just a few big sellers driving sales.

The sheer size of the market convinces e-retailers that there’s room for everyone, even latecomers. Late last year, Vijay Shekhar Sharma, Paytm founder and CEO, had exuded confidence in Paytm’s marketplace, saying it was very much in the race with Amazon and Flipkart. “We are working towards building a cost-effective e-commerce platform,” Sharma had said.

An estimate by VCCC Edge put the investment in food tech in the last five years at close to $2.3 billion with the sector now boasting of two unicorns in Zomato and Swiggy. Zomato’s performance in 2017-18 “was encouraging” with revenues growing 40% and Ebitda losses coming off meaningfully to Rs 84 crore.

However, it could, with others like Swiggy, well see bigger losses in the current year since they’re looking to scale up their delivery business manifold, KIE analysts noted. Already, high last-mile delivery costs have compelled hyperlocals like Grofers to switch to an inventory-led model from an aggregator-oriented one. Even so, they’re struggling as margins remain thin. However, the large amounts of money mopped up by food delivery and grocery delivery companies have “materially altered the narrative of these companies — from a focus on unit economics, these have started spending heavily on customer acquisition once again”.

Co-founder and CEO of Grofers Albinder Dhindsa had claimed earlier this year that in terms of savings and pricing, Grofers was now at par with D-Mart. “We wanted to be the D-Mart for online consumers,” Dhindsa said in an interview to a newspaper. Given this would mean losses for some more years, the business would need to be supported by large amounts of funding. As KIE points out, the reliance on financiers is high and any pullback in funding may lead to some sort of consolidation.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Among Us!, Toca Life World among winners of Apple 2021 App Store Awards: Full list here
2Spotify 2021 Wrapped goes live to give recollection of everything you listened to this year
3Microsoft announces Teams Essentials for SMBs: Top features, India pricing and everything to know