Shopclues approaches Snapdeal for buyout as losses mount

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Published: April 11, 2019 2:48:41 AM

Documents sourced from Tofler show that ShopClues posted losses of Rs 347.15 crore in FY17 while revenue from operations stood at a mere Rs 180.03 crore.

Founded in July 2011, Gurgaon-based ShopClues has managed to raise only 5.9 million in funding so far, according to data from Crunchbase.

With mounting losses – over Rs 270 crore in FY18 – e-tailer ShopClues is understood to have approached Snapdeal for a possible buy-out.

“ShopClues has approached Snapdeal but the talks are in a very preliminary stage. The contours of the deal have not yet been worked out,” a source aware of the discussions told FE. Documents sourced from business intelligence platform Tofler showed that ShopClues posted losses of Rs 347.15 crore in FY17 while revenue from operations stood at a mere Rs 180.03 crore during the period. Losses in FY16 were higher at Rs 383.05 crore while in FY15, the firm reported losses of over Rs 100 crore.

“While we don’t respond to market rumours, there are no talks of merger with anyone,” a spokesperson at ShopClues said in response to FE’s query. Snapdeal did not respond to FE’s queries.

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Founded in July 2011, Gurgaon-based ShopClues has managed to raise only $255.9 million in funding so far, according to data from Crunchbase. Reportedly, investors of the company have refused to back it any further. The firm had last raised about Rs 110 crore in 2018 from existing investors in an internal funding round.

“ShopClues has not been able to raise any new capital and their cash burn is high. Also, because Snapdeal started to focus on the same market as ShopClues was focused on, Snapdeal has taken a lot of business away from ShopClues, which is causing more burn and losses for ShopClues,” said an analyst tracking the sector on condition of anonymity.

After Snapdeal’s merger talks with Flipkart failed in 2017, the firm did not raise capital and instead restructured their business to focus on less loss-making segments. The company started focusing on tier-II and tier-III cities and shifted from branded products to selling private labels and small local brands, the analyst explained. Snapdeal whose losses reached a staggering Rs 5,142.9 crore in FY17 declined to Rs 652 crore in FY18 because of the new strategy. Losses in FY16 were at Rs 2,923.56 crore, documents sourced from Tofler showed.

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Going forward, since the next phase of growth of users and transactions will arise from tier-2 cities and beyond, the large horizontal players will increase their attention on these markets, thereby impacting the current players which have strategically focused on these markets from before, said Ankur Pahwa, partner at EY.

“In spite of potential scale, consolidation is going to play out as a theme in most segments of the e-commerce. India’s wide and varied demographics, current pace of growth of transacting users and challenges in distributed supply chain continue to result in high cash burn and challenging unit economics; this makes consolidation amongst players a natural state of play, allowing for bringing together related synergies that will allow these companies to sustain and stay relevant,” Pahwa said.

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