Chinese e-commerce giant Alibaba, which was widely tipped to be eyeing an entry into India for a long time, apparently did so quietly yesterday by picking up a significant equity stake in the newly-formed marketplace business of the homegrown digital payments major Paytm, at a time when the incumbents in the country are reeling under operational pressures leading to retrenchments and cut in valuations.
Alibaba’s $177 million investment in Paytm Mall, along with $23 million by the private equity player SAIF Partners, is sure to pit it against Amazon India, Flipkart, Snapdeal, Shopclues and others, making it one among the most prominent players in the fast-crowding Indian e-commerce industry.
Earlier last year, Paytm — India’s largest mobile payments wallet firm — hived off its e-commerce business into a separate arm called Paytm Mall, with the speculations flying high that it would lead to a prominent investor putting in funds into the new entity.
Alibaba already has a significant equity stake — currently believed to be at over 40% according to news media reports — in Paytm’s holding company One97, led by businessman Vijay Shekhar Sharma. Both, Alibaba and SAIF Partners are early investors in Paytm through their investments in One97.
The fresh investment by Alibaba in Paytm Mall will reportedly take its stakeholding in the e-retailer to 36.31%, while SAIF Partners will hold 4.66% post the funding.
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Alibaba’s entry into the Indian e-commerce space may stretch the already struggling existing players, with fresh price wars and other competitive business practices, something similar to what has been recently seen in the Indian telecommunication industry with the entry of Reliance Jio, which upset the financial position of the incumbents with its free service offers leading to a drastic cut in mobile telephony tariffs.
Alibaba’s deep pockets, and Amazon’s committed $5 billion investment in the Indian unit indicate that the good days for e-commerce customers are here to stay as the companies might try to stay competitive with attractive offers.
This is at a time when Indian e-commerce companies appear to be beginning to rationalise their business operations and focus on generating return on investments. Earlier last week, Snapdeal said it would cut 600 jobs in order to streamline its business operations and correct some of the wrong business decisions. Interestingly, Paytm’s Vijay Sharma posted a tweet inviting the employees sacked by Snapdeal.
On the other hand, Flipkart continues to see valuation markdowns by investors, with the latest being Macquarie Group’s Optimum Fund, which yesterday valued the homegrown company at $10.4 billion, less than the $10.8 billion at the end of September. Flipkart has faced similar or steeper valuation markdowns by Morgan Stanley and Fidelity.