Snapdeal may draw investments from Alibaba, Foxconn
India’s second largest e-commerce firmSnapdeal is in talks with Taiwan-based phone parts supplierFoxconnTechnology Group and Chinese e-commerce giant Alibaba Group Holding Ltd to raise money, two people familiar with the development said.
Foxconn and Alibaba have held talks to invest in Snapdeal but no deal has been finalized yet, the two people cited above said. They declined to be named as they are not authorized to speak publicly on the issue.
Separately,The Wall Street Journal (WSJ),citing people familiar with the matter, reported on Tuesday that Foxconn and Alibaba are in talks to jointly invest $500 million for a 10% stake in the online marketplace, taking its potential valuation to $5 billion (aboutRs.32,000 crore).
One of the persons quoted by the paper said Foxconn chairmanTerry Gou convinced Alibaba executive chairmanJack Mathat it made sense to invest together rather than separately in Snapdeal.
Snapdeal declined to comment. Foxconn did not respond to an email seeking comment and Alibaba said it would not comment on market rumours and speculation.
Snapdeal’s valuation has risen sharply in recent times. In November last year, it was valued at roughly $2 billion (aboutRs.12,400 crore) when it raised $627 million from Japan’sSoftBankGroup. It increased to roughlyRs.28,000 crore after it acquired mobile recharge firmFreeCharge,Mintreported on 18 April.
Apart from SoftBank,eBayandBlackRockare the other major investors in Snapdeal.
Alibaba revived talks to invest in Snapdeal after earlier discussions fell through due to differences over Snapdeal’s valuation, said a report inThe Economic Timeson 15 May.
A stake in Snapdeal could help Alibaba expand its presence in India’s e-commerce sector after its payments arm, Ant Financial Services, invested $575 million inPaytm, an online payment solutions provider and marketplace.
TheWSJreport pointed out that with a stake in Snapdeal, Foxconn could give its clients a sales channel in the country. Foxconn is also said to be looking to develop a logistics operation, apart from a funding platform for Indian start-ups, in an attempt to diversify its portfolio.
Foxconn recently announced that it was looking to build 10-12 plants in India by 2020, which may include an iPhone manufacturing facility as well. The company separately announced that it was looking at investment opportunities in India.
Despite receiving more than $1 billion in 2014, Snapdeal, which competes withFlipkartandAmazonIndia in a cash-intensive market, needs more capital as it is on an acquisition spree.
On Monday, Snapdeal said it bought Letsgomo Labs, a mobility solutions company, to strengthen its position in mobile commerce as online consumers in India increasingly choose to shop on their phones. Letsgomo is Snapdeal’s sixth acquisition this year.
A fresh infusion would also help boost its image in the investor community, particularly with larger rival Flipkart aggressively raising money. Over the past 14 months, Flipkart has received nearly $2 billion in cash and the company is close to raising another $600-$800 million,Mintreported on 31 March.
Founded in 2010 byKunal BahlandRohit Bansalas a deals site, Snapdeal, promoted by New Delhi-basedJasper Infotech Pvt. Ltd, has become the biggest local rival to Flipkart.
“It’s become a bit about who blinks first. It’s not just the companies, but their investors too, who have to react to fund-raising by rivals. At some point soon, the fund-raising will have to slow down because these companies will need to show a path to profitability,” saidHarish H.V., partner,Grant ThorntonIndia Llp.
Internet companies have already received more than $2 billion so far in 2015, according toMintresearch. Other than Flipkart and Snapdeal, even smaller companies such asZivameandPepperfryare looking to raise fresh capital, according to several people familiar with the matter.
Online retail sales could touch anywhere between $48 billion and $60 billion by 2020 from $4.47 billion last year, helped by explosive growth in smartphone penetration and the resultant increase in mobile commerce, financial services firmUBSwrote in an April report.