Monday 20 April 2015

FreeCharge investors get Snapdeal shares worth Rs.1,563 crore

Online marketplace Snapdeal has issued shares worth Rs.1,563 crore to investors in online mobile recharge serviceFreeCharge, which it acquired earlier this month.
Jasper Infotech Pvt. Ltd, which runs Snapdeal, issued preference shares worth roughly Rs.1,290 crore to four FreeCharge investors—Sequoia Capital, ru-Net, Valiant Capital and Aquila Investments, according to documents available with the Registrar of Companies. Sequoia Capital alone got shares worth Rs.700 crore.
Jasper Infotech also issued preference shares worth Rs.273 crore to FreeCharge co-founders Kunal Shah and Sandeep Tandon, the documents show.
According to Mint calculations, Snapdeal’s valuation increased to roughlyRs.28,000 crore after the FreeCharge deal. Snapdeal was valued at roughly $2 billion (Rs.12,460 crore today) when it raised $627 million from Japan’s SoftBank in November.
The valuation of Rs.28,000 crore is based on the value of shares given to FreeCharge investors. This valuation will only be validated when Snapdeal raises its next round of funds.
Snapdeal said on 8 April that it had bought FreeCharge in a bet that it can sell products and services to millions of users who use the Internet company only to recharge their mobile phones. Terms of the deal weren’t disclosed, but three people familiar with the matter said then that FreeCharge was valued at roughly $450 million, making it the biggest-ever deal in the country’s start-up business. These people declined to be named.
Apart from the fresh issue of preference shares worth Rs.1,563 crore, the Snapdeal-FreeCharge deal also included cash payouts. Mint couldn’t verify exact details of the cash payouts.
Snapdeal and FreeCharge declined to comment.
Since launching in 2010, FreeCharge raised more than $120 million from Sequoia Capital, ru-Net, Sofina Capital, Valiant Capital and Tyborne, including about $80 million in February. The sale value of FreeCharge is much higher than Flipkart Ltd’s $330 million-plus acquisition of online fashion retailer Myntra last May.
Snapdeal’s bet is somewhat similar to the move made by FreeCharge’s rival Paytm, which launched a marketplace last year to sell phones, laptops and apparel. Both Snapdeal and Paytm are hoping they can convert recharge customers into buyers of other goods and that the presence of a large and seemingly ready customer base will lower their cost of customer acquisition.
Apart from potential business benefits, the acquisition of FreeCharge, which has about 20 million users, also makes Snapdeal the company with the highest daily transactions and the largest user base, two key metrics that investors use in valuing money-losing e-commerce businesses.
Now, Snapdeal and FreeCharge will together generate more than one million daily transactions and have 40 million users on the mobile. Even though a majority of these transactions are low-value, money-losing recharge deals, and these will hit Snapdeal’s current average revenue per order, the sheer size of transactions may help the company attract higher valuations.
“The intention of getting compensated in stock is that if there’s upside in valuation, then both the buyer and seller can enjoy the benefits,” said Harish H.V., partner at Grant Thornton India Llp, an advisory firm. “However, from a seller’s point of view, it’s always better to get at least some cash so that you can see some immediate benefits of selling. And in a case like Snapdeal-FreeCharge, giving a mix of cash and stock makes sense since FreeCharge will continue to operate independently.”

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