Wednesday 22 July 2015

Top e-tailers to raise up to $5 billion in a year

In about a year, top e-commerce companies are expected to raise as much funds as the three sector leaders raised in about five years. Sources told Business Standard that currently, three to four e-commerce majors are tying up anything between $3.5 billion and $5 billion, to be spread through 12 to 15 months.

Only after that would a few e-commerce companies go for an initial public offering (IPO), they added. Companies such as Flipkart and Snapdeal will have to be well-funded to go for an IPO, said a senior executive at an e-commerce company.

Besides, Indian e-commerce companies are also gearing up for competition from China's Alibaba, which is likely to up the ante in India soon, in a tie-up with One97, which runs mobile wallet and e-commerce platform Paytm.

These start-ups, all in the red, are also keeping funds ready to fight Amazon. The Jeff Bezos-led e-commerce player is reportedly planning to invest about $5 billion in India and ensure India becomes its second-largest market, after the US. Last year, a day after Flipkart said it had raised $1 billion, the Seattle-based group had announced an investment of $2 billion in India.

That's not all. Conglomerates such as Reliance Industries, Tatas and the Aditya Birla Group are strategising for their respective e-commerce ventures, making it tougher for the current crop of start-ups.

When contacted about the company's India investment plans, an Amazon spokesperson said, "We don't comment on anything we might or might not do in the future." Others, including Flipkart, Snapdeal and Ola, did not comment on their fund-raising plans.

According to calculations by investment banking firm Avendus Capital, internet-based companies raised a total of $5.5 billion in FY15. Of this, the top ones - Snapdeal, Flipkart, Paytm, Ola, Quikr and Zomato - accounted for about $3 billion.

Aashish Bhinde, executive director (digital media and technology), Avendus Capital, said according to estimates, a total of $8 billion is expected to be raised this financial year, of which the top companies will account for $4-4.5 billion.

"If we look at the top companies, they are all spending money to grow the market. A large chunk of their spending is towards, logistics, technology and demand or supply incentivisation. They can either reduce the burn rate and not grow at the same pace or keep investing towards growing the market. Given most of them are focused on the latter, I don't see the burn rates coming down. So, they will continue to raise the same amount or slightly higher rounds," Bhinde said. However, the top companies are now accounting for almost half the funds flowing into the market, compared to about two-thirds last year. This was because other companies, such as Shopclues, Bigbasket, Oyo rooms, Policybazzar, Saavn, Pepperfry, etc, were also becoming sizable, Bhinde said. "They are raising $50-$100-million rounds and are scaling up. The market is developing more depth, which is a positive sign."

Sandeep Aggarwal, founder of Shopclues and the largest shareholder in the company, said e-commerce companies must "get their fundamental story right" before going for an IPO. For that, they would raise funds aggressively, he added.


Raised about $850 million in 2014; nothing yet in 2015
GMV: $2 billion by end of 2014, target of $10 billion by 2015-end
Valuation: $1.87 billion in Oct 2014; seeking valuation of $5 billion

Got investment of $575 million from Ant Financial Services, affiliate of Alibaba, and undisclosed amount of funding from Ratan Tata in 2015
GMV: $1.5 billion as of June 2015, targets $4-5 billion by year-end
Valuation: $1.5 billion to $2 billion

Announced investment of $2 billion in 2014; reports suggest $5-billion warchest being readied
GMV: About $1 billion as of Sept 2014

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