Flipkart-Snapdeal deal: Negotiations on for higher offer

After Snapdeal’s board reportedly rejected Flipkart’s USD 850 million takeover offer, the two parties are now holding parleys over the USD 150-200 million valuation gap. According to sources privy to the development, Flipkart had initially offered USD 1 billion for the deal but post the due diligence, it made an offer for USD 800-850 million.

The offer was rejected by Snapdeal’s board as it felt the amount undervalues the company as the due diligence report is clean, one of the sources said.

 “However, the deal isnt off and negotiations will continue. The differences over Snapdeals valuation could delay the process,” they added.

Emails sent to Snapdeal, SoftBank and Flipkart did not elicit response.

SoftBank, Snapdeal’s largest investor, has been proactively mediating the sale for the past few months. The board also has representation from Snapdeal founders (Kunal Bahl and Rohit Bansal), NVP and Kalaari Capital.

EY, which was roped in by Flipkart to conduct a due diligence on Snapdeal, submitted its report a few days ago, following which the offer was made. The deal between Snapdeal and Flipkart, if completed, would mark the biggest acquisition in the Indian ecommerce space.

One of the leading contenders in the Indian ecommerce space, Snapdeal has seen its fortunes falling amid strong competition from Amazon and Flipkart. Compared to a valuation of about USD 6.5 billion in February 2016, the sale to Flipkart could see Snapdeal being valued at a much lower level.

SoftBank has already written off over USD 1 billion on valuation of its investment in Snapdeal.

The deal has been in works for a few months now. SoftBank saw initial hiccups in bringing early investors – Nexus Venture Partners and Kalaari Capital – on board with the sale proposal. However, these firms later agreed to the proposal.

But, PremjiInvest – an investor in Snapdeal that does not have board representation – has recently written to the company seeking greater clarity on the terms and sought equal treatment of shareholders for payouts from the deal.

Mobile, electronics reclaim ecommerce after GST-sales, says RedSeer report

When ecommerce began taking off, mobiles and consumer electronics were the rock stars of the industry, as they brought the most sales. The trend appeared to change however, with more consumers shifting towards fashion and lifestyle goods. Bringing more focus to fashioncategories and private fashion labels.

But, a recent analysis by RedSeer Consulting, a research firm, revealed that the demand for mobile phones and consumer electronics came back in the month of May 2017. These categories reclaimed ground lost to online fashion retail in January, in spite of the 30% dip in online retail to $18 billion after demonetisation.

Online fashion sales patterns

The report claimed that sales for fashion commodities like apparel and shoes were at an all time high before demonetisation, but fell after the ban on Rs.500 and Rs.1000.

Rise and fall in sales

On account end of season sale discounts on major fashion platforms, in January, fashion sales online were 22% from 15% in October. The launch of new niche fashion portals like Voonik , Fabally and Stalkbylove also added to this surge in online fashion sales.

By May, fashion sales were recorded at 18%. This is because retailers were mainly worried about clearing off stocks of mobile and electronic products, as the roll out of GST was fast approaching.

Purchase trends point to mobile phones

The household electronics category sales surged to 20% in May from 18% in January. This was a result of 20% discounts on these products.

Mobile phones, on the other hand, accounted for 52% online retail sales in May, from 49% in January. The largest online retail category got even bigger with the push of discounts and new launches, the report stated.

From December, last year, Flipkart introduced 11 smartphone models like Samsung, Motorola and Lenovo, which are exclusive to its platform.

Amazon also introduced exclusive products like Xiaomi’s Redmi 4 and Redmi 4A, which are a big part of its flash sales. The company’s spokesperson mentioned that 2016’s smartphone sales rose by over 135%.

The annualised estimates from RedSeer show that online retail sales fell in January to $16 billion from $26 billion in October last year. But in May, they rose to $18 billion, on account of mobile phones and consumer electronics jumping back to the top.

But, will this trend remain once GST fully kicks in? What do you think online sellers?

Snapdeal declines Flipkart’s $800-850 million valuation; merger deal called off?

Earlier this week, IOS reported that Flipkart has wrapped up Snapdeal’s due diligence and the reports came out clean. Insiders also disclosed that the deal might be closed in a week.

As per news reports, Flipkart did make an offer but Snapdeal rejected it. The reason? Low valuation.

Snapdeal not happy with $800-850 million

It was earlier speculated that Flipkart would put a $1 billion valuation next to Snapdeal for this merger & acquisition deal. The expectations increased after due diligence completed without any major hiccup.

But Flipkart has made an offer of $800-850 million, which is much lower than the expected price. Therefore, Snapdeal’s parent company Jasper Infotech has declined the buy-out offer.

A source revealed,

“The due diligence has been clean, with no major red flags raised. Therefore, the price being quoted significantly undervalues the company.”

Would the deal be called off?

Apparently, no. This was just the first offer that Flipkart has made and the discussions are still on. But the disagreement over valuation would definitely delay the merger deal, which would increase cash-strapped Snapdeal’s problems.

The Flipkart-Snapdeal merger has hit several roadblocks ever since the talks began. First, the early-stage investors and co-founders Kunal Bahl & Rohit Bansal were not on board. Then minor investors raised objections. The Flipkart-Snapdeal acquisition deal is also under Reserve Bank of India (RBI) scanner to determine if there are any foreign exchange violations. In addition, Flipkart’s exclusivity agreement with Snapdeal also expired on July 3rd.

But each hurdle was handled by the concerned parties, in particular by Snapdeal’s largest investor Softbank. The Japanese MNC is the one that is spearheading this deal. People close to development believe that this hurdle would also get resolved by the investors, Snapdeal’s Softbank and Flipkart’s Tiger Global.

If it doesn’t, then the Kunal Bahl-led company has its options ready.

“While Flipkart is excepted to make a revised offer to Snapdeal, the board of the company may look at selling assets like Freecharge, Vulcan Express post the end of exclusivity period. Snapdeal may also looking at other options to sell to if Flipkart doesn’t go through with the acquisition,” an insider said.  

Would Flipkart agree to revise its offer price? If not, then would Snapdeal accept the lower valuation offer?

Amazon-Kirana store partnerships pay off; fulfilment cost 10% lower each year

Amazon was the first to tie up with kirana stores, in 2014, to improve the quality of its logistics. This it managed through an alternative supply chain initiative called the I Have Space (IHS) Programme. With kirana stores employed to take care of last mile fulfilment the etailer expected to:

• Overcome the high percentage of failed deliveries
• Reduce delivery costs
• Speed up delivery

Results of IHS

During the period from January to March, the total number of orders fulfilled by IHS reached 28 percent, claims RedSeer Consulting. Back in 2016, during the first half, the total number of deliveries handled by 4,000 kirana stores all over India amounted to 15 percent. With 400 stores in the first half of 2014, only 1% deliveries were fulfilled by kiranas. By the initial half of 2015, it was 5% of orders, as Amazon’s network of kirana stores rose to 1,100.

Year-on-year, partnerships with kirana stores have reduced last-mile delivery costs for Amazon by 10%, per packet. The US-based etailer also leverages its relationship with kirana stores for its Kirana Now platform.

Amazon interests kirana’s in tying up with it, through an attractive fee structure. Every order delivery attempted by a kirana store earns it Rs.20-25. Plus, these partners are guaranteed a minimum of Rs.2,000-8,000 per month. So, on an average these stores make about Rs.25,000 in revenue every month.

Others following the kirana trend

Flipkart launched a service similar to Amazon’s IHS programme back in 2016, to assist Ekart with last-mile delivery.  It roped in 700 kirana stores and local stores for this purpose and even tied up with a network of pharmacies. Bigbasket also used the services of kirana stores to ensure 1-hour deliveries.

Marketplaces bar sellers non-compliant with GST; a sales dip likely to occur?

To ensure the smooth roll-out of the Goods and Services Tax (GST), the government deferred TDS and TCS under the tax. This meant that persons selling through ecommerce operators liable to collect TCS would not be required to obtain registration immediately. As a result, merchants had more time to register under the tax avoiding seller depletion.

But, it looks like the impact of GST is causing marketplaces to bar non-GST compliant sellers temporarily.

Why is this happening?

Marketplaces Amazon India and Flipkart made it mandatory for sellers to register under the new tax to keep selling on their platforms. Sellers were requested to obtain GST Identification Numbers (GSTIN) by July 1. Unfortunately, many sellers haven’t been able to meet this requirement due to various reasons. Others have tapped out of the ecommerce ring as they see very little business prospects under the new tax regime.

Will marketplace sales drop?

With the reduction in their seller bases, marketplaces will be falling short of products in certain departments. But, marketplaces claim that this will not disrupt sales.

Flipkart mentioned, “We don’t foresee any impact on sales. Some of the selection may get lost… (but) due to tax being lowered in many categories like fashion, we expect the sellers to pass the benefits to our customers.”

At the same time, the etailer is confident that those not compliant with the tax will be back soon on the platform.

The company said, “Close to 95 percent of our sellers who contribute to our sales have become GST-compliant. The rest are in the process of obtaining GSTINs from the government as in certain states there is a delay in getting the same.”

Compliant list

• Flipkart – 95% out of 100,000 sellers
• Paytm Mall – 80% of seller submitted GSTINs
• Snapdeal – 92% of top sellers sent in GSTINs

Amazon, however, did not disclose its GST ready seller proportion. But, based on a previous report, the etailer had only 1/3rd of sellers prepared for the tax. The foreign ecommerce firm only stated,

“We believe GST is good for the ecommerce industry as it would eliminate hurdles in inter-state delivery and subsume the entry tax introduced on ecommerce shipments by some states.”

What do sellers think?

According to assessments by the All India Online Vendors Association, many online sellers want to continue selling under this tax.

A spokesperson for the group of 2,000 online sellers said, “Some of the categories will have to be marked up on price due to GST. Those sellers have chosen not to go ahead (and register). However, the GST rollout has been smooth.”

What about you, are you on the same page as GST? If not, here’s how you can be.