Paytm in talks with ADIA, BlackRock, GIC and Nomura for IPO stakes

 

Paytm is in talks with sovereign wealth funds and financial firms to become anchor investors in its upcoming blockbuster initial public offering (IPO), according to people familiar with the matter.

State-backed wealth investors Abu Dhabi Investment Authority and Singapore’s GIC Pte are among those weighing bidding to participate in the Paytm IPO, the people said, asking not to be identified as the information is private. Global financial firms such as BlackRock Inc. and Nomura Holdings Inc. are also in discussions to bid, the people said.

One97 Communications Ltd., as Paytm is formally known, is considering seeking a valuation of $20-22 billion based on initial investor feedback, they said. There are already more than enough bids to cover the shares allocated for anchor investment in the IPO, the people said.

While the draft preliminary prospectus was filed in July, it is still awaiting approval from the Securities and Exchange Board of India, one of the people said.

Negotiations are ongoing and other bidders could emerge for the stakes, the people said. A representative for Paytm declined to comment, while ADIA, BlackRock, GIC and Nomura didn’t immediately respond to requests for comment.

India’s market for first-time share sales is surging on debuts of tech firms like Zomato Ltd.’s $1.3 billion offering. The amount of money raised in IPOs this year has reached $10.8 billion, according to data compiled by Bloomberg. At the current pace, 2021 would exceed the all-time record of $11.8 billion.

Paytm, backed by SoftBank Group Corp., Berkshire Hathaway Inc. and Jack Ma’s Ant Group Co., plans to raise as much as 166 billion rupees ($2.2 billion) from its share sale, according to its draft prospectus.

Led by founder and Chief Executive Officer Vijay Shekhar Sharma, Paytm has expanded beyond digital payments into banking, credit cards, financial services and wealth management. It also supports India’s financial payments backbone, the Unified Payments Interface or UPI.

In fintech, Paytm has fended off stiff competition from a swathe of global players and has the biggest market share of India’s merchant payments, with over 20 million partners in its network. Its users make 1.4 billion monthly transactions, according to numbers in a recent company blog post.

Confederation of Indian E-commerce announced; to bring govt, industry, consumers on one platform

An apex association of e-commerce companies has been announced under the aegis of the Confederation of Indian E-commerce (CIE) to provide a neutral voice of the industry by bringing the government, industry, policymakers and consumers on one platform. CIE, which has been formed as a trust and not-for-profit organisation, will be based out of New Delhi. Key e-commerce companies as well as retail, MSMEs (micro, small and medium enterprises) and farmers associations are being invited to be active members of the CIE.

"CIE aims to provide a dedicated platform for the retail and e-commerce companies to take up economic or policy issues with the government and other relevant agencies, support to MSMEs and traditional retail, promotion of exports and access to export markets, and easing regulatory compliances for export and returns by encouraging exports," according to a statement.

In the year ending March 2021, the overall retail market shrunk by 5 per cent due to lockdown, while the e-retail market surged by 25 per cent to reach USD 38 billion. The e-commerce penetration has moved up to 4.6 per cent from 3.5 per cent last year.

A team of industry veterans have come together to build this initiative, including Amitabh Singhal (former CEO and founder of National Internet Exchange of India and past president of Internet Service Providers Association of India) and Ajay Sharma (who has around two decades of experience at India's apex business associations).

CIE has retained Venky Venkatesh, former CEO at Press Trust of India (PTI) as its strategic adviser. He brings in more than three decades of FMCG knowledge with vast experience in retail trade and media.

Technology-enabled innovations across digital payments, hyper-local logistics, analytics-driven customer engagement and digital advertisements are expected to drive growth in the sector.

"CIE will be an apex body of the industry and by the industry. CIE intends to be the neutral voice of the industry by bringing the government, industry, policymakers and consumers on one platform," the statement said.

The organisation will also build a state-level agenda by working with the state governments to support the needs of e-commerce companies and MSMEs locally.

CIE will be working closely with the state governments for integrating the MSMEs in the states with digital retail by facilitating them with the domestic and international market, it added.

The Confederation also aims to assist and build the ecosystem for the agriculture sector and promote technologies to empower the farming community.

The organisation will also undertake evidence-based, scientific policy research and advocacy, including consumer research, capacity building, thought leadership, new membership drive, and representing members' concerns and issues to the government, among others.

E-commerce companies see higher demand from smaller towns in early access sales

Ecommerce companies such as Flipkart, Amazon India and Snapdeal, which started their annual flagship sales during the weekend, reported increased demand from smaller towns and cities this year.

Both Amazon and Flipkart began early access to the sale event for Amazon Prime and Flipkart Plus members at midnight Friday.

During early access, Flipkart said it saw close to 45% of customer demand coming from tier-3 cities and beyond. Amazon India, on the other hand, reported a 21% increase in the number of sellers receiving an order from customers in tier-2 and 3 cities.

Flipkart said it reported a 40% growth in this year’s early access event as compared to comparable sales a year ago. Amazon India said that almost 60% more sellers clocked higher sales during this year’s early access event compared to last year.

Myntra and Snapdeal, which also kick-started their festive sales on Sunday, saw a sizeable chunk of sales coming from tier-2 and 3 cities. For Myntra, 40% of the orders on the first day came from small towns and cities, it said.

In a bid to reach discount shoppers first, both Amazon India and Flipkart advanced their sale dates from October 4 and October 7, respectively, to October 3.

“This year, The Big Billion Days sale has started off seeing upbeat participation by customers and sellers. E-commerce is clearly gaining increasing acceptance among the masses, and it is evident that user-friendly tech and financial constructs are helping to drive its adoption,” said Nandita Sinha, vice-president - customer and growth, Flipkart. “We will continue to do what we do best—offer products that deliver the best value and introduce features and solutions that make our platform more accessible and affordable,” she added.

According to Flipkart, smartphones and electronics continued to dominate shoppers’ baskets this year as well.

During the first day of the sale, Flipkart claimed that one in five customers chose to upgrade their smartphone, with televisions and laptops recording top sales in the home appliances and electronics category.

It added that it saw sellers from 124 new cities transact in this year’s The Big Billion Days sale, compared to last.

Amazon India said that 16% more sellers received orders during the Great Indian Festival sale compared to last year.

“Amazon Great Indian Festival 2021, our month-long festive celebrations, has gotten off to a strong start. During Prime Early Access on 2 October, the number of local shops participating in the event more than doubled compared to last year. We also saw 16% more sellers receiving orders over last year. Early data for Day 1 indicates a strong start across categories for the festive season, and we are excited by the momentum,” said Manish Tiwary, vice-president at Amazon India.

Draft e-comm rules can be taxing

In the last few years, the Indian government has been taking steps to regulate the policy environment. Initially, social media companies came under intense scrutiny from the government, which was quickly followed by a set of rules that sought to regulate such companies. More recently, India has looked to regulate e-commerce companies. However, this move could have far reaching practical and legal challenges.

The primary challenge against the new regulations is that they seem to be based on a weak legal wicket and could create bureaucratic challenges. The way the term e-commerce entity has been defined, it brings a diverse range of businesses under its definition.

More importantly, the definition of e-commerce entity under the Draft Rules does not make a distinction between FDI and non-FDI marketplace, which seemed to have been the main driving agenda behind the new regulations. Hence, the new rules have taken a hammer approach to regulate the industry rather using a fine scalpel to achieve its purpose. However, at this juncture it is pertinent to analyse if these rules will stand the test of judicial scrutiny.

A preliminary perusal of the draft regulations makes it clear as to why most experts feel that the new rules will lead to mass confusion. Many provisions of the draft rules are in contrast with, or replicate provisions of other existing laws that are already in force and under jurisdictional purview of other regulators. Several proposals go beyond the scope of the Ministry’s rule-making powers under the Consumer Protection Act.

The rules pertaining to the ability of a marketplace entity to provide support services to sellers have already been set out in Press Note 2 of the FDI rules which allow e-commerce companies to provide ancillary services such as warehousing, order fulfilment, logistics and payment collection. The Press Note already imposes a restriction on sellers listed on a marketplace to buy a maximum of 25 per cent of its inventory from a related party of the marketplace entity.

Further, a wholesale entity is permitted to sell goods to any B2B entity in India, subject to restrictions, and general KYC requirements applicable to its business. Traditionally, the provision of services simplicitor, whether on B2C or B2B basis, is expressly and historically permitted under FDI under 100 per cent automatic route.

In terms of compliance officers assisting law-enforcement agencies, the IT Act already mandates the appointment of officers to help with responses to the Government, for responses to cyber security incidents. While, the data-sharing mandate under the Draft Rules has already been proposed to be regulated under the upcoming Personal Data Protection Bill, 2019.

Another layer of procedures

India already has a robust and comprehensive set of laws/regulations to deal with most facets of business envisaged by the draft consumer protection e-commerce rules. Which begs the question as to why such a targeted set of rules have been drafted to model e-commerce in India. The rules in their existing form also add a layer of compliances and mandatory procedures which will ultimately have a telling effect on Ease of Doing Business in India.

The mandatory requirement of registration with DPIIT combined with the overly broad definition of e-commerce entity creates ambiguity in whether a registration is required for all the entities or not. Further, there is no guidance on what the registration is used for, how it impacts customers and what are the applicable conditions for maintenance of the registration.

The draft rules also have a trickle-down effect on start-ups and small businesses. Companies that work with e-commerce entities to provide B2B services will be impacted as the draft rules impose a heavy burden on these players.

Further, these rules will hamper day to day business activities as the rules are extremely prescriptive on minute aspects of doing business such as font size in the invoice, how many persons to appoint for grievance redressal and compliance, promotions and ads, use of brand name of the entity, user interface in displaying products over and above existing legal requirements, ultimately providing no value add to customers or businesses.

For decades after its Independence, India was burdened by sluggish growth and an alarmingly weak economy due to the excessive bureaucratic red tape under the Licence Raj. However, we have witnessed the power of enabling regulations as India has emerged into a global superpower after a flurry of legislation unshackled India’s economy from bureaucratic and procedural chains.

The draft rules, if implemented, will take us back decades. In the last 30 years, India has also developed a robust legal and judicial framework. By focussing on these draft e-commerce rules, the government has completely missed the brief. A review of India’s existing laws and rules make it clear that the country does not need any more rules or laws.

India needs to implement the existing laws to uphold competitive business while also protecting the consumer and small businesses.

Indian e-commerce startup Meesho doubles valuation to $4.9bn

Indian e-commerce startup Meesho on Thursday said it raised $570 million from a group of investors in a funding round that valued the company at $4.9 billion.

It comes less than six months after its previous funding round, when it raised $300 million at a $2.1 billion valuation. The significant rise in its valuation highlights the growing interest in India's tech sector as regulatory uncertainty dents investor appetite in China.

The investment was led by U.S.-based Fidelity Management & Research Company and B Capital Group, while existing investors including Prosus Ventures, SoftBank Vision Fund 2 and Facebook also participated.

"For the next one year, our focus is going to be only on scaling the business," founder and CEO Vidit Aatrey said in an interview. "After that, we'll figure out what's the right timeline for going public."

Meesho was founded in 2015 as an online marketplace offering clothes mainly to female resellers, who earn commissions by recommending the products to others through social platforms like WhatsApp. It has since added more product categories, including fitness products and pet food, and now sells directly to consumers. Meesho generates revenue from facilitating delivery and payment, and by selling advertisements for merchants that want to display their products prominently on the app.

Aatrey said over 17 million users transacted on the platform in September, triple the figure in March. It is aiming to reach 100 million by December 2022.

"In India, there are some 500 million people who are active on WhatsApp and only 100 million people who buy anything online. These [400 million] customers are not transacting at all," he said.

Its strategy of offering a wide array of products will put Meesho in closer competition with e-commerce companies such as Amazon and Flipkart. Aatrey said it will differentiate itself by focusing on providing affordable products for consumers in second-tier cities that have a population of five million or less.

The company plans to add language localization, and invest heavily in artificial intelligence to personalize offerings. Overall, it plans to increase employees related to technology and product by 2.5 times from its current 400 employees.

Another area of focus will be expanding the number of products offered on Meesho from 15 million to 50 million. Aatrey said it plans to increase the number of cities that offer groceries from 25 cities to 200 cities in the next 18 months.

With heavy investments in marketing, Meesho is still loss-making but Aatrey said its "unit economics are highly positive" partly thanks to its advertising business. The company also plans to add more revenue streams by offering services to sellers, such as working capital and account management.

Indian startups have been raising capital at a record pace amid strong investor appetite. Funding hit a record $6.1 billion in the second quarter, according to CB Insights. In India, 28 unicorns -- privately held companies with a valuation of $1 billion or more -- were minted this year, according to the National Association of Software and Service Companies, an industry group.

"Meesho's business model has an incredibly compelling value proposition with entrepreneurs, end customers, and suppliers consolidating on one platform," Kabir Narang, founding general partner at B Capital Group, said in a news release.