Is it Endgame or New start for Indian e-commerce
I was tempted to read about Flipkart garnering $200 million from its existing investors. Just recently, in an article on e business, we hear private equity (PE) players forecasting 'doom', 'consolidation' & 'long-term bearishness' when discussing about e-commerce in India. But I also observe series-C investments (a company goes for series C funding when it eyes for greater pie in the market or acquisition or for development of new product) and long term high valuations. The investment world is confused about where e-commerce is leading to. There is skepticism in investor mind regarding how these big e-business companies like Flipkart will deliver return on their investment.
As per the analysts we would be misdirected in believing that Flipkart was valued close to half a billion dollars only. In another example of Just Dial IPO which was subscribed 50x of its face value. Since then, we have witnessed a slowdown in the e-commerce space. And, after the recent foray of Amazon.in, doomsayers have been writing off Indian e-commerce growth story.
Why, then would existing investors pump an extra $200 million into Flipkart?
What's Wrong With This Picture?
How do you price in for this paradox? Why are Indian e-commerce firms largely seen as having turned into scrap by investors, but yet we have a USD 200-million investment in Flipkart?
(i) The long-term Growth of E-commerce As A Sector
One cannot refute the fact that online sales, as an aggregate, are growing rapidly in India. And that makes it a high growth industry as any we have seen in recent past. When the Indian e-business sector is churning out to be a tidal wave, investors do not want to miss the bus. This logic forces investors to make calculated decision on this sector. Trend shows that investors prefer to chance on the big player, and Flipkart is a big player.
(ii) The recent consolidation phase provide Opportunities for Flipkart for acquisitions
Not only is e-business growing, there is a reason to believe that the spills of this growth will be distributed among few players. As many players will run out of investor money before their sales reaches a level to support sustainable operation. Many will close shop but the stronger ones will be merged with bigger player. Investing in Flipkart today gives investors this muscle power.
(iii) E-commerce prospects makes FlipKart an attractive acquisition
If a global player wants to grab one-seventh of the world's e-business market in terms of the volume, then they need look not much further than Flipkart. In today's scenario it is difficult to beleive that a start-up can launch today and will achieve Flipkart's depth & breadth. Investors in Flipkart are fully aware of this, and are looking at a billion rupee valuation opportunity to exit Flipkart.
(iv)Primary Market can digest a Large Flipkart IPO
The recent JustDial IPO depicts that the Indian stock market can easily digest a large premium at a high valuation if the firm deserves it. Similarly I see a billion-rupee Flipkart IPO being grapped up in India. Alternatively, Flipkart might choose to issue its shares in an international market instead. In any case, it seem to be on the verge of an exit opportunity for investors. And since that exit is imminent, it is natural for existing investors to increase their stakes and valuations to maximize the capital gain.
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