Flipkart eyes staggered route to profitability after massive fund raise

Company to focus on becoming cash flow positive in mobiles, large appliances, fashion, Bansal said

India’s largest e-commerce player Flipkart is looking at a staggered approach to becoming profitable after it closed a massive $1.4 billion funding round led by Tencent and participation of eBay and Microsoft.

The narrative is in contrast to what the company was saying prior to the fund raise when investors were hammering it to turn cash positive in the foreseeable future. Binny Bansal has said the company will focus on becoming cash flow positive in mobiles, large appliances and fashion.

“I think we are looking at a different view on that. We definitely want large parts of our portfolio—mobiles, large appliances and fashion—to become cash flow-positive in the next 12-24 months,” Bansal, who is co-founder and Group CEO said in an interview with Mint newspaper.

Smartphones, which have traditionally contributed as much as half of the gross merchandise value of all large Indian e-tailers, is now growing more slowly than other categories such as fashion according to Bansal. In the next 2-3 years mobiles will contribute a much smaller portion of Flipkart’s sales, with new categories such as furniture and groceries picking up steam.

The company’s focus on fashion and groceries is especially important since the categories help bring in first-time buyers and incentivise customers to make repeat purchases respectively. A joint report by Facebook and BCG showed that fashion had overtaken mobiles as the largest category to drive first-time buyers on e-commerce platforms.

Moreover, Flipkart will not deploy capital in business areas where it already has significant scale, Bansal told The Times of India. “For all our core businesses the top most goal is to get to free cash flow and yet continue growing. We won't be using new capital for these categories. Areas like customer experience, AI, automation, grocery, private labels, furniture will get fresh funds,” he said. 

The company will however back some of its newer ventures such as PhonePe, which is vying to challenge payments giant Paytm on the back of the government’s Unified Payment Interface (UPI) platform.

This will be positive because over the past 7-8 months Flipkart says it has reduced cash burn by 30 per cent yet managed to maintain high GMV growth. The company is looking at this as validation to continue focusing on customer experience to grow sales rather than win market share through discounts.

With the worst times behind them, Bansal told TOI that the company expects 50-70 per cent growth in the current year, a stark contrast to the company’s stalled growth through the latter half of 2015 and most of 2016. To make all this possible, Flipkart has outlined key areas of investments such as artificial intelligence (AI) and private labels.

“We are investing a lot in automation and AI. So, we are equipping all our operations managers, category managers with much better tools and much better insights from the data side to make decisions. Private label is an area where we are looking to invest in a big way—margins are higher on private labels,” said Bansal.