Flipkart no more bellwether of e-tail valuations

Loses notional value by 37.5% because of markdowns by investors

Flipkart, poster boy of Indian e-commerce, seems to be losing its bellwether status. While the Bengaluru-based company has witnessed four consecutive markdowns by global venture capital funds, the same trend is not reflecting in the valuations of other prominent e-commerce players.

The markdowns, though notional, have narrowed the gap between the valuation of Flipkart and closest rival Snapdeal. While Flipkart's valuation has dipped from $15.2 billion to $9.5 billion in the past few months, pushing it back to the 2014 level, Snapdeal is a close second with a $6.5-billion valuation.

The caveat, however, is that it is only when a company is in the market to raise funds that the real valuation can be known. Flipkart's previous major fund-raising was pegged at $700 million in June 2015, at a valuation of $15.2 billion. Snapdeal raised $200 million in February 2016, at a valuation of $6.5 billion.

In February this year, Morgan Stanley marked down its stake in Flipkart to $103.97 per share, 27 per cent lower than the price at which shares of Flipkart were bought during the last fundraising. This reduced the value of India's biggest online retailer to $11 billion. Subsequently, mutual fund house T Rowe Price reduced the value of its stake in Flipkart by 15 per cent.

The latest hit came as a double whammy last week when mutual fund investors - Fidelity Rutland Square Trust II and VALIC Co - marked down the value of their holdings in Flipkart by 20 per cent. Some market experts say the latest markdowns have reduced Flipkart's valuation to around $9.5 billion.

"Agreed, the markdowns are all notional and the real test would be when all these companies go out looking for funds. But if there is one more markdown, Flipkart might just end up losing the top spot to the number two player. Such valuations are important to these companies as this is how the market sentiments function," said a senior consultant from a global financial firm.

Flipkart has seen 12 rounds of equity funding worth $3 billion. In December 2014, its valuation went up to $15.2 billion, from $11 billion earlier.

While previously, Flipkart's valuation was used as measuring scale by investors to set the value of other e-commerce players in India, the recent markdowns have had little effect on other Unicorns such as Snapdeal, or Paytm, experts said.

"At present, the markdown has only been for Flipkart. Others have not seen it. This, to an extent, shows it is not a market-wide phenomenon. We believe this happened because Flipkart, while doing well in some spheres, was not able to keep up its targets," said an analyst. However, he added, "It does not mean such markdowns will not happen to Flipkart's competitors."

To be fair to Flipkart, in the recent past, Morgan Stanley, T Rowe Price and Fidelity have marked down their other investments also. Morgan Stanley has done a markdown in data crunching company Palantir by 32 per cent, and in file storage company Dropbox by 25 per cent.

Fidelity marked down its investments in Dropbox, Snapchat and Zenefits. T Rowe Price marked down its stake in Dropbox by more than 50 per cent, as well as in global cab aggregator Uber.

Some market experts believe such markdowns are normal and success or failure of a company cannot be gauged by this. "Such a drop in valuation is a momentary phase, similar to rise or fall of a share in the stock market. We cannot just decide on the success or failure of a company on this basis. Global mutual funds have to file the details of their investments with the government authorities and the markdowns are done in line with the present status of their investments. It does not mean the global investors have lost faith in a particular company," said Anil Kumar, founder and CEO of RedSeer Consulting, a research and advisory firm.

Recently, Flipkart co-founder Sachin Bansal said the markdown by an investment firm was a theoretical exercise, and not based on any transaction.