Flipkart's Snapdeal muscle will help it fight Amazon

Flipkart would have an additional $60-80 million in its coffers, say sources

It’s not all liability that online retailer Flipkart is inheriting once it merges with Snapdeal.

Snapdeal, while it has had its flaws, has strengths too and they might help Flipkart to take on Amazon. 

From an enhanced reach into tier-II and tier-III towns, a robust well-oiled logistics firm, and a decent chunk of change to run the future ops including a marketing campaign, the Snapdeal acquisition brings it all.

According to experts, while Amazon in a short time managed to have a pan-Indian reach, Flipkart is a big player in southern and western India. 

Snapdeal, on the other hand, has been from the beginning a big online marketplace of the North and parts of eastern India. This acquisition helps Flipkart gain the much-needed traction in the northern market.

According to sources, Flipkart would have an additional $60-80 million in its coffers. While for a company that just had a funding of $1.4 billion, this additional cash would seem like a chunk of change, but this money would help it do two things.

“Flipkart will not have to put in extra cash into Snapdeal to run it. Till its full merger and possible closure, Snapdeal would be able to sustain itself. Also a part of the money can be used for a marketing campaign after the merger,” said a source close to the Snapdeal board.

That is not all. Vulcan Express, Snapdeal’s fully-owned logistics arm that not only functions as the primary delivery mechanism between sellers and customers and vice-versa for the marketplace but has an external client list as well, would most likely be part of the merger.

While Flipkart has its own supply chain and logistics arm, Instakart Services or Ekart Logistics, experts say that Vulcan will give it a major boost as it is more robust. Vulcan is also one of the firms under the parent company Jasper Infotech, which is close to achieving profitability.

In January this year Ekart Logistics incurred losses of Rs 810 crore on revenues of Rs 303 crore in the nine months to March, its first year of operation, after it was spun off as a separate unit, people familiar with the development said.

Snapdeal has a base of almost 300,000 sellers, while Flipkart has around 100,000 registered ones. 

While there have been controversies on payments to sellers, Snapdeal has a strong network of sellers in the rapidly growing unorganised sector, while Flipkart has a strong base in the organised segment. 

Finally, it gets a backer like SoftBank, which is the largest investor in Snapdeal. Experts say that with Tiger Global and now SoftBank as investors, Flipkart would be able to create a strong buzz in the market in the next two years or so, which would immensely help it once it goes for an IPO.

Flipkart plans to list on the Nasdaq in the next two years. The company is learnt to be working with a global consultant to do due diligence.

The mega merger

• Flipkart would have around an additional $60-80 million in its coffers
• Snapdeal has a base of almost 300,000 sellers, while Flipkart has around 100,000 registered ones
• Flipkart plans to list on the Nasdaq in the next two years
• Vulcan Express, Snapdeal’s fully owned logistics arm, would most likely be part of the merger