Infibeam's big bet: Opts for IPO instead of VC money

It's the only company in the e-commerce space to stay away from external funding and it is also cash positive

Ahmedabad-based e-commerce player Infibeam will create history as it prepares for its public listing on the Indian bourses. Apart from being the first e-commerce company to do so, unlike other players Infibeam has kept away from private financial investors, that includes venture capitalists and private equity.

Vishal Mehta, founder and CEO of the company has so far kept private investors at bay from funding its business that includes an online retail website as well as e-commerce software solution 'buildabazaar' (BaB) and said it wanted to get right investors and prefers to hit the capital market.

"If you are able to architect a business model that is synergistic and allows you to grow you can manage. There are companies who have raised funds but are burning a lot of cash. We have always wanted to build an integrated business model," said Mehta. Sources confirm that the company was approached by VCs but Mehta preferred to stay away from them.

He further added that he has been investing in the business as and when required. "We have done that, we have kept on investing in our own growth. We have taken investment from Sony, but its in one of oursubsidiaries," he added.

Infibeamhas filed its draft red hearing prospectus (DRHP) and is expecting to raise about Rs 450 crore from initial pubic offering. Assuming a 25per cent equity dilution in IPO, Infibeam's valuation is pegged atRs 1,800 crore, much below players like Flipkart and Snapdeal.

Thevaluation mismatch may comes as a surprise as both Infibem and Flipkart started their journey in 2007. The other common factor among the two is the fact that founders of both the companies share a common past employer, Amazon.

But Mehta is not too perturbed when compared with competition. "Every business model is different. Within the e-commerce space there aredifferent models. You have marketplace model, a transactional model or anything else. That's where we find a lot of comfort, as BaB is a marketplace and it allows us to keep on adding merchants," he added.

Infibeamhas two major business segments, with BaB marketplace (started in 2011), the companyprovides a complete online store for retailers. This includes mobileapplications, digital product catalogue, content management,promotions handling, access to payment gateways as well as fulfilmentservices. This is unlike other ecommerce players as they allow justto list products on their website.

Infibeam.come-retail site competes with the likes of Flipkart and Snapdeal.Clearly Infibeam is way behind players such as Flipkart and Snapdealwhen it comes to ecommerce. Even though its user base is increasing the DRHP mentions that its user base has increased 33 per cent annually from three million in 2012 to about 7.2 million as of March. It is nowhere near when compared to Flipkart's estimated registered users of 30 million.

Many feel that Mehta has managed to create a business, which has real numbers and is not bleeding itself to get more consumers.

"We have always said that its possible to built sustainable business inIndia. The good thing about Infibeam is that it always wanted to build a cash positive company. It is really good to see an e-commerce company that is cash positive go in for an IPO on Indian bourses. And its a shame that some of the companies that have raised huge capital can never list in India," said Mahesh Murthy, of Seedfund.

Infibeam's annualised revenues for FY15 are pegged at Rs 290 crore, 39 per cent higher than Rs 208 crore in FY14. While losses have reduced from Rs 26 crore in FY14 to Rs 9.6 crore in the first nine months of FY15, itis just about at breakeven at the operational level from a loss of Rs19 crore in FY14. The other positive point about the companyis that it is cash positive. For the nine months ending December 31, 2014 the company has had cash and bank balances of Rs 63 crore. For FY14 it was Rs 4.4 crore.

It is the BaB segment that Mehta is banking on. To be able to get more and more merchants to its platform, Infibeam launched .ooo top level domain registry. Though Mehta did not disclose the number of businesses using the domain name he said that the registration lookedgood. "Digital fulfillment of services is what we do. The domain name allows us to own the merchant and if you want to be able to do that you need to give more services. Most of these merchants don't get the name they want. With .ooo we can get more merchants and theycan create their own identity," said Mehta.