 "Every penny that I spend should give me back two pennies: Sanjay Baweja")
Sanjay Baweja consulted at least five trusted friends before taking up the post of chief financial officer (CFO) at Flipkart. Despite his stint as global CFO of Tata Communications and his tenures at Bharti Airtel, Emaar MGF and Xerox ModiCorp, not one of the five friends expressed reservations about him accepting a job at a seven-year-old company, headed by a 33-year-old. About six months at the CFO’s post at Flipkart, Baweja says he feels “young and rejuvenated”. In an interview with Itika Sharma Punit and Digbijay Mishra, Baweja talks about how the company aims to remain a leader in the sector, its investment plans for this year, and profitability. Edited excerpts:
For Flipkart, 2014 was a landmark year, as it raised $1.9 billion. What was the need for such fund-raising?
Funding is a requirement based on how much money we need over time. As a finance person, I can tell you one should take money when it is available, not when one needs it. I think that’s the basic paradigm based on which the last three funding rounds happened. The funds we raised last year will suffice for a long time. But whenever we feel the valuation is right, we will continue to raise funds. We continue to talk to potential investors. There’s no closure per se and there is no timeline either.
I don’t know why people say what they say. Funding is done because there is a cash requirement for investment in areas such as technology, pricing and marketing.
Please elaborate on your investment plans for this year.
We do not share numbers but I can tell you we will invest a considerable amount on technology and supply-chain expansion. From the perspective of annual capital expenditure, 50-60 per cent of our investments will be on technology and the rest on supply chain.
For a company valued at about $12 billion, why do you think Flipkart is too young to go for an Initial Public Offering?
Valuation isn’t a function of age but one of potential. As a company, we are not settled yet; we are still nascent. However, our potential is substantial and the potential of this market is great, too. Today, the e-tail market in India is less than one per cent of the retail market; in China, it is about 10 per cent. We believe we will reach China’s level in five years. People see our way forward and, therefore, the valuation.
You have been part of profitable companies, with positive margins. Is there a timeline for profits at Flipkart?
To say there is no thought on profitability would be wrong. There is a path to profitability we are thinking about. As of now, we are not willing to talk about it and I don’t want to mention the timeline at this stage. Our entire thought process about making the best bang for the buck is about ensuring we have the right efficiencies to give a great experience to customers. The stickiness of our customers will enable us to move towards profitability.
Is Flipkart looking at raising debt instead of going for another round of venture capital funding?
Taking money for working capital isn’t called debt; neither is having a bank limit for meeting our everyday needs. The connotation of debt in the construct of us as a company is a very large amount of money, where instead of venture capital or private equity funding, we go for bank debt. That isn’t happening. From a lifecycle perspective, we are not at a stage in which we would raise debt because we don’t want that burden and we don't want to leverage ourselves at the moment. Maybe in the future, we will look at it. Current bank loans on our books could be worth Rs 100-200 crore but that cannot be called debt for a company of our size.
Media reports claimed Flipkart was considering cutting costs to reduce losses.
For any company, it’s natural to look at expenses that are inefficient; that is something I, as CFO, would want to do. However, we have not cut our investments for the future. We have not cut investment in any key area such as technology or -chain expansion. But yes, we want our processes to be technology-enabled so that as a company, we are much more efficient and get much more bang for the buck. I believe in cost optimisation. I want every penny I spend to give me back two pennies.
About three years ago, Snapdeal was much smaller than Flipkart. However, it has rapidly grown inorganically. This year, it is eyeing gross merchandise value (GMV) of sales higher than yours.
If they do $9-10 billion in GMV and we do $8 billion, the market will become $25 billion and I doubt that’s the market size. However, if that happens, it would be great for the sector...My belief is we will continue to be number one and continue to gain market share. Today, we are around 45 per cent of the market and we will continue to better that.
Kishore Biyani of the Future Group is planning to launch an app and is ready to match the prices offered by e-tailers. Do you think this will throw up a challenge?
I don’t think price wars are going to make anyone win in this market. What will make people win is belief of customers in companies. If people could suddenly become big by launching a website alone, many would have become so. There are hundreds of e-tailing websites and apps but not all have succeeded. We have gained the trust of consumers. You cannot succeed by merely opening a website and starting to sell; life is not that simple. He thinks he can do it and I wish him good luck. But only time will tell what happens.
For Flipkart, 2014 was a landmark year, as it raised $1.9 billion. What was the need for such fund-raising?
Funding is a requirement based on how much money we need over time. As a finance person, I can tell you one should take money when it is available, not when one needs it. I think that’s the basic paradigm based on which the last three funding rounds happened. The funds we raised last year will suffice for a long time. But whenever we feel the valuation is right, we will continue to raise funds. We continue to talk to potential investors. There’s no closure per se and there is no timeline either.
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There were claims that the cash burn at Flipkart was very high and that was why it raised so much money.
I don’t know why people say what they say. Funding is done because there is a cash requirement for investment in areas such as technology, pricing and marketing.
Please elaborate on your investment plans for this year.
We do not share numbers but I can tell you we will invest a considerable amount on technology and supply-chain expansion. From the perspective of annual capital expenditure, 50-60 per cent of our investments will be on technology and the rest on supply chain.
For a company valued at about $12 billion, why do you think Flipkart is too young to go for an Initial Public Offering?
Valuation isn’t a function of age but one of potential. As a company, we are not settled yet; we are still nascent. However, our potential is substantial and the potential of this market is great, too. Today, the e-tail market in India is less than one per cent of the retail market; in China, it is about 10 per cent. We believe we will reach China’s level in five years. People see our way forward and, therefore, the valuation.
You have been part of profitable companies, with positive margins. Is there a timeline for profits at Flipkart?
To say there is no thought on profitability would be wrong. There is a path to profitability we are thinking about. As of now, we are not willing to talk about it and I don’t want to mention the timeline at this stage. Our entire thought process about making the best bang for the buck is about ensuring we have the right efficiencies to give a great experience to customers. The stickiness of our customers will enable us to move towards profitability.
Is Flipkart looking at raising debt instead of going for another round of venture capital funding?
Taking money for working capital isn’t called debt; neither is having a bank limit for meeting our everyday needs. The connotation of debt in the construct of us as a company is a very large amount of money, where instead of venture capital or private equity funding, we go for bank debt. That isn’t happening. From a lifecycle perspective, we are not at a stage in which we would raise debt because we don’t want that burden and we don't want to leverage ourselves at the moment. Maybe in the future, we will look at it. Current bank loans on our books could be worth Rs 100-200 crore but that cannot be called debt for a company of our size.
Media reports claimed Flipkart was considering cutting costs to reduce losses.
For any company, it’s natural to look at expenses that are inefficient; that is something I, as CFO, would want to do. However, we have not cut our investments for the future. We have not cut investment in any key area such as technology or -chain expansion. But yes, we want our processes to be technology-enabled so that as a company, we are much more efficient and get much more bang for the buck. I believe in cost optimisation. I want every penny I spend to give me back two pennies.
About three years ago, Snapdeal was much smaller than Flipkart. However, it has rapidly grown inorganically. This year, it is eyeing gross merchandise value (GMV) of sales higher than yours.
If they do $9-10 billion in GMV and we do $8 billion, the market will become $25 billion and I doubt that’s the market size. However, if that happens, it would be great for the sector...My belief is we will continue to be number one and continue to gain market share. Today, we are around 45 per cent of the market and we will continue to better that.
Kishore Biyani of the Future Group is planning to launch an app and is ready to match the prices offered by e-tailers. Do you think this will throw up a challenge?
I don’t think price wars are going to make anyone win in this market. What will make people win is belief of customers in companies. If people could suddenly become big by launching a website alone, many would have become so. There are hundreds of e-tailing websites and apps but not all have succeeded. We have gained the trust of consumers. You cannot succeed by merely opening a website and starting to sell; life is not that simple. He thinks he can do it and I wish him good luck. But only time will tell what happens.