Could government-run GeM be a candidate for listing on Indian bourses?

If the listing does happen, the scale could be comparable to what the LIC public issue will be in the insurance sector

When so many e-commerce companies are announcing plans to tap the markets, what are the chances that one of the biggest among them, the Government e-Marketplace or GeM, will follow suit?

There are precedents too! Railway ticketing and catering company, IRCTC has run up over 171 per cent of its listing price since October 2019. At one stage, the company used to label itself as the government’s largest e-commerce company. 

Recently, when GeM got a business plan from Boston Consulting Group, this was therefore one of the possibilities. If the listing happens, the scale could be comparable to what the LIC public issue will be in the insurance sector. GeM was set up only in 2016. Yet going by its current turnover, it would account for 40 per cent of the gross merchandise value (GMV) of all e-commerce companies in India. It does not need the cash immediately, though. The company has a paid up capital of Rs 200 crore and its primary focus now is to add to the employment potential of the 64 million odd small and micro units in the economy. 

Prashant Singh, the CEO of GeM, says the GMV of Rs 1.12 trillion creates business for nearly two million sellers. Fifty-six per cent of them are micro and small units, he says. “To make their products count among buyers, catalogue management is very important. We take a lot of care to make the products of small business pop up right on top for any search query on our platform,” Singh explains. He says along with transparency, the idea of pushing inclusiveness is what is driving the business model of this portal. 

The company, like its peers in the private sector, is a platform for buyers and sellers to do business. The buyers are the government departments and now increasingly, public sector units. A seller could be just about anyone who hopes to sell his goods and services to the government. GeM provides the tools of e-bidding, reverse e-auction and demand aggregation to facilitate the government users achieve, what it claims, is the best value of their money.

It is a surprise that see a government team using the patois of the startups. But Singh and his team do it easily. One of the features they are planning to bring in is a filter to rate both buyers and sellers about how prompt they are. For buyers  the filter will show how quickly they settle their bills, for sellers it is about how well they stick to their delivery schedules. 

At a time when government companies are failing away rapidly, GeM is quite a contrast. Among the clutch of e-commerce platforms launched by the government, it has certainly taken pole position. One of its competition, eNaM, the national agriculture market run by Small Farmers Agribusiness Consortium, a special purpose vehicle run by the department of agriculture, cooperation and farmers welfare is still to find its feet. IRCTC has run into the Covid wind.

Yet these advantages might not suffice. As of now GeM has an exclusive mandate from government departments to procure for them, which accounts for the stickiness of the sellers on its platform. It also helps that 95 per cent of the sellers on the GeM platform do not pay any commission. Singh says the BCG strategy study could advise them if and how the platform might extend its business to the retail sector too.  

Karan Taurani, vice president, Elara Securities says once the government support pillar is prised away, the sellers may not remain “sticky”. After they have learnt the ropes of e-commerce, the smarter sellers might look for platforms which offer them a better deal. “Valuations in this business depend on subscription revenues and their expected growth. Once the sellers get the hang of the business, they might migrate”. 

Singh is aware of this and says he plans to diversify GeM’s business model. One of those is to tap the works contract business of the railways. The company will need a cabinet approval to enter the business of works contract, a huge business for all departments. The Railways themselves execute Rs 50,000 crore of work contracts every year, the largest among all ministries. GeM plans to adopt the World Bank model of standard request for proposal format. For any contract for a World Bank project this format assures transparency which GeM could also incorporate, Singh said. He expects to make his company the largest public procurement business globally. 

The GeM expansion into the railway territory might threaten the primacy of another e-commerce company, IRCTC. The railway company has not entered the field of works contract confining itself to sale of tickets, tourism and catering. More than three fourths of its annual revenue comes from e-tickets  but two successive years of Covid has been a strong dampener. In its foray for new growth avenues, GeM could be a powerful rival.  

Railway minister Piyush Goyal, however, agrees that integration of GeM with the Railway e-procurement system “will usher in a lot of savings for the public exchequer”. Speaking with the staff last week, Goyal said the next stop for the platform is to tap the procurement business of the petroleum and steel ministries. Taurani says how the company adds to its IT muscle at this stage shall determine how well it can stand up to competition. 

Singh says once the BCG report is in, the long term strategy of the company shall be clear. “We are in regular discussions with them, even planning forays abroad,” he adds.