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Rajiv Srivatsa, co-founder and chief operating officer of Urban Ladder, an online furniture company, had to interrupt his interview with Business Standard midway at his Bengaluru office recently, before shifting to another room. The bigger meeting room, which Srivatsa was occupying, was needed for a presentation by some of his colleagues.
"That's what happens when you hire so much,'' he said, only half in jest. The joke captured the essence of the boom in e-commerce in India, which has made millions look like small change.
In fact, it is all about billions now in the country's online retail space. A source summed up 2014 for Flipkart, saying, "it was a year of billions - it raised $1 billion, had a Billion Day Sale, and also hit the run rate of gross merchandise value (GMV) of $1 billion early in the year.'' If that was not enough, American e-commerce player Amazon announced double the investment at $2 billion for the India market in July 2014, just a day after Flipkart made public its $1 billion fund-raising.
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Later, in September, Amazon founder Jeff Bezos came down to India, and among other things, gave dream-photo-ops to the media, wearing a sherwani and hanging out of a truck, waving billion dollar notes. Bezos signalled his deep interest in the India market by wrapping up his visit only after he had met Prime Minister Narendra Modi. There was no looking back from there, whether it was raising funds or online start-up valuations.
Snapdeal made its big-buck announcement soon after. Not only did Japanese investor Softbank pump in $627 million into the company, its founder and CEO Masayoshi Son, the richest man in Japan, interacted with Snapdeal employees in a town hall chat as well. If Son's projection is to be believed, Snapdeal could become another Alibaba, the Chinese e-commerce giant, in which he has a significant stake. Son, who committed a $10-billion investment in India, also met Modi, indicating his seriousness about this market.
So, does it mean that the e-commerce boom in India is actually a sign of irrational exuberance of private equity investors drunk on cheap global liquidity flows? Much more than that, point out stakeholders and experts. Why else would the likes of Alibaba, Amazon and Walmart (with its online ambitions) chase the Indian market? Although Alibaba is yet to make its B2C presence in India, its high-profile founder and chairman, Jack Ma, was in India at the end of last year as part of a business delegation, and he promised to return soon, perhaps with more concrete decisions.
Who's investing in the Indian e-commerce market and where, also goes to show that it may not be a case of short-term exuberance, but rather a long-term bet on a sector that's showing immense promise. Of course, one can't tell at this moment whether the jaw-dropping valuations of e-commerce companies will hold good and translate into shareholders' joy at a later date. In fact, a source quipped that "beauty lies in the eyes of the beholder'', when asked about the "irrational valuations'' of many of these companies.
Consider the valuations. Seven-year-old Flipkart, which raised close to $2 billion through 2014, is valued at over $12 billion, according to latest estimates. The fact that the top e-commerce company, Flipkart, raised its latest round of $700 million at the end of 2014 from a combination of new and existing investors perhaps shows that interest in Indian e-commerce is powered by more than just a compulsion to stay invested. There were five new investors - Qatar Investment Authority, Baillie Gifford, Greenoaks Capital, Steadview Capital, T Rowe Price Associates - and four existing ones - DST Global, GIC, ICONIQ Capital and Tiger Global - which funded Flipkart's last round. Other existing investors such as Accel Partners, Dragoneer and Sofina Capital stayed away from the latest round of funding.
Much younger Snapdeal, a rival to Flipkart, is valued at over $2 billion, according to reports. But its investors are impressive, which may imply a dream valuation in the months to come. Besides Temasek, Softbank and Blackrock, Snapdeal has attracted investment from Ratan Tata too. Tata, in his personal capacity, invested an undisclosed amount in at least three e-commerce companies last year - Snapdeal, Urban Ladder and Bluestone, and there could be much, much more in future.
Apart from the big boys in e-commerce such as Flipkart, Amazon, Myntra (acquired by Flipkart) and Jabong, all showcasing marquee fund-raising and valuations, several others in related areas have demonstrated their appeal. These include players focused on the payment side of the business such as Paytm, the restaurant search engine Zomato, the online classified site Quikr, and taxi apps like Ola Cabs.
There have been reports suggesting that Alibaba is investing $550 million in Paytm, the largest online payment service platform in India. Paytm's valuation is believed to have touched $1.5 billion. Others such as MobiKwik, a leading mobile wallet service provider, are learnt to be in talks with private equity investors too, to raise funds. Quikr raised $60 million last September, taking its valuation to around $300 million. The company had raised $90 million just a few months ago, when its valuation was calculated at a notch lower - $250 million. In the taxi apps segment, Ola Cabs attracted a $210 million investment from Japan's Softbank recently. That put Ola in the top league, at a valuation of $1 billion, in a market which has drawn players such as San Francisco-based Uber (in the news over an alleged rape in Delhi by one of its drivers). Among others, Uber is backed by investors such as Goldman Sachs, Google Ventures, Menlo, First Round, Lowercase Capital and Benchmark. There's been news on Ola acquiring TaxiForSure, too.
In the online restaurant search business, Zomato, valued at $660 million, made a series of acquisitions in the past six months, with the most prominent one being the buyout of America's Urbanspoon for $52 million in an all-cash deal. Deepinder Goyal, co-founder of Zomato, told Business Standard recently that Zomato will focus on its existing geographies and strengthen its presence there. "No more acquisitions on the cards,'' Goyal said. But, who knows when it comes to M&A and fund-raising in this burning hot space?
Well, Zomato went in for another acquisition at the end of January, just two weeks after its US deal. This time it bought a restaurant listing company in Turkey - Mekanist. With the acquisition of Mekanist, the seventh by Zomato in the past six months, the restaurant search company will expand into several cities in Turkey. Its coverage will increase from about 27,500 restaurants in Istanbul and Ankara to about 75,000 across Turkey, serving users about three million times a month.
On the issue of raising money, the chief financial officer of a prominent e-commerce player quipped recently, "my advice is we should never say we have enough funds. If money is coming on good terms, don't refuse.'' If that statement is read seriously, no company is ever "well-funded'', otherwise a common reply from chief executives when asked about the next round of funding. Soon enough, the next round of funding - and the next - is either announced or speculated upon.
Even if we leave out the funding and the valuation bit from the e-commerce narrative, other developments too suggest that this is the area of the moment. For example, even President Pranab Mukherjee's recent book, The Dramatic Decade, was launched exclusively on the Amazon India site. Of course, mobile phone launches have been routinely taking place on Flipkart and Snapdeal, with no offline sale of those products. And online sales by Flipkart, Snapdeal and Amazon had traditional retailers knocking on the doors of the government, complaining about predatory pricing.
While the government has not felt it necessary to stop online sales, e-commerce players have denied they have indulged in "predatory pricing''. Industry also points to the fact that traditional retailers needn't feel threatened, as e-commerce is still negligible in India. Latif Nathani, country managing director of eBay, a leading American online marketplace player, said recently that the e-commerce market in China is about to touch $340 billion, while India lags at just $4 billion. Brokers and investment group CLSA Asia Pacific Markets estimates online sales in India will jump to $22 billion by 2018.
But, Arvind Singhal, chairman of Technopak, a leading retail consultancy, sees 2015 as a truly breakthrough year for e-commerce. This is because e-commerce companies will not only compete among themselves, but also with big business houses such as Reliance, Aditya Birla, Future Group and the Tatas, which are all going in for online forays with deep pockets. And, Singhal believes the e-commerce battle will play out in food and grocery, apart from the current bestsellers - electronics and fashion products.
That said, many regulatory issues in the e-commerce space are still unresolved. Taxation is one such. Across states including Karnataka, Tamil Nadu and Kerala, leading e-commerce companies have been served notices in the past few months for non-payment of taxes. In many cases, the row is over who should be made to pay the tax - the e-commerce platform hosting the sellers, or the sellers themselves. While e-commerce companies operating the marketplace format have argued that only sellers should pay the tax and not the platform owners, tax authorities have pointed to warehouse ownership as a point of contention. State tax authorities have said that since the e-commerce companies own the warehouses that store goods that will be sold to customers, they are liable to pay taxes as well. That issue is yet to be resolved, but many e-commerce players are believed to be looking at partnership arrangements or full outsourcing of warehouses to third parties.
Another regulatory hurdle is centred round foreign investment. If you look at the rulebook, no foreign direct investment (FDI) is permitted in e-commerce. But the interpretation of e-commerce here is the inventory-led format, where companies that own the stock are sellers on their own platform. To get around that loophole, most big players have opted for the marketplace platform, where multiple sellers get on to the site to sell goods to consumers. FDI rules don't apply to the marketplace model, and therefore e-commerce companies are happily raising funds from foreign investors. International players such as Amazon and eBay too operate in this space. China's Alibaba is looking at ways to tap the India market as well. Earlier, many e-commerce companies operated the inventory-led model through multiple entities while getting foreign funds, which had triggered scrutiny by the Enforcement Directorate for FEMA violations. Even as most companies have changed their operational models, questions are still being asked.
Finally, the jurisdiction of e-commerce companies is an issue that the government is currently dealing with. When there were protests against so-called "predatory pricing" by online players recently, the government was at a loss as to who should fix the issue. A panel recently recommended that e-commerce should be monitored by several government ministries and departments, including Revenue, Economic Affairs, Commerce and Industry, and Corporate Affairs.
Not happy to have multiple bosses, the twenty- and thirty-something chief executives of these companies are waiting for some semblance of order and clarity, while continuing to strike deals and raise funds as though there is no tomorrow.
