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Though e-commerce is being touted as the “sunshine sector” in Indian business, one of the major players, Snapdeal, is now looking at building its infrastructure over profitability.
“If we want to turn profitable, we can do that in two quarters. But, as of now, our focus is on building infrastructure for the sector, through logistical support and warehousing to the sellers,” said Kunal Bahl, co-founder and chief executive officer. Infrastructure renting to sellers happens on a no-profit-no-loss basis.
Snapdeal, founded by Bahl and Rohit Bansal in 2010, could be looking at a total annual gross merchandise value (GMV) of $9-10 billion (Rs 54,000-60,000 crore) in 2015.
With several rounds of funding from investors, including Ratan Tata, eBay, Temasek and Premji-Invest, the company has emerged as one of the fastest-growing online marketplaces in India. It has about 40 million registered users and about 1.5 lakh sellers transacting on its platform. According to Bahl, Snapdeal has a market share of 35 per cent.
“Look at Alibaba in China; they turned profitable in the 11th year. Now, it generates over $5 billion yearly. Our business model is similar to theirs,” Bahl said.
While there have been debates over whether the e-commerce business is sustainable or not, a recent report from UBS said investor concerns about e-commerce being a bubble in India are misplaced. The report said according to its estimates, the sector will start making operating profits by 2020.
An analysis of the supply chain of offline retail by category shows that there is adequate margin for e-tail in future. The inherent operating leverage and a 700-basis-point discount, as a percentage of GMV, should lead to operating profits in 2020.
Consulting firm Technopak estimates Indian e-tailing will be worth $32 billion by 2020, more than 10 times its value of $2.3 billion in October last year.
