Alibaba Group to Increase Investment in India
Alibaba Group, China’s largest e-commerce company, is looking to up its footprint in the budding Indian online marketplace. India’s e-commerce market is expected to grow to $103 billion by March 2020, from $26 billion, according to Goldman Sachs. And the
number of Internet users in India has quadrupled to over 400 million, with 300 million accessing the Internet at least once a month
and 40 million engaging in online shopping.
It’s a prime time to invest, and Alibaba is taking advantage. In August 2015, Alibaba, along with SoftBank Group and Foxconn, invested $500 million in Snapdeal—an online marketplace in New Delhi. Then, in September 2015, Alibaba picked up a piece of Paytm—an Indian mobile payment and e-commerce platform. Now, Alibaba is exploring purchasing a stake in Flipkart Ltd—India’s largest Internet firm and e-commerce company headquartered in Bangalore—and an additional stake in Snapdeal.
Since May 2014, both Flipkart and Snapdeal’s evaluations have soared. Flipkart’s evaluation increased five times after it raised $210 million while Snapdeal’s evaluation increased six times since it raised $100 million the same month. In total, Flipkart has raised $2.4 billion, and Snapdeal has raised more than $1.3 billion.
While Flipkart is currently evaluated at $15 billion and Snapdeal is evaluated at $.65 billion, Alibaba is looking for a discount investment—possible thanks to the current e-commerce market. There couldn’t be at a more opportune time to get a great deal.
At the end of 2015, India’s big three e-commerce firms—Amazon India, Flipkart, and Snapdeal—recognized combined losses of Rs. 5,052 crore. While sales have increased, losses are mounting as Indian buyers are searching for deeper and deeper discounts. Flipkart and Snapdeal, in particular, are feeling the loss since, according to the Economic Times, Amazon India’s portal was the most-visited e-commerce site in the country, and it’s also the fasting-growing shopping app among all e-commerce companies.
What does this profit loss mean for Flipkart and Snapdeal and their potential agreement with Alibaba? Bargaining power. There aren’t too many takers for India’s top e-commerce firms at their current valuations, and they need the cash. According to Livemint.com, while both companies have enough cash to fund their current burn rates for 12-15 months, they need to raise money this year if they want to keep in the game.
Even more troubling for Flipkart and Snapdeal, many investors are fearful of getting involved in mature e-commerce companies. Both companies are facing scrutiny about their losses and the rapid expansion of Amazon India, which is adding 40,000 products a day.
Amazon, Flipkart, and Snapdeal are engaged in a three-way high-stakes war for market share, and the outcome could shape the industry. Currently, Amazon India is gaining market share at the expense of both Flipkart and Snapdeal, and in order to keep up, they’ll have to keep up their spending on discounts, advertising, and logistics, which places Alibaba in a prime position.
If the Flipkart deal goes through for Alibaba, it will make them one of the three most important investors in India, alongside Tiger Global Management and Japan’s Softbank Group. It could also lead to a long-awaited consolidation of India’s two largest e-commerce businesses, since Softbank, Alibaba’s largest investor, is also Snapdeal’s biggest backer. And Alibaba can afford the stake, in December 2015, their cash and cash equivalents equaled $17 billion, according to their quarterly earnings report.
Alibaba and other Chinese companies are no strangers to the Indian e-commerce market. Multiple Chinese firms are increasingly taking an interest in Indian businesses. In January, Ctrip, China’s travel booking giant, invested $180 million in MakeMyTrip. And China’s Didi Kuadi, a cab-hailing app, invested more than $900 million (USD) into Ola, India’s most successful on-demand transportation app.