Bengaluru: It’s been an eventful start to the year for Flipkart Ltd. In January, India’s most valuable Internet start-up named a new chief executive, replacing co-founder Binny Bansal with Kalyan Krishnamurthy, a representative of Flipkart’s largest investor Tiger Global Management. This week, it secured $1.4 billion in fresh capital from three technology companies, Tencent, eBay and Microsoft, and agreed to buy eBay’s small India business. Flipkart is also in talks to buy smaller rival Snapdeal.
In an interview, Binny Bansal, now Flipkart group CEO, talks about how the company will use funds, the perception that Flipkart is an investor-run company and how it plans to cut costs. Edited excerpts:
Flipkart has now raised nearly $5 billion. What’s the timeline for an initial public offering (IPO) and how much pressure is there from investors to do this?
There’s no specific plan. With the fund-raise, we are quite well capitalized and all the existing and new investors are equally excited about building a very large e-commerce business and really making good the huge opportunity we have of taking the 2% e-commerce penetration to 20% over the next 10 years.
Is there a chance you will raise more cash after this?
We don’t have any specific plans. The next 2-3 years will be focused on executing the agenda for growth and profitability.
Is the current round still open for new investors?
As is the case in general, we keep talking to investors. There continues to be very strong investor interest, especially now. We’ll continue to selectively assess all the options.
Are you in talks or have you held talks to buy Snapdeal?
We’re not commenting on that.
There’s this perception that Flipkart has become a company that is run by Tiger. At Snapdeal, investors have taken control of matters. What do you make of this situation where two of India’s top start-ups are being controlled by investors?
We focus on our customers and what they need and on our strategy; that is what keeps us going. I can’t speak for the other companies or the ecosystem. I can only speak for Flipkart. We’ve come a long way over the past 10 years by really focusing on customers and really building great talent. We want to continue to do the same over the next 10 years and build a great organization and a big business.
Any timeline on profitability for Flipkart?
I think we are looking at a different view on that. We definitely want large parts of our portfolio—mobiles, large appliances and fashion—to become cash flow-positive in the next 12-24 months.
Mobile phones are a very competitive and low-margin category and it accounts for a disproportionate part of your business. How can you cut burn rates when you’re so reliant on this category?
What we’re seeing is that the other categories are growing faster than mobiles. So over the next two to three years, we see mobile being a much smaller part of the portfolio than what it is now (with fashion, large appliances, furniture and groceries growing faster). Mobile has a penetration of 30%. The other categories have a penetration in the low to mid-single digits. So there’s a lot of room to grow. For today, fashion, large appliances and mobiles are the three main categories. Two years from now, we want furniture and groceries to also become core categories.
You have already significantly reduced ad spending, which was one of the biggest costs. Now, the two largest areas are discounting and logistics. What can you do to reduce costs without harming growth?
Overall we are looking at improving profitability and margins, and reducing costs within every BU (business unit). One, we are investing a lot in automation and AI (artificial intelligence). So, we are equipping all our operations managers, category managers with much better tools and much better insights from the data side to make decisions.
Private label is an area where we are looking to invest in a big way—margins are higher on private labels.
We’ll have razor-sharp focus on costs across the board, whether it’s on supply chain or marketing or pricing or on marketplace operations.
Lastly, we are paying attention to working capital and free cash flow. That’s a big area of focus and we are working to improve that as well.
After you’ve become group CEO, what are the areas that you look at?
At the key focus areas, the overall group strategy. With a large fund-raise we are looking at investing in growth areas, in the core business and in other areas. So, a lot of my focus is on what are those areas, what are the needs of the customers there and what is the right business construct or what is the right service level or the right selection that we need in those areas. I spend a lot of time with Phone Pe (the unified payments interface-based mobile payments app). The other areas where I like to spend time is on the organization side, working with critical talent and key leaders and on the technology side.
You bought Jabong last year, Myntra in 2014 and now eBay India. Is there a risk that Flipkart is biting off more than it can chew?
If you look at the way we are structured, these are very different businesses integrated into very different organizations. So, the Jabong investment was through our Myntra business and over the last 6 months, we’ve done a 10-on-10 job of integrating that business, turning it around and putting it back on the growth track and really improving customer experience. With eBay, it will roll up to Kalyan (Krishnamurthy) and will be managed by a very different team altogether. What we did previously with Myntra and Jabong, we want to repeat that with eBay.