Bengaluru: US-based investment firm Vanguard Group has marked down the value of its holding in Flipkart by a third, further queering the pitch of India’s most valuable internet start-up amid its current fundraising efforts.
Vanguard Variable Insurance Funds, which invested in Flipkart in the series G and H rounds it raised in 2014, marked down the value of Flipkart shares by 33%, from $102.6 in March 2016 to $68.7 per share as on 30 September 2016, according to regulatory filings with the US Securities and Exchange Commission. This brings down Flipkart’s valuation to about $7.3 billion from the $11 billion that it was valued at by Vanguard in March.
Vanguard’s valuation of Flipkart shares is still higher than Morgan Stanley’s estimate of its current holdings. Earlier this week, a mutual fund managed by Morgan Stanley slashed its estimate of Flipkart’s valuation down to just $5.54 billion, which is about two-thirds lower than the company’s peak valuation of $15 billion and nearly 40% lower than Morgan Stanley’s previous estimate.
Vanguard currently holds 37,575 shares in Flipkart from the series G round and 16,044 shares from the series H round.
“Mutual fund mark-to-market is a purely theoretical exercise and is not based on any real transactions. We are seeing a strong traction in our business momentum and operating performance. We continue to be focused on innovating for the customer, growing the market and executing on our long-term growth agenda,” a Flipkart spokeswoman had said earlier this week. A company spokesperson reiterated the same statement when contacted by Mint on Thursday.
While Flipkart has seen its valuation marked down earlier (four times by Morgan Stanley in nine months), the magnitude of the latest cut by both Vanguard and Morgan Stanley is particularly worrying. It comes as Flipkart is on the verge of hitting the market to raise funds and at a time when the government’s demonetization decision has hit sales at all online retailers, including Flipkart.
If Flipkart’s valuation isn’t marked up quickly by at least some of its other investors, the company may have to accept a significantly lower valuation in its next funding round than its preferred price of $15 billion, experts said. Already, cab-hailing service Ola (ANI Technologies Pvt. Ltd), another Indian unicorn, is facing a so-called down round as it is likely to raise its next round at a lower valuation than the $5 billion it fetched in its previous round, two people familiar with the matter said.
At least six mutual fund investors at Flipkart now value the company in the range of $5.5 billion to $11 billion. The company last raised cash at a valuation of $15 billion some 18 months ago.
Two investors, Valic and Fidelity, who earlier marked up the value of their shares in the company, have again marked down their shares in Flipkart—by 11.3%, and 3.2%, respectively—for quarter ended 30 September.
Flipkart also saw its valuation marked down by T Rowe Price and Morgan Stanley Mutual Fund, which together hold stock worth hundreds of millions of dollars in Flipkart.
T Rowe Price, as part of its re-evaluation of the stocks it holds in tech start-ups across the world, lowered the value of its holding in Flipkart to $96.29 per share, a 20% erosion of value, for the quarter ended June.
This valued Flipkart at $10.3 billion. The firm had earlier cut the value of its stake in Flipkart by 15% in April.
T Rowe Price had lowered the value of the stock it holds in about 12 start-ups that are valued at more than $1 billion (commonly known as unicorns), including ride-hailing firm Uber Inc. (where it cut the value of its stake by 6%), note-taking firm Evernote Inc. (down by 21%) and rental-platform AirBnB Inc. (by 6%).
Flipkart plans to hit the market before the end of the year to raise $500 million to $1 billion in fresh capital, Mint reported in October.
Vanguard and Morgan Stanley’s latest markdowns comes at the end of the worst-ever quarter for Flipkart. Its monthly sales fell to a yearly low in July and it was overtaken on a standalone basis by arch-rival Amazon India in July and August. Flipkart bounced back in the festive season and beat Amazon by a clear margin.
Then, as Flipkart was drawing up plans to maintain its momentum, it and other online retailers were hit with the unexpected snag of demonetization, which was announced by the government earlier this month.
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