Mumbai: India’s largest and most-funded e-commerce company, Flipkart Online Services Pvt. Ltd, is in talks to raise $100 million (around Rs.555 crore).
The company, which runs the online retailer Flipkart.com, is aiming to close the deal between October and December, said two people close to the development who didn’t want to be identified.
“E-commerce is a capital-intensive business and (Flipkart’s) current funds will last only till next year,” said one Bangalore-based investment banker, explaining the rationale for raising money. He added that Flipkart is making a gross margin loss per unit sale.
The other Bangalore based i-banker said there was too much emphasis on customer acquisition, which is bleeding Flipkart at a per unit sale level. “One cannot be so customer-centric that they (Flipkart) cannot make money… It’s not sustainable in the long term,” he said, adding that e-commerce firms have to start charging customers for delivery to begin with.
Sachin Bansal (left) and Binny Bansal, the co-founders of Flipkart.com. Founded in 2007, Flipkart currently has 4,800 employees and services 50,000 orders a day. Photo: Hemant Mishra/Mint
Sachin Bansal, co-founder and chief executive at Flipkart.com, told Mint: “We are always talking to investors. The next round will see new investors.” He, however, did not disclose the amount the company plans to raise in the next round.
Flipkart is in talks with investors to raise $100 million to help it turn profitable next year
Flipkart has raised more than $80 million in four fund-raising rounds till date. Its existing investors, Accel Partners and Tiger Global Management LLC, reinvested in the company between December and January. Sachin and Binny Bansal, co-founder and chief operating officer, currently hold less than 40% in the firm.
Experts said valuations in the e-commerce space have taken a further beating with investors questioning the model of negative gross margins and no visible path to profitability. Flipkart sorely needs the money, they said.
Last year, Flipkart was looking at raising capital when it pegged its valuation at around $1 billion, but ended up raising an undisclosed internal round from Accel and Tiger Global, which valued it at $850 million.
Founded by the two Bansals in 2007, Flipkart currently has 4,800 employees and services 50,000 orders a day. Its average order size is Rs.1,200. It has a user base of 4.5 million, of which 2.6 million are active customers (those who have shopped at least once in 12 months).
It’s eyeing sales of Rs.4,500 crore by FY15, having clocked revenue of about Rs.500 crore for the year ended 31 March.
In July, The Times of India newspaper reported that Flipkart would run out of money unless it received investment in the next nine months.
Sachin Bansal sees profits as early as next year.
“We will be operationally profitable in 2013. We were profitable in the first two years, but growth puts pressure on profits…it’s a trade off,” he said. Flipkart will be operationally profitable on all the fixed and variable costs associated with the delivery of an order, Bansal added.
“Our investments in technology and infrastructure will continue,” he said.
As volume goes up, revenue rises too, as also costs such as packaging and warehousing. “As we have our own warehousing, which has the capacity to handle growth over the next four years, our costs will increasingly come down,” said Ravi Vora, vice-president (marketing) at Flipkart.com.
Currently, all e-commerce companies in India are offering cash-on-delivery (CoD) service, basically targeting those who are not comfortable paying online. The charge for CoD goes to the e-commerce company.
In its bid to restrict cash burn and add to profitability, Flipkart has put a Rs.300 minimum order cap for the free delivery option.
“We relook at the free-delivery strategy every six months,” said Bansal, adding that as penetration of credit cards goes up, there will be less dependence on this. “CoD strategy depends on the cash dependency of an economy,” he said.
Flipkart, which acquired online electronics retailer Letsbuy.com earlier this year for an undisclosed amount, is exploring opportunities in payment gateways, content, logistics, reviews and technology. The company will also explore adding new verticals such as fashion apparel and shoes.
“We can create a separate brand if speciality experience is required,” said Bansal.
Meanwhile, dismissing market speculation that Flipkart is gearing up for a potential acquisition by a global e-commerce firm, Bansal said Flipkart is “a multi-billion dollar business and can become a large sustainable firm. There is a possibility for an IPO (initial public offering)”.
“We have seen that Internet companies have got good valuations by listing on Nasdaq or the NYSE (New York Stock Exchange),” said Deepak Srinath, director of Bangalore-based boutique investment bank Viedea Capital Advisors (Pvt.) Ltd, who said listing overseas could be an option for firms such as Flipkart. A company needs to have a record of profitability to be eligible to list in India.
According to an estimate by the Internet and Mobile Association of India, online shoppers in the country will treble to 54 million by 2015. First Data Corp. and ICICI Merchant Services, in a December report, estimated India’s e-commerce market to have grown to about Rs.50,000 crore from about Rs.19,688 crore in 2009.