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Business News/ Market / Mark-to-market/  What Flipkart’s soaring valuations mean for e-commerce investors
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What Flipkart’s soaring valuations mean for e-commerce investors

E-commerce is growing at a much faster pace in India and investors are willing to pay a premium for Flipkart

Amazon’s large investments and competition from others such Snapdeal.com could mean that the going will be far from easy for Flipkart. Photo: Ramesh Pathania/MintPremium
Amazon’s large investments and competition from others such Snapdeal.com could mean that the going will be far from easy for Flipkart. Photo: Ramesh Pathania/Mint

Flipkart Internet Pvt. Ltd’s acquisition of Myntra.com is turning out to be a master stroke. Just about two months after the deal, the firm’s value has more than doubled, it appears, based on reports that the company has received a valuation of between $5 billion and $7 billion in its latest fund-raising effort. The company hasn’t provided details about the valuation it received, but said that it raised $1 billion in fresh capital from global investors.

Funds were provided largely by existing investors, which means that despite achieving a high valuation, the company’s investors have still not been able to book profit. Of course, $1 billion in cash will undoubtedly help the company in beefing up operations and continuing to invest in customer acquisition. Flipkart has been running cash losses, and thanks to the cash on the books, it can continue to afford doing so for a much longer time frame. Also, now with Amazon.com Inc. announcing that it will invest $2 billion in its Indian operations, it is imperative for competitors to have their own war chest ready.

Using the valuations touted in the news reports, the company has been valued at between two-three times gross merchandise value (GMV, the value of the goods sold on its site). Although it must be noted here that the company hasn’t disclosed its latest GMV, and the above-mentioned valuations are based on estimates. But it’s safe to say that valuations are far higher than some other markets. For instance, MercadoLibre Inc., a leading online retailer in Latin America, gets a valuation of less than 0.6 times its GMV. Ditto with Chinese Internet firm Alibaba Group Holdings Ltd. Note that MercadoLibre reported growth of around 16% in GMV in the first quarter of this year.

E-commerce is growing at a much faster pace in India and investors are willing to pay a premium for Flipkart with a view that it will remain India’s largest e-commerce company. But Amazon’s large investments and competition from others such Snapdeal.com could mean that the going will be far from easy for Flipkart. In this backdrop, existing investors may well be biting off more than they can chew.

To be sure, there is no doubt that e-commerce will grow at a brisk pace in India and the potential is high. But whether these business will be adequately profitable to support current valuations is another matter altogether.

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Published: 30 Jul 2014, 02:34 PM IST
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