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Business News/ Market / Mark-to-market/  Will we have an Indian Alibaba?
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Will we have an Indian Alibaba?

If investors are excited about the growth potential of e-commerce companies in China, the opportunity in India could well make them delirious

Indian e-commerce companies aren’t yet profit-making and are at a completely different stage of evolution vis-à-vis Chinese companies, making a comparison on valuations difficult. Photo: BloombergPremium
Indian e-commerce companies aren’t yet profit-making and are at a completely different stage of evolution vis-à-vis Chinese companies, making a comparison on valuations difficult. Photo: Bloomberg

Alibaba Group Holding Ltd’s dream debut on the New York Stock Exchange (NYSE) will have investors in Indian e-commerce companies excited. The Chinese company’s shares closed 38% higher on the first day of trading, and it now has a market capitalization of $231 billion.

Its adjusted earnings of $4.45 billion for the year ended March 2014 are discounted by over 50 times. But if earnings continue to grow at the rate of 60%, like they did in the June quarter, the valuation will look a tad less expensive at 32 times forward earnings.

One of the reasons cited for investors’ excitement is that penetration of Internet commerce is still low in China, leaving immense scope for growth. According to the China Internet Network Information Center, there were 302 million active online shoppers in the country at the end of 2013, which is roughly half the number of total Internet users in the country. Per capita spending is also said to be much lower than in developed markets. As a result, online shopping accounted for only 8% of total consumption demand in China in 2013, and is expected to continue growing at a brisk pace.

In India, the current level of penetration is far, far less. There were 213 million Internet users in 2013, of which only around 10% actively engaged in online shopping. According to a presentation by Accel Partners India, an investor in Indian e-commerce companies, online retail accounts for just 0.3% of the total Indian retail market.

If investors are excited about the growth potential in China, which has a far greater level of penetration, the opportunity in India could well make them delirious. Some of the valuations being talked about, such as in the recent Flipkart deal, etc., do give an impression that investors have high expectations from the Indian market. Indian e-commerce companies aren’t yet profit-making and are at a completely different stage of evolution vis-à-vis Chinese companies, making a comparison on valuations difficult.

But as pointed out in this column earlier, investors should keep one big difference about the two markets in mind. While Alibaba has garnered a large share of the market in China, companies such as Flipkart have to contend with much greater competition and are unlikely to have the same level of success as Alibaba.

Of course, given the size of the opportunity and the high level of liquidity in global markets, investors are likely to continue pursuing deals in the Indian e-commerce space. It may be a long while before questions about profitability and valuations come to the fore.

mobis.p@livemint.com

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Published: 22 Sep 2014, 12:39 AM IST
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