Profitability is important for Flipkart, Myntra: Mukesh Bansal

Mukesh Bansal, founder of Myntra.com, sold the online fashion retailer to India’s biggest e-commerce firm Flipkart India Pvt. Ltd last year in what was billed as the largest deal between two Internet companies in India. At the time it was announced in May 2014, the cash-and-stock deal was estimated to be worth $330 million. Flipkart, which has raised close to $2 billion from investors in the past year, is expected to be valued at nearly $15 billion in its next round of funding. In an interview, Mukesh Bansal, who is head, commerce platform, at Flipkart as well as chief executive officer at Myntra, spoke about the soaring valuations of Internet firms. Edited excerpts:

What’s your sense of the current valuation scenario? Are valuations getting ahead of themselves?

There is no absolute formula for valuations. They are a function of demand and supply. Look at the overall potential of e-commerce and the size of business already, especially the Flipkart-Myntra combination—we believe that if we execute well, we will be a very sizeable player with a significant market share. In that context, whatever the current valuation is, we can see a clear future, where we will be much larger in size, with a much higher valuation. So, from that point of view, whoever will be coming in at this point will have a strong conviction that they will make money. That’s why there’s so much investor interest.

What are the other factors driving valuations?

Valuation is also driven by sentiment. The macroeconomic sentiment is pretty good. India’s GDP (gross domestic product) is picking up. The falling oil prices is a huge boon for the economy, and consumer confidence is high. Some of this is playing into foreign investors’ interest in wanting to participate in India’s growth story. All of these things contribute and, yes, valuations are driven by business cycles and they do change. It’s very difficult to say whether the valuations are inflated or not. Even VCs (venture capitalists) who say valuations are too high, they are also the ones who out-compete each other for investments.

Why are you raising so much money in a short span of time?

We would like to be in a position where we are not driven by short-term changes in the macroeconomic environment and focus on our long-term projects. For instance, we are looking at building a massive supply chain network. That is a long lead time project and we want to be able to do it independent of the business cycles. That’s part of the motivation (for raising so much money). We want to make sure we’re reasonably capitalized and we’re not making short-term changes to optimize the cash-burn situation. Also, most of the high-quality investors want to be part of the India growth story. So we also look at what investors are bringing to the table. It’s not only money, their network, their understanding—we want to have a strong team inside the company and investors are a part of this. So even if there’s no need to raise money, if we get a really strong investor on board at the right valuation, we’ll do it.

What do your recent investors such as DST Global, Qatar Investment Authority and GIC bring to the table?

One is the ability to stick with the company for a long period of time. When the company goes public, they have the ability to buy a significant chunk. Most of our new investors have a pretty broad Internet portfolio around the globe, so there’s the network that comes with them. We know we’re doing very well, but things don’t always progress in a straight line. There are good times and not-so-good times. Investors’ ability to support the organization is a huge advantage. These are people who won’t be fickle minded. This means we won’t have to deviate from our advantage regardless of what’s happening outside.

In your conversations with investors, how important is the topic of profitability?

We do have a path to profitability agenda. But that is not the only agenda. We want to grow our market share, we want to deliver meaningful differentiation for our consumers. So profitability is among the top five priorities for us, and it does get discussed with investors.

Considering how fast valuations have risen over the past year, do you regret selling Myntra at the price you did?

Myntra has also benefited from valuation appreciation. It’s not like that growth is not happening. It’s a big reason Myntra-Flipkart together are able to see the increase in valuation we’ve seen over the last one year. Investors have the realized the combination of the two is much more powerful. So, absolutely no regrets.