Will Bahl’s Prof­itabil­ity Gam­ble Suc­ceed?

Daily ship­ments have dropped by half over the past month as Snapdeal re­struc­tures its op­er­a­tions and awaits a life­line from pri­mary in­vestor SoftBank

The Economic Times - - Front Page -

Mad­hav Chan­chani & Payal Gan­guly

Ben­galuru: Snapdeal CEO Ku­nal Bahl faces a pos­si­ble make or break mo­ment. The on­line mar­ket­place’s daily ship­ments have halved in re­cent weeks to 60,00080,000 units a day, and gross sales have dropped to a frac­tion of the com­pany’s peak of $3.5-4 bil­lion in 2015, ac­cord­ing to three peo­ple fa­mil­iar with devel­op­ments. It is also find­ing it dif­fi­cult to raise more cash and sev­eral se­nior ex­ec­u­tives have quit.

Snapdeal will need to make a con­sid­er­able leap to be­come “In­dia’s first prof­itable ecom­merce com­pany in two years” — a goal Bahl sought to high­light in an email to em­ploy­ees on Wed­nes­day while also an­nounc­ing an un­spec­i­fied num­ber of lay­offs. is no longer in a “me-too race to the edge of the cliff” tre­ble since April 2016 ow­ing to fo­cus on prof­itabil­ity

— from phys­i­cal coupon­ing in 2008 to on­line group coupons in 2010 to on­line mar­ket­place in 2012

Founders Bahl and Ro­hit Bansal have pledged to forego their salaries and some top ex­ec­u­tives have of­fered to take pay cuts.

The founders also ad­mit­ted to their mis­takes. “We started grow­ing our busi­ness much be­fore the right eco­nomic model and mar­ket fit was fig­ured out... a large amount of cap­i­tal with ambi-

cash crunch in 2013, but Bahl man­aged to raise funds at the last mo­ment

tion can be a po­tent mix that drives a com­pany to de­fo­cus from its core. We feel that hap­pened to us. We started do­ing too many things, and all of us start­ing with my­self and Ro­hit, are to blame for it,” Bahl wrote.

Bahl’s ag­gres­sive em­pha­sis on prof­its comes amid a lengthy quest for cap­i­tal by Jasper In­fotech Pvt Ltd, Snapdeal’s par­ent com­pany. How quickly the com­pany can raise fi­nanc­ing will de­ter­mine its abil­ity to sus­tain op­er­a­tions. It had about $250 mil­lion in the bank in Novem­ber, ac­cord­ing to a fourth per­son aware of the mat­ter. Snapdeal’s cash burn rate, in­clud­ing FreeCharge, was es­ti­mated at a lit­tle over $20 mil­lion a month to­wards the end of last year.

The prof­itabil­ity chase also runs the risk of Snapdeal los­ing its po­si­tion as the third-largest on­line mar­ket­place in the coun­try to play­ers like Shop­Clues and Alibaba-backed Paytm Ecom­merce, which would make it harder for it to raise cap­i­tal in the short term from new in­vestors. Snapdeal is cur­rently num­ber three, be­hind Flip­kart and Ama­zon In­dia. The lat­ter dis­lodged it from the sec­ond spot last year. “While we do not com­ment on spe­cific busi­ness fig­ures, we can con­firm that we are driv­ing steady growth on our path to prof­itabil­ity,” a spokesper­son for Snapdeal said in an emailed state­ment on ship­ment num­bers. Bahl, in his let­ter to em­ploy­ees, stated that prof­itabil­ity push will lead to a “con­scious depar­ture from a me-too race to the edge of the cliff ”.

Snapdeal had in 2015 in­di­cated a three-year run­way to op­er­a­tional prof­itabil­ity. In 2015-16, the com­pany’s to­tal sales in­creased 56% to ₹ 1,457 crore but losses more than dou­bled to ₹ 2,960 crore. Snapdeal has had to con­tend also with sell­ers ex­it­ing the plat­form be­cause of de­creas­ing ship­ments. More than 300 mem­bers of the All In­dia On­line Ven­dors As­so­ci­a­tion have stopped sell­ing on Snapdeal be­cause of in­creas­ing losses and pay- ment risks, said a spokesper­son for the in­dus­try body that rep­re­sents about1,800 mer­chants.

“There was a lit­tle boost dur­ing the Di­wali sale due to the ad­ver­tise­ment blitzkrieg by Snapdeal, but af­ter that ship­ments dropped once again. Sell­ers are now con­cen­trat­ing mainly on Flip­kart and Ama­zon,” he said.

To cut its big­gest fixed cost — salaries — Jasper be­gan a fresh round of job cuts this year, a move that could af­fect about 1,000 em­ploy­ees, ET re­ported this month. Also, a slew of top ex­ec­u­tives have left re­cently, the lat­est be­ing Govind Ra­jan, who was CEO of the pay­ments unit FreeCharge.

Snapdeal has been ne­go­ti­at­ing with its largest share­holder, Ja­panese In­ter­net and tele­com con­glom­er­ate SoftBank, for fi­nanc­ing it at a val­u­a­tion lower than the $6.5 bil­lion it com­manded dur­ing its last fund-rais­ing in Fe­bru­ary 2016.

CAP­I­TAL FOR FREECHARGE, STRATE­GIC PART­NER FOR VUL­CAN

An 18-month-long process to raise ex­ter­nal cap­i­tal for FreeCharge, in­clud­ing a strate­gic stake sale, has so far not yielded re­sults. Jasper is seek­ing to rope in a strate­gic part­ner for lo­gis­tics unit Vul­can as well.

“We have seen strong in­com­ing in­ter­est from en­ti­ties de­sir­ing to in­vest and par­tic­i­pate in the growth jour­ney of FreeCharge. Vul­can is now on the cusp of prof­itabil­ity and will soon ex­pand its scope of op­er­a­tions to also ser­vice non-Snapdeal clients,” the Snapdeal spokesper­son said on the pro­posed stake sales.

Bahl, one of the shrewdest new-economy en­trepreneurs, has taken Jasper through mul­ti­ple changes in busi­ness mod­els. The com­pany faced a sim­i­lar crunch sit­u­a­tion in 2013 when it ran out of cash one week be­fore salaries were due but Bahl was able to raise funds at the last mo­ment.

“He is a sur­vivor,” said a per­son who has closely worked with Bahl. “Ku­nal has made up his mind that the way to go ahead is make this a prof­itable com­pany, and the anal­ogy is In­fibeam. It’s bet­ter to be one-fifth of Ama­zon and be prof­itable.”

Gu­jarat-based In­fibeam, which de­buted on the stock mar­ket in April 2016, has seen its mar­ket cap­i­tal­i­sa­tion triple to Rs 7,682 crore, un­der­lin­ing how pub­lic mar­ket in­vestors tend to re­ward prof­itabil­ity more than top line growth.

One ex­pert said given the re­cent devel­op­ments Bahl has lit­tle choice but to chase prof­its. “His chal­lenge has sim­ply been the in­abil­ity to cre­ate stick­i­ness and loy­alty. Partly, that’s a func­tion of the mar­ket not be­ing ma­ture enough. This leads to fix­a­tion on prices and makes it hard to cre­ate stick­i­ness,” said Kar­tik Hosana­gar, pro­fes­sor of technology and dig­i­tal busi­ness at The Whar­ton School.

“Given the dif­fi­cul­ties of rais­ing money, Snapdeal has no op­tion but to pur­sue prof­itabil­ity,” he said. “Snapdeal has to es­tab­lish a strong pres­ence in some high-mar­gin niche, like Flip­kart has Myn­tra.”

(Ad­di­tional re­port­ing Mugdha Vari­yar) by

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