In­dian e-tailer's funds will dis­ap­pear in a flash

The Pak Banker - - OPINION - Una Galani

Snapdeal's latest fundrais­ing re­veals how the cash pour­ing into In­dia's e-com­merce in­dus­try will dis­ap­pear in a flash. The online mar­ket­place is rais­ing $500 mil­lion from in­vestors led by China's Alibaba and a Hong Konglisted unit of Tai­wan's Fox­conn at a val­u­a­tion of al­most $5 bil­lion. Se­cur­ing more big-name back­ers is a coup for the In­dian start-up. But the cost of lur­ing buy­ers and sellers to its plat­form means the new funds won't last long.

The in­vest­ment pro­vides a rare in­sight into how quickly the in­dus­try that in­cludes Ama­zon and Flip­kart, which is backed by the Qatar In­vest­ment Au­thor­ity, is burn­ing through cash. The Fox­conn sub­sidiary's fil­ing shows that losses at Jasper In­fotech, the com­pany that owns and op­er­ates Snapdeal, bal­looned to $206 mil­lion in the year that ended in March, up from $41 mil­lion a year ear­lier. Given the fierce bat­tle for mar­ket share among online re­tail­ers, there's ev­ery rea­son to be­lieve that losses are still ris­ing.

The cost of of­fer­ing pro­mo­tions to web shop­pers is at least partly to blame. In­dia's online mar­ket­places are not legally al­lowed to fix prices. In­stead they en­cour­age sellers to cut prices by waiv­ing com­mis­sions, or give cus­tomers in­stant cash-back or credit. In a re­cent two-day sale, Snapdeal of­fered dis­counts of up to 70 per­cent on elec­tron­ics. The arms race shows no sign of eas­ing up. UBS reck­ons it will take un­til 2020 for the in­dus­try to be prof­itable.

Alibaba and Fox­conn are in­vest­ing at a time when oth­ers are turn­ing cau­tious or cash­ing out. Soft­Bank Pres­i­dent Nikesh Arora re­cently warned that start-up val­u­a­tions in In­dia had raced far ahead of where they were a few years ago. Snapdeal's val­u­a­tion has more than dou­bled since Oc­to­ber when the Ja­panese group in­vested $627 mil­lion for a roughly 30 per­cent stake. It was a much smaller in­vestor in Snapdeal's latest round. Mean­while, U.S. e-com­merce player eBay sold down part of its share­hold­ing.

For Snapdeal, the in­vest­ment helps it keep up with ri­vals and gives it more deep-pock­eted back­ers to turn to when it goes shop­ping for its next cash call. On cur­rent ev­i­dence, that might be sooner rather than later.

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