MARRIAGE OF CONVENIENCE

If it materialises, it’ll be the biggest merger in India’s $10 billion (Rs 6,500 crore) ecommerce sector. SoftBank Corp, the Japanese investor in online retailer Snapdeal, is reportedly pushing USbased Tiger Global, the biggest investor in rival Flipkart, for a merger.

Snapdeal has been in trouble of late, laying off hundreds to “drive efficiency across all parts of [its] business”. Founders Kunal Bahl and Rohit Bansal have forgone their salaries since February. The firm, which sees over a million customers daily, has been struggling for the past 15 months, posting losses of Rs 2,960 crore in 201516, double of the previous year. “Over the past 23 years,” Bahl wrote to Snapdeal staff on February 22, “with all the capi tal coming into this market... we started growing our business much before the right economic model and market fit were figured out.”

Flipkart, which has over 100 million cus tomers, has also had its share of trouble, with US mutual fund giant Fidelity slashing the valuation of its holdings to around $5.58 billion (Rs 36,000 crore), onethird the firm’s peak valuation. According to a Forrester report, Amazon India has replaced Flipkart as the country’s largest online company. The merger, then, might be just what the doctor ordered. “In general, consolidation has been on the agenda for almost a year,” says Rajat Wahi, a partner with KPMG India. “It is not sustainable for companies to keep incurring huge losses for long.”

SoftBank may invest up to Rs 9,750 crore in the merged entity, giving it close to a 15 per cent stake. The Indian etailing market could reach Rs 1.8 lakh crore by 201920, said Kotak Institutional Equities in a report. By then, the market will have consolidated, allowing only a few dominant etailers to survive. Flipkart and Snapdeal will surely want to be among them.