‘E-commerce firms making swift changes in biz models’
Funding squeeze, focus on profitability behind move: study
A tightening funding environment has prompted Indian ecommerce ecosystem to adopt stricter evaluation norms for business models, with focus on profitability and consolidation, a report said.
“We believe this shake-up may intensify further, leading to the emergence of one or two strong companies within each sub-sector,” said the research report by Kotak Institutional Equities.
A lack of fresh funding as well as stricter focus on profitability by investors is leading to swift business model changes by companies, it said.
Further, the current wave of consolidation among e-commerce players may intensify, leading to fewer, stronger players emerging within each category.
“Low valuations may prompt brick-and-mortar companies to take over some e-commerce rivals, in a bid to make an online presence for themselves like Titan’s purchase of Caratlane and Future Retail’s purchase of Fabfurnish,” it said.
Further, recent government regulations clamping down on discounts and dependence on single large vendors may necessitate further changes in strategy and could impact sales growth in the near term, the report added The hyper-valuations seen in successive funding rounds in 2014-15 also seem to be correcting, it said.
Fidelity had marked down its holding in Flipkart by about 40 per cent as of February 2016 (compared to August 2015).
The valuation of Rocket Internet’s Global Fashion Group (parent company of Jabong) plummeted by about 67 per cent during its last fund raise in April 2016, while Fabfurnish was acquired by Future Group at a substantial discount for $3 million, the report noted.
The report also indicated that the hyper-local category seems to be the worst-hit among e-commerce players.
Grocery delivery firm PepperTap shut its delivery business and is focusing only on logistics, while delivery company Roadrunnr has merged with food-ordering app Tinyowl.