Flipkart Looks To Recover From A Year Of Markdowns – In Talks To Raise $1.5 Bn At $10 Bn Valuation

At a time when ecommerce unicorn Snapdeal is bogged with cost-cutting in a last-ditch bid to attain profitability, its arch nemesis Flipkart seems to be recovering from serial devaluation by its investors.

As per reports, homegrown ecommerce biggie Flipkart is in talks with Microsoft Corp., eBay Inc., PayPal Holdings Inc. and Tencent Holdings, to raise about $1.5 Bn. It is also reportedly in talks with Google Capital for the ongoing round. Sources close to the development believe that Flipkart is looking for a valuation of $10 Bn-$12 Bn.

Downgraded Valuation And Decreased Investor Confidence

Flipkart has been plagued by decreased valuation from its investors, over the past few months. US-based mutual fund investor T. Rowe marked down the value of Flipkart shares multiple times. It had invested about $100 Mn in Flipkart in its last funding round in December 2014, when the firm raised $700 Mn funding at a valuation of $15 Bn. In April 2016, it marked down Flipkart shares by 15%. In July 2016, it further marked down the value of Flipkart’s shares by 20% to $96.29 per share. In January 2017, it reduced Flipkart’s valuation by another 4% to about $9.9 Bn.

In November 2016, investor Morgan Stanley too slashed the value of its Flipkart shares by 38.2%. This was for the fourth consecutive time and pegged its valuation at $5.54 Bn.

This markdown came after Morgan Stanley slashed the value of its Flipkart shares by 38.2%. Morgan Stanley’s fund first invested in the ecommerce marketplace when it raised $160 Mn in October 2013. The decrease in valuation began in February 2016, when Morgan Stanley marked down Flipkart shares by 27%. Later in May 2016, for the second time in a row in a successive quarter, Morgan Stanley Mutual Fund Trust, lowered the value of its shares in Flipkart by 15.5%. It pegged Flipkart valuation at $9.39 Bn.

Two other investors, Valic and Fidelity too marked down their respective Flipkart shares. Valic marked down the valuation of Flipkart shares from $108.04 (May 2016 end quarter) to $95.84 (August 2016 end quarter), a decrease of 11.3%. On the other hand, Fidelity has marked down the valuation of its Flipkart shares from $84.29 per share assigned, for the same period, to $81.55 per share.

What Has Changed?

The dwindling investor sentiment does not seem to be a deterrent for Flipkart.

Flipkart entered 2017 with a major reshuffle in its organisation structure. Co-founder Binny Bansal stepped down from the position of company CEO. In a bold move, for the first time in the Indian startup ecosystem, an outsider was appointed as the CEO. Kalyan Krishnamurthy, who was earlier a part of Flipkart investor Tiger Global and, at the time, heading the Category Design Organisation, became the new CEO of Flipkart.

Kalyan Krishnamurthy rejoined Flipkart as Head of Category Management in June 2016, to lead preparations for the flagship sales event (Big Billion Day) in 2016.

The festive season saw Amazon, Flipkart, Snapdeal, and Shopclues battling head-to-head to emerge as the winner. Flipkart emerged as the winner claiming to have sold 15.5 Mn units, majorly high ticket value items like electronics and mobiles. It reportedly sold over half a million products within one hour of the opening of the sale on Day 1.

For the year ended March 2016, Flipkart reportedly clocked a revenue of about $2.68 Bn and incurred a loss of $863 Mn.

Others’ Loss, Flipkart’s Gain

Despite multiple capital infusions in its Indian arm, ecommerce giant Amazon has reportedly incurred losses worth $487 Mn in its international business for the quarter ended in December 2016, while trying to sustain its position in the Indian ecommerce space.

Just yesterday, Snapdeal, in a statement, confirmed that it will be ‘rationalising part of its workforce’ on its way to becoming a profitable entity in the next two years. This includes the workforce at Snapdeal, FreeCharge, and Vulcan Express.

According to multiple sources close to the development, the company has received orders to eliminate about 600 people from its workforce, in its exercise of cost-cutting. The management also sent an internal mail, communicating that the founders Kunal Bahl and Rohit Bansal conveyed their intent to take a 100% salary cut.

Silver Linings In An Otherwise Dark Cloud

In September 2016, it was reported that  US retail giant Walmart Stores Inc is reportedly planning to form an alliance with Flipkart to ante up against Amazon.

Earlier this month, it was also reported that Flipkart has reportedly raised about $38.7 Mn (INR 260 Cr) from media giant Bennett, Coleman and Co. Ltd (BCCL). The funds were raised by selling a small stake to BCCL, for cash along with advertising space, as per regulatory filings.

Earlier this week, Microsoft partnered with Flipkart wherein the ecommerce biggie will adopt Microsoft Azure as its exclusive public cloud platform.

(This development was reported by Mint.)