The Fall In Valuation To $11.6 Bn In April 2017 Is Said To Be A Major Contributor To Its Losses
Amid heavy losses and ongoing litigation with the taxation department, Flipkart Group has reported a rise in its revenues by nearly a third on YoY basis for the FY 2016-17.
The company has reportedly registered a 29% YoY increase in its revenue, at a staggering amount of $3.09 Bn (INR 19,854 Cr) for the financial year which ended in March 2017. However, Flipkart continued to record high losses, which reached $1.3 Bn (INR 8,771 Cr) and translates to an increase of 68% from a loss of $814 Mn (INR 5,223 Cr) registered in FY16.
As indicated in the financial reports of Flipkart, a five-fold increase in finance costs of $671 Mn (INR 4,308 Cr) contributed to the losses in FY17. This was essentially blamed on the company’s degraded valuation of $11.6 Bn in April 2017 from $15.2 Bn in 2015.
The cost was recorded as “fair value loss on derivative financial instruments” at $531 Mn (INR 3,412 Cr) in the FY 17. Without this, Flipkart’s losses would have only increased by 2.4% which in turn would have indicated heightened control on its expenses.
Key Revenue Or Loss Figures Claimed By Flipkart In FY16-17
- The revenue growth was recorded slower than 50% of FY16.
- Cost of talent (including salaries and stock-based compensation) was recorded at $319 Mn (INR 2,052 Cr), a rise of 9% against 124% hike in FY16.
- Advertising and business promotion expenses were $185 Mn, a rise of 9.4% against 100% of FY16.
- Cash-in-hand reached $557 Mn (INR 3,579 Cr), a fall of 13%.
- Investments in mutual funds or bonds fell by 78% to $173 Mn (INR 1,114 Cr).
Flipkart’s arch-rival Amazon also witnessed a tremendous increase in its losses owing to its fall in revenue for the international businesses. As reported, the company secured losses worth $2.1 Bn in the international market for the FY17.
Reasons Behind Ecommerce Unicorns Registering Massive Losses
Ecommerce in India is aligned majorly with double-digit discounts leading to high customer acquisition costs. Also, the Indian government and the Income Tax departments are trying to scrutinise the working of the ecommerce companies active in the country.
One reason for increasing losses can be attributed to the new FDI guidelines issued by the Department of Industrial Policy & Promotion (DIPP) in March 2016 which stated,
- An ecommerce portal cannot allow sale more than 25% from one vendor or their group companies.
- Online marketplaces cannot directly influence the selling price of goods or services to maintain level playing field.
This forced the ecommerce companies to onboard more sellers and reduce the dominance of their in-house vendors.
Further, with all three major players – Amazon, Flipkart, Paytm Mall – having heavy war chests behind them, the battle to increase their claim for the top spot has gone fiercer.
Since March 2017, Flipkart has raised more than $4 Bn from global conglomerate SoftBank and others including Tencent, eBay and Microsoft. This gave Flipkart an impetus to invest heavily in its digital payment and logistics subsidiaries. For instance, most recently in October 2017, it fueled a massive $460 Mn funding in Ekart and pumped $500 Mn in PhonePe.
Speculations also surfaced around the US retail giant Walmart being in talks to make a minority investment in Flipkart in order to take a step ahead, against Amazon in the Indian landscape.
Similarly, Amazon with its commitment to invest $5 Bn in India, is also investing heavily in the country in various domains including technology, logistics, digital payments, online grocery and more. Thus, forced to incur heavy losses on its international operations.
The opportunity in Indian ecommerce is big. According to a report by Forrester Research, online retail sales in India will reach $64 Bn by 2021, growing at a five-year compound annual growth rate (CAGR) of 31.2%. Further, a Morgan Stanley report, indicate that the Indian ecommerce market is poised to touch the $200 Bn mark by 2027.
This data is majorly based on account of factors such as increasing internet and smartphone penetration, a rise in purchasing power of the middle class, growing percentage of the millennial youth, etc.
However, the online retail market particularly is still not mature enough to help companies rake in benefits from economies of scale like the offline brick and mortar stores. Also, with no clear guidelines on issues like Angel Tax, capital expenditure norms, etc. survival is becoming tough for the ecommerce companies in India with every passing day
Even though Flipkart has been experimenting with its brick-and-mortar stores after its first store of Roadster, the road is still long for the company. With FY2017-18 about to get closed, will revenue and loss statement of Flipkart be able to showcase a different story, it will be worth watching.
[The development was reported by ET]
