Is SoftBank Pressure Driving Paytm Mall To Invest In Grofers, MilkBasket?

The ecommerce arm of One97 Communications, Paytm Mall, is reportedly in talks to invest in online grocery delivery platforms Grofers and MilkBasket.

Paytm Mall had shut down its warehouses across many cities last year, as part of its cost-cutting measures as operating warehouses and logistics services are capital intensive. The company had also pulled back cashback schemes in an attempt to pivot to an asset-light model.

With plans to enter the hyperlocal delivery market, Paytm Mall is looking to get access to warehousing infrastructure through investments in the two delivery platforms, according to unconfirmed news reports.

Paytm Mall is reportedly still figuring out the terms of the deal with Grofers. Whereas it is looking to lead a funding round for MilkBasket through which it will acquire a sizable stake in the company.

Paytm Mall, Grofers and Milkbasket all declined to comment on the talks. A Grofers spokesperson added that the company is on track to be EBITDA (earnings before interest, taxes, depreciation and amortisation) profitable for the month of May.

SoftBank’s Losses Drive Paytm-Grofers Deal?

Masayoshi Son-led SoftBank, who is an investor of both Grofers and Paytm Mall,  is one of the biggest commonality between the two ventures. The Japanese conglomerate’s vision fund had recently reported $17.7 Bn in its financial year 2020, higher than the estimated $16.7 Bn. CEO Son had also clarified that SoftBank would not be providing financial support to rescue the risky companies.

According to an Economic Times report, SoftBank is looking to push for consolidation or investment between its two portfolio entities to mitigate some of the losses. The report added that the deal may lead up to a merger as well.

SoftBank currently has nearly 20% stake in Paytm Mall, whereas Alibaba has close to 35% stake. The company’s other shareholders are SAIF Partners, eBay and Paytm’s founder and CEO Vijay Shekhar Sharma. Meanwhile, the SoftBank Vision fund owns more than 40% of Grofers’ business.

The Surge In Grocery Delivery And Rising Speculation

With the nationwide lockdown, there has been a surge in demands for hyperlocals and grocery delivery. According to US-based market research company Forrester Research, India’s online grocery market could make $3 Bn in sales this year, representing a whopping 76% hike compared to $1.7 Bn last year.

Meanwhile, the ecommerce segment is expected to grow by 6%, amounting to $35.5 Bn this year. Of this, grocery delivery will be the biggest driver of the overall ecommerce sales with an additional $1.3 Bn, the report added.

With such reports coming in, there has also been a rise in the speculations of potential investments, and M&A coming into the picture. For instance, media reports suggest that food delivery platform Zomato is also in talks to acquire Grofers, whereas BigBasket is said to be in talks with Milkbasket.

Meanwhile, there have been some actual deals as well. For instance, a day before the lockdown was announced, BigBasket had announced the acquisition of DailyNinja. The Bengaluru-based company had also raised close to $100 Mn in two transactions from its existing investor Alibaba to tackle the surge in demand.