SoftBank Reports $1.4 Bn Losses On Its Indian Bets – Ola, Snapdeal

At a time when SoftBank Global is looking for the prospective sale of Snapdeal to Flipkart the company has reported a whopping $1.4 Bn loss on two major investments in India, Snapdeal and Ola.

As per the financial report ending March 2017, filed by the company, the “Financial Loss on financial instruments at FVTPL (Fair Value Through Profit or Loss) was $1.4 Bn (¥160,419 Mn) compared to a gain of about $1 Bn (¥114,377 Mn) in the previous fiscal year.”

On the other hand, the company also reported a gain in foreign exchange of $468.3 Mn (¥53,336 Mn) for FY17, compared to a loss in foreign exchange of $363.7 Mn (¥41,414 Mn) in FY16.

The report further states, “This mainly resulted from recording a loss as the amount of changes in the fair value of the Company’s financial instruments at FVTPL from the previous fiscal year-end to the fiscal year-end.”

The financial instruments at FVTPL included preferred shares of Jasper Infotech Pvt. Ltd, the parent company of Snapdeal, and ANI Technologies Pvt. Ltd which operates the taxi booking platform Ola.

However, explaining the reason for such degradation in valuation, the financial report stated, “Gain or loss arising from financial instruments at FVTPL consists mainly of changes in fair value of preferred stock investment including embedded derivatives, such as ANI Technologies Pvt. Ltd and Jasper Infotech Pvt. Ltd in India, designated as financial assets at FVTPL.”

Earlier, Softbank Group Corp had marked down close to $555 Mn in the same Indian investments, Ola and ecommerce portal Snapdeal, as per its six monthly earnings report, ending September 2016. Later the company wrote off around $475 Mn in its combined shareholding value in Ola and Snapdeal, for the period ending December 31, 2016.

The Ola Story

Last week it was reported that Ola had incurred a consolidated loss before tax of $360 Mn (INR 2,313.66 Cr) in FY16, as compared to $123.9 Mn (INR 796 Cr) in FY15.

As per regulatory filings, the consolidated revenue for ANI Technologies Pvt. Ltd (Ola’s parent company) was about $117.9 Mn (INR 758 Cr) for the year ended March 2016. The revenue is inclusive of subsidiaries such as Ola Fleet Technologies and TaxiForSure parent Serendipity Infolabs. In the previous year, this number was about $16.1 Mn (INR 103.8 Cr).

In April 2017, it came to light that ANI Technologies had secured $260 Mn (INR 1675 Cr) from SoftBank Group in November 2016. The investment was facilitated via Softbank’s subsidiary arm, SIMI Pacific Pte Ltd. Earlier this month, it was reported that the Bengaluru-based cab aggregator had further raised $104.4 Mn (INR 670 Cr) in Series I from US-based hedge fund Falcon Edge Capital and Ratan Tata’s RNT Capital, as per recent regulatory filings with the Registrar of Companies.

Softbank isn’t the only investor in Ola that has marked down the valuation of ANI. In February 2017, American investment management company, Vanguard Group also slashed the valuation of its stake in Ola’s parent firm, ANI Technologies Pvt. Ltd by over 40%.

The Snapdeal Story

As per RoC filings of Jaspers Infotech Pvt. Ltd, the company reported a loss of about $495 Mn (INR 3,315.5 Cr) for  FY2016 as compared to $198.2 Mn (INR 1,328 Cr) in 2015.

SoftBank, till date, has invested around $900 Mn in Snapdeal and holds around 33% stake. Kalaari Capital and Nexus Venture Partners own about 8% and 10%, respectively. While the founders, Kunal Bahl and Rohit Bansal, hold just 6.5% stake each.

Last month, SoftBank proposed that Snapdeal’s shareholders will get one share of Flipkart for every 10 shares they own in Snapdeal. Snapdeal’s other backers, Kalaari Capital and Nexus Venture Partners reportedly asked for $100 Mn each from the proposed sale.

Later, SoftBank Global gave the final nod on the widely talked about Flipkart and Snapdeal merger. The company gave in-principle nod to hold 20% stake in the Snapdeal-Flipkart merged entity and also approved a plan to buy out Snapdeal’s existing investors ahead of the potential merger, subject to clearance by Snapdeal’s investors and the two merging entities.

However, the Board meeting on Tuesday, May 2, 2017 to discuss the final terms did not reach an agreement. A decision could not be taken as the Japanese firm could not manage to convince Nexus Venture Partners on the company’s proposed valuation. As per a report dated May 9, 2017 the deal is inching towards closure. Reportedly, Nexus is warming up to the idea of a Snapdeal sale and the merger may commence by next week. The report further states that the representatives of SoftBank and Nexus were scheduled to meet today for finalising the details of the same.

In February 2017, Snapdeal fired nearly 600 employees citing ‘rationalising part of its workforce’ on its way to becoming a profitable entity in the next two years. This included the workforce at Snapdeal, FreeCharge, and Vulcan Express.

The news comes in at a time when Snapdeal’s rivals are investing heavily in expansion and have fuelled up their funding aresenal. One one hand, Flipkart (with whom it is exploring the merger) raised $1.4 Bn funding at a valuation of $11.6 Bn last month and acquired eBay India operations. On the other hand, Amazon’s Jeff Bezos promised to continue investments in India and also opened nine new Fulfillment Centres in the country to tackle increasing demand. Also, Paytm gained $200 Mn from Alibaba for its ecommerce entity Paytm Mall.

While Ola’s closest competitor Uber is busy strengthening its foothold in the country. Uber recently launched its business solution – Central in India, which is fully integrated into Uber for Business. It also announced its on-demand food delivery app UberEATS this month. It has partnered with 200 restaurants. UberEATS allows consumers to schedule orders, curate restaurants, personalise taste preferences and dietary restrictions, and track the delivery on the app. The project is currently available in Mumbai.