Flipkart, Snapdeal To Face Heat From Reliance Retail, Plans To Invest $700 Mn To Boost Ecommerce Expansion

In an attempt to tap the fast growing ecommerce segment in India, Reliance Retail, an arm of Mukesh Ambani-led Reliance Industries, announced its plans to borrow around $700 Mn (INR 4,500 Cr) to build its ecommerce business. Besides, it also plans to open new stores to counter rivals’ expansion plans and piloting an online site for food and grocery products.

According to the board resolutions filed with the Registrar of Companies (RoC) last week, Reliance Retail will avail term loans to the tune of $396 Mn (INR 2,500 Cr)  from State Bank of India and raise another $317 Mn (INR 2,000 Cr) by issuing convertible debentures. The funds are expected to come in several tranches.

“Reliance Retail is growing rapidly and these are enabling provisions to fund a growing and profitable business. The funds will be utilised, as appropriate, for business operations,” said a person familiar with the development.

The move can be seen as a part of chairman Mukesh Ambani’s wider strategy of placing its communications venture Reliance Jio Infocomm at the intersection of “telecom, web and digital commerce” as he said at the company’s annual general meeting last year.

According to the market reports, the ecommerce business is expected to grow fourfold to almost $70 Bn (INR 4.34 lakh Cr) by 2019. Keeping this figure in mind, biggies like Tata Group and Future Group have started preparations to get their share of ecommerce pie.

It is to be noted that Reliance Retail shut nearly 100 supermarkets in the last fiscal and has a clear focus on expanding the electronics and cash and-carry businesses.

Earlier in last year, Reliance Industries had said that the potential of ecommerce combined with the network of physical store locations will offer tremendous choice and convenience at a great value to the consumer.

Recently, the homegrown ecommerce firm, Flipkart has also locked India’s single largest office space leasing deal by signing up for a 2 million sq ft custom-built office campus in Bangalore as part of its expansion plans. In addition, it has begun preparations to close a funding round of $550 Mn at a valuation of nearly $16 Bn.

Earlier in the last year, Snapdeal raised over $850 Mn, whereas Amazon founder Jeff Bezos had promised to pump $2 Bn in the Indian arm. As per the Goldman Sachs estimation, Indian online retailers such as Flipkart and Snapdeal must collectively raise $20 Bn over next five years to be able to sustain growth.