Is this Flipkart’s last fundraise on road to IPO?

Published on 13 Apr, 2017

While the cash infusion gives the company a decent runway, of possibly up to two years, and enough ammo to take on competition, industry observers and experts are divided on these questions.

Some feel the merger of eBay India and the potential acquisition of the troubled Snapdeal will result in significant spend even as Flipkart looks to curb cash burn, making it incumbent on the company to raise funds externally. Others feel Flipkart is inching closer to profitability and a public listing will propel it to the next level.

No stopping cash burn

“Flipkart is operating at losses even at the gross margin level, and has been burning significant cash to counter competition from Amazon. Also, until operational efficiencies kick in, eBay and the Snapdeal acquisition would further add to its burn rate as Snapdeal is not cash flow-positive. Besides, the cost of maintaining separate brands would compound the cash burn,” says Swetabh Pareek, head of transaction advisory services at Aranca, a global research and advisory firm.

That’s not to say Flipkart would have managed to be thrifty if the eBay and Snapdeal mergers were not happening. Staying ahead of its arch-rival, the world’s biggest e-commerce company Amazon, tops its agenda anyway. Not only does Amazon have access to a seemingly endless pool of wealth, it’s been open about its India ambitions, committing as much as $5 billion in investments last year.

“They have the big daddy Amazon as their competitor, which is very well-funded. They are playing a game of poker, of very high stakes. You can’t walk off the table right now,” says Arvind Singhal, chairman at retail consultancy Technopak Advisors.

Then, there is the Chinese e-commerce behemoth Alibaba, an 800-pound gorilla that can change the very dynamics of the market in one fell swoop. It is perhaps still gauging the Indian market, waiting for an opportune moment. But more on that later.

About to turn the corner?

There’s no denying that Flipkart has managed to bring down its cash burn. A report in The Economic Times in January said it was looking to slash its monthly spend to $20 million from nearly $45 million six months ago.

Niren Shah, managing director of Norwest Venture Partners India (not an investor in Flipkart), feels the homegrown e-commerce major has exercised fiscal prudence by bringing down its burn rate by half, and it was only a matter of time before it turned profitable.

Similarly, Sanchit Vir Gogia, chief analyst at Greyhound Research, feels this is a strategic funding round. “It sends a strong message to the investor community that Flipkart wants to change, invest in new businesses and achieve profitability in two years’ time. 2018 will be very critical for Flipkart,” he says.

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