Fairval

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Archive for the ‘E-commerce’ Category

Flipkart is the 39th most valuable company in India

Posted by fairval on November 24, 2014

The latest round of fund guzzling at Flipkart seems to have been done at a valuation of $10B. That makes it amongst the top 40 most valuable companies in India.

The following is the list of most valued companies as per market cap (all listed cos here, safe to assume there no company in the unlisted space with $10 B valuation). So Flipkart is being valued almost the same as Dr Reddy, Hero Motor, GAIL, Nestle India. In the consumer space, it is getting more valuation than companies like Dabur, Godrej Consumer, Marico, Colgate etc.

Flipkart’s valuations are 2x more than Titan, the largest brick and mortar retailing company!

 

India's Most Valuable Companies

India’s Most Valuable Companies

 

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E-commerce 3: Revenue versus funding trend (an example)

Posted by fairval on October 2, 2014

Here we look at this question: In a dotcom, what may be a good time, when revenues overtake funding raised?

E-commerce companies or dotcoms are by definition startups, since these are new business models. In a new business, one may have situations when revenue reported may be less than funding raised. For example, if you take seed funding on a business idea, you have zero revenue, but have taken funding. Even pharma R&D firms (or any pure play R&D firm) can remain pre-revenue for sometime, while they continue to soak in funding.

Would love to hear more on this, but see the chart  below:

Cumulative Revenue versus Total Funding raised (www.indiabusinessreports.com)

Cumulative Revenue versus Total Funding raised (www.indiabusinessreports.com)

This is the revenue versus funding profile — cumulative since incorporation — of a rather fancied dotcom. As can be seen, for the first 5 years in the chart below, total funding raised was more than the total revenue reported. In FY14, fulling 6 years or so after the first round of funding, did revenues overtake funding. The company is still EBITDA negative tho. As can be seen above, it has raised funding every single year since inception!

The next question one could ask is – when will annual revenue exceed cumulative funding. For this company,  it will happen in FY14, or 7 years after initial round.

Here, it must be noted, that people have often questioned whether dotcom revenues are real in India. This is because dotcoms often sell below cost. For example, assume you are a vendor of rugs. You sell to the dotcom at Rs 100 per rug. You may find the dotcom selling  at Rs 90. We have heard stories (not clear if true, but makes a lot of sense) that vendors buy goods back from the dotcom. So you sell at Rs 100, buy back at Rs 90, make a clean profit and have your goods back. Money from nothing! You are now ready to sell to the next dotcom, or other old fashioned channels.

Dotcom valuations are dependent on showing explosive growth in sales. Deals are getting done at P/S sales multiple since all other metrics like EV/EBITDA are useless, since EBITDA is massively negative for most dotcoms, certainly the in the above example.

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E-commerce 2: How much loss is OK?

Posted by fairval on September 29, 2014

We have all heard that dotcoms have a license to make losses. But how much do they lose? We haven’t done a comprehensive check yet, but here is an example:

 

Margin profile of e-comm high flyer

Margin profile of e-comm high flyer

This is not a horizontal like a Flipkart of a Snapdeal. This is a vertical player – a fashion retailer. In its own niche, it is reasonably large, with FY13 revenue of over Rs 2.1b (Rs 212 crore). Now look the massive losses it is making Cash loss is FY13 was over 60% of revenue. Clearly, the company is selling products at a negative gross margin. (is this legal? to intentionally sell at a negative gross margin – wonder what something like Competition Act has to say on this)

But investors seem to love this. The company has been raking it in, it terms of fund raising. It has done more than one round of fund raising every year – ever increasing sums, at ever increasing valuations. The company has some of the biggest global PE names invested in it. On revenue front, it is clearly delivering. But given the massive margin of cash loss, wonder when will it break even, let alone start paying back. Cumulative losses by FY13 were Rs 213 crore (Rs 2.13b or about $40m).

(for more details on this company, write to reports@indiabusinessreports.com)

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The magic of e-commerce – I

Posted by fairval on September 25, 2014

While Flipkart story is well known, there are possibly dozens of examples in e-commerce where young start-ups have raised astounding amounts of money.

Our research affiliate India Business Reports was checking out Urban Ladder, which is a online furniture retailer, or a niche vertical player (Flipkart is a horizontal, present in several categories). Check some numbers about this:

  • Incorporated in early 2012
  • FY13 was the first financial year, where sales was Rs 2 crore
  • Promoters in early ‘30s. IIT-IIM types, but experience in this domain – Zero.
  • Has already raised 3 rounds of funding aggregative Rs 145 crore.

See how valuations have progressed (pre-money). Kindly note these numbers are IBR estimates, could be somewhat off the mark.

Valuations in successive rounds

Valuations in successive rounds

We don’t know FY14 revenue. But it seems aims to cross Rs 100 crore revenue in FY15. While the ramp up is commendable, it is backed by considerable money. And the company will probably be profitable in FY18.

Which other business is there where you can raise so much money so fast, and yet plan to make EBITDA losses for a few years more. Between Oct’13 and Jun’14 is 8 months, and the pre-money valuation seems to have increased 5.6x!

Posted in E-commerce, PE/VC, Valuation | Tagged: , , , , | 1 Comment »