Alibaba, Rakuten look to tap Indian e-commerce mart
India’s e-commerce market has high-profile suitors. The time has never been so right for Alibaba to make an entry into the e-commerce space — to wrap up the spin-off of Paytm and merge it with Softbank’s investee company Snapdeal.
While the valuations of Snapdeal have become more realistic than what it was 18 months back, Japanese e-commerce major Rakuten too is conducting ground-level preparations to enter the Indian market.
“Rakuten has been quietly making moves for its entry in India. Some of its officials have been conducting surveys and visiting different cities for warehousing locations and partnerships,” said Ashish Jhalani, founder of eTailing India.
Rakuten had set up Rakuten India Development and Operations Centre (RIDOC) in Bangalore in 2014.
Last year the Indian entity raised $4.1 million as external commercial borrowings. Rakuten Inc. is a Japanese electronic commerce and Internet company based in Tokyo. Its B2B2C e-commerce platform, Rakuten Ichiba, is the largest e-commerce site in Japan and among the world’s largest by sales.
In many other markets, including the US, UK and Brazil, Rakuten had gone the inorganic way, making large buyouts of local companies. The company’s acquisitions have been players who were popular locally, but had failed to take off in a big way. Jhalani finds that buying Snapdeal at the right price could give Rakuten a good entry in the market.
However, Rahul Sethi, president of believes it is not going to be easy. “Like Amazon, Rakuten is a cultivated and long-term player. It usually does not make the first move, but would rather wait till the market is ripe enough to enter. Picking up Snapdeal has its own merits and demerits. Rakuten can get a good head start in the market as Snapdeal is a known brand and has an acquired customer base. But the way the business is run and structured, it has a high burn-rate. Looking at the merits and demerits, it makes more sense to start afresh from the scratch or acquire a smaller company than a big ship like Snapdeal, because turning it around will not be easy. However, if Rakuten decides to bid for Snapdeal, Alibaba would not be happy about it,” he said.
Alibaba too is serious about the Indian market. According to industry sources, some of Alibaba’s strategy officials from the Silicon Valley and elsewhere had visited its Delhi and Bangalore offices recently, indicating that some serious plans were afoot for the market.
Alibaba is an investor in Paytm and has put in close to $750 million in a solo round and a follow-on funding. The market has been talking about the spin-off of Paytm’s e-commerce business from the mobile wallet business since last year.
If Alibaba plans to take over Paytm’s e-commerce business and make it its face in India, it would be detrimental to allow Sna­pdeal continue as a competitor. Alibaba’s leading investor Softbank is an investor in Snapdeal as well. Softbank had put in $627 million in Snapdeal in October 2014, besides follow-on rounds of funding.
Softbank had recently written off around $475 million (Rs 3,226 crore) in the value of its combined shareholding in Ola and Snapdeal, thus bringing down the valuations.
Other investors in the company are likely to follow suit and will make Snapdeal valuations more realistic. “Both Snapdeal and Flipkart have been trying to raise fresh rounds of funds for the past couple of quarters and that was when we started seeing valuations falling down. For the past 18 months they have not raised external funds. This has led to several cost cutting measures,” said Arun Natarajan, founder, Venture Intelligence.
Industry sources say there has been resistance within the companies for a Snapdeal-Paytm marketplace merger. But Snapdeal will have to do something about keeping the business going – either raise money at lower valuations or go for strategic investments or mergers.
“Both the companies are unicorns, have strong leaderships, thousands of employees, multiple investors and large money at stake. They are not going to be willing to compromise, unless there is a strong need for investments and merger will be the last option,’ said Sethi.
Jhalani said that Alibaba, if it goes ahead with merging Snapdeal with Paytm, would rather go for share-swap than a buy-out. This would provide Alibaba more room to build a combined entity to take on Flipkart and Amazon.
Sangeetha G.