Alibaba in investment talks with Delhivery and Xpressbees Logistics


June 14, 2016

Aditi Shrivastava &Madhav Chanchani, The Economic Times
Bengaluru, 14 June 2016

Alibaba Group Holdings is looking to buy, or invest in, an Indian logistics company specialising in deliveries for online retail players, and towards this end has held talks with Delhivery and Xpressbees Logistics, according to two people aware of the development.

The Chinese company is also chalking out a plan to get Paytm to spin off its marketplace business and plans to top it up with more capital, said a third source. Alibaba and its affiliate Ant Financial together own about a 40% stake in the Noida-based company.

These moves are part of an effort by Alibaba to build what founder Jack Ma calls the “iron triangle” of businesses in ecommerce, payments and logistics, and position it to challenge dominant incumbents Flipkart and Amazon.

Paytm and Xpressbees, which is based in Pune, declined to comment. Sahil Barua, the CEO of Gurgaon-based Delhivery, did not reply to an email seeking comment.

Times Internet, a part of the Times Group which publishes this newspaper, is an investor in Delhivery along with Tiger Global Management and Nexus Venture Partners. In response to questions from ET, Alibaba said in a statement that it sees “tremendous opportunities” in India. “We are absolutely committed to developing in this market for the long term,” it said.

Alibaba is likely to buy a majority or a significant minority stake in a logistics company, which will give it a major say in operations, said one of the sources cited above. The investment will be decided in 4-6 months, once Alibaba is ready to launch its horizontal marketplace platform in India.

Both Delhivery and XpressBees already work with Paytm’s marketplace as third-party logistics and eKYC partners. 

Securing control over logistics is important because infrastructure comprising roads, storage and vehicular assets, as well as skills, regulations and systems are relatively under-developed in India, said Devangshu Dutta, CEO of retail consultancy Third Eyesight.

“Major players such as Amazon, Alibaba, Flipkart have to take direct or indirect control to ensure that their logistics capabilities evolve ahead of their own business growth curve,” he said. 

Top executives from Delhivery and XpressBees have met the team which Alibaba has set up for the India entry. This group is led by Alibaba’s Global Managing Director K Guru Gowrappan and Bharati Balakrishnan, the first top executive hired by Alibaba to build a consumer-facing business in India. Alibaba executives currently work out of Paytm’s headquarters.

Delhivery was estimated to be valued at Rs 2,000 crore during its last funding round. SAIF Partners and IDG Ventures are among the investors in Xpressbees, whose valuation is not known.

“They are putting their strategy in place. Fundamentally, they will buy and start with Paytm’s online retail business, because a deal with Flipkart is not happening right now as they feel it is very expensive. They will get a logistics partner to build a network like Amazon, which is very critical,” said a source briefed about Alibaba’s plan.

Besides owning a stake in Paytm, Alibaba owns around 5% of Delhi-based online marketplace Snapdeal. It held investment talks with Flipkart, but the two companies were not able to reach an agreement on valuation and terms. Alibaba and Paytm are working out the contours of the corporate structure of the marketplace entity, where 100% foreign direct investment is allowed as per regulations announced by the government in March.

“All payments will be moved to the payments bank and ecommerce will be a separate entity which Alibaba will invest in again. We will see some announcements over the next three to six months,” said a person briefed about the plan. As India becomes a crucial battleground for the world’s two largest online retailers, they are deploying contrasting strategies in an ecommerce market that Internet and Mobile Association of India estimates will be worth Rs 2.1 lakh crore by December 2016. While Alibaba has made strategic investments, Amazon India is growing organically.

Amazon ended 2016 with net sales of $107 billion. Alibaba closed its financial year in March 2016 with revenue of $15.7 billion.

Winning in India has become critical for Amazon, after it lost out in China to Alibaba. Last week, Amazon founder Jeff Bezos announced that his company will invest another $3 billion in India, taking the total commitment to around $5 billion, putting the spotlight on Alibaba’s India plans.

Alibaba is also entering India at a time when funding options for local players have dried up, and sales growth is flattening as online retailers pull back on discounts. This gives it an opportunity to cherry-pick assets in the country. India is also important for Alibaba’s push to globalise its customer base, as it looks to get half of its revenue from overseas by 2020 as compared 20%. In April, Alibaba acquired a majority stake in Southeast Asian online retailer Lazada for $1 billion when it was reportedly running out of money.

(Published in The Economic Times)