Sagar Malviya, The Economic Times
Mumbai, 9 November 2015
Internet, which runs the consumer-facing portal of India’s largest
ecommerce business, posted a nearly four-time increase in revenue
and a 12-fold jump in net worth in fiscal 2015, indicating the
unabated growth at the firm and the country’s online retail sector.
The company posted revenue of Rs 659 crore in the year ended March
31, compared with Rs 179 crore the previous year, according to
a recent filing with the Registrar of Companies. It didn’t disclose
the bottom line for fiscal 2014. Flipkart Internet is a part of
a complex group of companies held by Singapore-based Flipkart.
It generates revenue from shipping fee, selling commission and advertisements. Online retailers regularly disclose the gross value of goods sold on the portals, which doesn’t offer an actual picture of their financial performance because, often, the sales are at a discount as they try to build market. Flipkart Internet charges a commission of 4% to 25% of the selling price, depending on the category of products, from vendors for using its platform. Its net-worth swelled to Rs 4,819 crore from Rs 415 crore a year earlier. Net worth, in simpler terms, is the value of assets after deducting liabilities and an increase generally indicates better financial health. The filing showed that the company raised nearly Rs 5,500 crore from its Singaporebased parent, Flipkart Marketplaces, during the year. When contacted, a Flipkart spokesperson declined to comment.
"Technically, this should be one of the important companies for Flipkart as it (Flipkart Internet) derives its business out of a marketplace model, which the law currently allows," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight. He wants this Indian unit to have a bigger say in its operations. "The bigger challenge is to become an enabler and not just be a company which participates with less control of the business but to bear the complete onus of the transactions." Online marketplaces, such as the one run by Flipkart Internet, is the only segment of online multi-brand retail where India allows foreign investment. The complex structure of companies that Flipkart has created allows it to stay within the regulations while raising foreign funds.
While Flipkart Internet runs the portal, it has a wholesale arm that books actual sales of goods it gets from vendors. This business, Flipkart India, had posted sales of Rs 2,846 crore in fiscal 2014. There are a few other companies such as Flipkart Logistics, which runs the payment gateway for transactions done on Flipkart.com, and dormant companies Flipkart Digital and Flipkart Online. All these businesses are owned by Singapore-based Flipkart, which has three other subsidiaries registered in Singapore: Flipkart Payment, Flipkart Logistics and Flipkart Marketplaces. While all leading online marketplaces are rushing to add merchants, Flipkart is focused also on growing its new advertising unit, a highmargin, feebased business that it expects could shore up the bottom line.
ET in August reported Flipkart planned to phase out commissions and instead wants sellers to advertise on its platform for a fee, a move aimed at enlisting more vendors and at the same time earning higher advertising fee. Flipkart is also trying to cut dependence on its largest vendor, WS Retail, which accounts for a majority of the sales on the website.
According to a Bank of America Merrill Lynch report, customer acquisition cost is $6 and margin contribution per order is $1, thereby taking company six orders to break even. "We estimate close to 30% of Flipkart’s GMV coming from the marketplace and expect this to move to 80% in the next two years. Currently, we estimate, Snapdeal’s GMV on marketplace is the highest as it had a headstart over others in terms of the marketplace model," the report said.
(Published in The Economic Times.)