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India’s Snapdeal seeks to follow Alibaba playbook

June 22, 2014 7:56 am

India’s Snapdeal seeks to follow Alibaba playbook

By Avantika Chilkoti in New Delhi

Mysterious signs reading “Mission 500” dangle from the ceiling in every room at Snapdeal’s headquarters in New Delhi, describing a quarterly target set by senior management as the online marketplace strives to step up its recent rapid growth.

Kunal Bahl, co-founder, will not be drawn on the specifics of that goal, but says that one predecessor some time ago, “Mission 100”, involved a push to raise monthly sales from Rs250m ($4.2m) to Rs1bn in three months.

Though the online marketplace is just two and a half years old, Mr Bahl suggests Snapdeal is set to emulate China’s Alibaba, thriving in India’s fast-growing ecommerce market as internet penetration rises and the country’s middle class gets used to shopping online.

“If people understand the Alibaba story. . . they will easily understand the Snapdeal story also because really it’s an identical [business],” the 30-year-old entrepreneur says.

Snapdeal, a website where retailers can list their wares, counts Ebay among its investors. It offers more than 5m products from some 30,000 businesses around the country, and annual transactions on its platform will soon exceed $1bn.

Rival Flipkart has already crossed that mark judging by its sales in February and is easily the best known player in the Indian ecommerce industry – but the group is fighting hard to stay ahead. Last month, Flipkart acquired Myntra, an online fashion store, and also secured $210m in fresh funding.

While Snapdeal is much smaller than ecommerce giant Alibaba, Mr Bahl met senior executives from the Chinese group on a recent visit to Hong Kong, and says he sees the company as a ‘mentor’.

“It was like I was talking to some much larger and much more evolved version of Snapdeal,” he says.

Like Alibaba, Snapdeal is considering an initial public offering in 18 to 24 months’ time. The group was valued at around $1bn in its latest round of financing earlier this year, and Mr Bahl says that figure could rise to $5bn by the time of a listing.

Senior executives at Snapdeal are considering an IPO at home, where the brand is well known, though new rules now allow Indian groups to list directly overseas.

“It’s a very bold expectation to be able to raise money through an IPO,” says Arvind Singhal, head of Technopak, a New Delhi-based retail consultancy. “For a business which is still in an evolutionary stage I’m not sure whether the local market would be ready.”

Global internet groups from Facebook to Amazon, which launched its Indian site last year, see significant potential for growth in India, where there are just over 240m internet users out of a total population of 1.2bn.

Online retail in India will grow from 0.4 per cent of the total retail market in 2014 to between 2 and 4 per cent of total retail by 2019, estimates Technopak.

A large part of new business will come from mobile users as smartphones become more popular and data services get cheaper in India. Sites like Snapdeal are adapting to serve that demand.

Snapdeal, which launched a broad marketing campaign in recent weeks and is focusing on developing its mobile service, says some 60 per cent of orders come from mobile users, up from just 5 per cent a year ago.

Unlike peers in developed markets, ecommerce businesses in India must also come up with creative ways to handle logistics issues. Mimicking Alibaba’s model, Snapdeal has opened 40 ‘fulfilment centres’. For a small fee, sellers can leave items at these warehouses for Snapdeal to package and coordinate deliveries.

“Nobody questions the opportunity of ecommerce in India now,” says Mr Bahl. “People are now saying that this is definitely going to become a $50bn to $75bn market over the next five to 10 years.”

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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