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Investment Dollars Pour into India's Ecommerce Sector

Flipkart wins big investment from SoftBank

August 10, 2017 | Retail & Ecommerce

In recent months, Japan-based telecom firm SoftBank Group has used its seemingly bottomless pockets to heave significant amounts of cash around Asia-Pacific’s tech sector. Those investments have come both through the company itself, as well as the SoftBank Vision Fund, an investment fund that also includes partners such as another fund operated by Saudi Arabia’s government.

India’s ecommerce platform Flipkart became the most recent recipient of SoftBank’s largesse, securing $2.5 billion—yes, billion—from the Vision Fund made via primary and secondary share purchases, according to a report in Reuters. (Both SoftBank and Flipkart declined to detail the exact amount of funding.)

The Vision Fund’s recently reported investment was also part of a $1.4 billion round Flipkart drew in April from a group of investors that also included Tencent, Microsoft and eBay. All in all, the investments leave Flipkart with more than $4 billion on its balance sheet to spend.

For those left agog at the sheer magnitude of those figures, any surprise might be mitigated by the fact that Amazon, Flipkart’s largest rival in India, has pledged to spend $5 billion on its efforts in the country over the next few years.

Another ecommerce platform, Paytm E-Commerce, is considered a significant player in India thanks to the financial backing it’s received from Chinese ecommerce giant Alibaba. But SoftBank is also a stakeholder in digital payments-focused Paytm, investing $1.4 billion in the company in May and further complicating dynamics within the sector.

Meanwhile, Flipkart’s onetime largest rival, Snapdeal, is in the midst of a reorganization that will leave it slimmed down following the recent collapse of acquisition talks with Flipkart.

Flipkart and Amazon’s massive reserves of cash have left the pair as the two largest generalist retailers in India, a market with substantial retail ecommerce growth potential.

According to data from Bank of America Merrill Lynch, Flipkart is expected to control a 43% share of retail ecommerce sales in India this year, compared with Amazon’s 31%.

Retail Ecommerce Sales* Share in India, by Platform, 2016-2019 (% of total)

eMarketer estimates that retail ecommerce sales in the country will total $22.35 billion this year, but account for just 2.2% of total retail sales. Though sales will increase to $54.63 billion by 2021, they will still make up a small sliver—3.2%—of all retail sales.

International players like SoftBank and China-based tech firms such as Tencent and Alibaba are intent at getting in on India’s ground floor. SoftBank learned that lesson well when it invested $20 million in Alibaba about seven years ago, a stake that’s now valued at around $100 billion.

SoftBank seems intent on spreading at least some of the $93 billion in capital raised by the Vision Fund to emerging tech firms operating in markets in Asia-Pacific. In April, the firm funneled about $260 million through a subsidiary to the parent company of Ola, India’s largest homegrown ride-hailing service.

In addition to Ola and Paytm, SoftBank has also invested in Singapore-based ride-hailing service Grab, with which it participated in a $2.5 billion funding round in July.

Rahul Chadha

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