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81 i chronicle


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Cover Story E-commerce zooms with Flipkart
Outlook Copper
Stats Deficit record of two decades-India
Emerging Country Indonesia
In Focus Will Walmart still bet on India?

Published in: Economy & Finance, Business
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81 i chronicle

  1. 1. Investeurs Chronicle October 2013, Volume: 81
  2. 2. Cover Story E-commerce zooms with Flipkart India’s largest e-commerce marketplace that’s often referred to as the “Amazon of India,” has raised another $160 million. This is an extension of the $200 million raise announced in July of this year, with the final $360 million Series E round the largest ever to be raised by an Internet startup in India. It brings the total raised by Flipkart since 2007 to $540 million. The latest funding values Flipkart, at over $1.6 billion, or Rs 9,760 crore. Investment advisory firm Dragoneer Investment, investment bank Morgan Stanley Investment Management, private equity firm Sofina and Vulcan Capital participated in the latest round. Tiger Global - one of the first backers of the Bangalore-based company - also invested. The participation by San Francisco-based Dragoneer Investment Group ratifies Flipkart's success globally. A long-term investor, Dragoneer, has backed companies such as Facebook, Alibaba and 360Buy in the past. Incidentally, Flipkart is now worth more than the total market cap of all 15 listed retail companies, including Future Retail, Shoppers Stop etc. Among brand-led firms, Flipkart's valuation is comparable with heavyweights such as P&G India and Tata Global Beverages. The extra capital will give Flipkart the ammunition it needs to compete against the likes of eBay-backed Snapdeal — not specifically by building out into new product areas and tapping new customers, but by investing in improving what is already there. Funds will go to improving Flipkart’s technology and supply chain, hiring, and to “further enhance the end-user experience,” according to a statement from Flipkart. Started as primarily an online book store in 2007 by two former Amazon India employees – Sachin Bansal and Binny Bansal – Flipkart, which employs close to 3,000 people, has close to 10 lakh visitors on its website every day. The company's revenues were Rs 217 crore in 2011-12, according to a filing with the ministry of corporate affairs. But in 2012- 13, it soared to an estimated Rs 2,000 crore. Flipkart has got its timing, investments and vertical business strategy right. The company changed its model from being inventory led to that of an online marketplace earlier this year. As a strategy, the company has diversified beyond books, and claims it wants to be the biggest retailer of India (not just online). Other than groceries and automobiles, it’s looking to enter all categories -- it is already present in 12, including books, music, mobiles, computers, cameras, home & kitchen appliances, TV & home theatre systems. It has also entered the digital content market with the recent launch of Flyte (digital music store). However, Flipkart has its own growth pangs to deal with. Analysts and venture capitalists are of the opinion that Flipkart was making considerable losses on transactions of books that accounted for 65 per cent of its sales volume and 40 per cent of revenue .Operational losses are due to the investments it was making in technology, supply chain, logistics, and customer support and marketing to scale up the business. At a time when discount margins from publishers and distributors are shrinking due to the global economic slowdown, in addition to the increasing warehousing cost, Flipkart is finding it difficult to pass on deep rebates to its consumers, according to analysts. When Flipkart started in 2007, it could pass on the bulk of the publisher/distributor discount to the consumers since the company did not have much overhead expenditure. But once it grew bigger, it had to factor in significant warehousing and rental expenditure, too. In fact, analysts point out online retail chains are more gung ho about acquiring a good database of buyers as the valuation of a company is often based on its consumer base, rather than financial numbers.
  3. 3. Cover Story Flipkart has been bullish on its revenue figures and also the magical target of $1 billion (about Rs 5,500 crore) in sales by 2015. From Rs 11.6 crore in 2009-10, its revenue jumped to about Rs 50 crore in 2010-11. The company closed 2011-12 with a revenue of over Rs 500 crore. It has a registered user base of over two million customers and ships out 30,000 items a day, clocking daily sales of an estimated Rs 2.5 crore. The substantial investment that Flipkart is getting comes at an interesting time. The e-commerce market in India has definitely been seeing a great deal of growth, and other players like Amazon, Snapdeal, to name a few, have also been jumping onto the bandwagon over the last few years. The latest fund-raising by Flipkart is an indicator of the growth potential of the Rs 10,000-crore online retailing industry, which is expanding at 54% annually, according to Internet and Mobile Association of India. E-commerce is expected to grow to $200 billion (Rs 1.2 lakh crore) in India by 2020.Besides Flipkart, online marketplace Snapdeal has so far raised about $50 million (Rs 305 crore) while fashion e-tailer Myntra received about $25 million (Rs 152 crore) in risk capital. Like other BRIC countries, India and its population of 1.24 billion people are coming a bit later to the e-commerce market than countries like the U.S. or those in Western Europe, but this also means less saturation and more opportunity. At the same time, there is a growing middle class, bolstered by improved data networks and affordable devices — smart phones, tablets and PCs. Those consumers are switched on and taking to the internet by storm to buy goods and services. That’s having a double effect in terms of business: the rapid rise of strong domestic players like Flipkart, and more interest from foreign investors and e-commerce businesses. Earlier this year, Snapdeal — probably Flipkart’s biggest competitor online — picked up a $50 million investment from eBay, and we understand that this was after a bidding war that also included Amazon. Meanwhile, funding seems to have dried up for smaller e-commerce firms over the past 18 months. Out of the 53 e-commerce companies that raised $853 million in venture capital over the past three years, only 11 have managed to raise further rounds, according to a May report by Allegro Capital Advisors, an investment bank. If Flipkart’s July fund raising is excluded, there have been 39 investments in the e-commerce space in India thus far this year, for an aggregate investment of $171 million. The comparable numbers for 2012 were 60 deals worth $332 million.
  4. 4. Outlook-Copper The average London Metal Exchange cash copper settlement price for the first nine months of 2013 was $7,379/mt. Copper prices dropped sharply early this year as stockpiles rose on the back of slower than expected Chinese growth, and this was exacerbated by substantial destocking from unrecorded inventories in China, which overstated the weakness of demand by around 300,000 mt. Netting off these stock effects, the copper market is still in deficit this year, but this situation is unlikely to last. The industry has entered into a period of structural oversupply. In the first half of 2013, copper in concentrate supply grew by more than 7.8% year-on-year and more growth is expected with a huge wave of supply hitting the market next year. Copper prices will likely come under pressure next year as the market moves into a surplus from a supply deficit. As new supply arrives during 2014-15, the market is likely to move into a lengthy period of oversupply, which will gradually push copper prices lower as they become a force for limiting future output rather than a means of constraining demand. For 2014, we expect an average cash copper price of $7,200/mt, with a peak in prices likely early in the year before a gradual decline. Gloss Stats Capital Flight Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence. This leads to a disappearance of wealth, and is usually accompanied by a sharp drop in the exchange rate of the affected country. Deficit record of two decades-India
  5. 5. Emerging Country- Indonesia Indonesia officially the Republic of Indonesia is a sovereign state in Southeast Asia and Oceania. The country shares land borders with Papua New Guinea, East Timor, and Malaysia. Other neighboring countries include Singapore, the Philippines, Australia, Palau, and the Indian territory of the Andaman and Nicobar Islands. Indonesia has a mixed economy in which both the private sector and government play significant roles. The country is the largest economy in Southeast Asia and a member of the G-20 major economies. Indonesia's estimated GDP (nominal), as of 2013 was $ 946.391 billion. The industry sector is the economy's largest and accounts for 46.4% of GDP (2013), this is followed by services (38.6%) and agriculture (14.4%). The two most important sub-sectors of industry are mining and manufacturing, both being major pillars of the nation's economy The latest data shows Indonesia’s annual inflation surged to a four-year high of 8.8 percent in August 2013, while the trade deficit widened to a historic-high of US$2.3 billion in July 2013. Consequently, the current account deficit widened to $15.7 billion, or 3.5% of GDP and the rupiah depreciated by 11% against the US dollar through late September. The forecast for the current account deficit in 2013 is 3.4%, Indonesia ran a trade surplus with export revenues of US$83.64 billion and import expenditure of US$62.02 billion. The country has extensive natural resources, including crude oil, natural gas, tin, copper, and gold. Indonesia's major imports include machinery and equipment, chemicals, fuels, and foodstuffs. And the country's major export commodities include oil and gas, electrical appliances, plywood, rubber, and textiles. Investment realization in Indonesia grew 30.2 percent to IDR 192.8 trillion (USD $19.8 billion) in the first six months of 2013 (compared to the same period last year). This result implies that 49.4 percent of the investment target for full 2013 has been achieved. The investment target is divided in domestic direct investment (DDI) of IDR 117.7 trillion and foreign direct investment (FDI) of IDR 272.6 trillion. The India-Indonesia bilateral trade increased five times since the inking of the strategic partnership agreement to US from US$ 6.9billion in 2007-08 to US$ 20.10 billion in 2012-13. India is the largest buyer of crude palm oil from Indonesia and imports coal, minerals, rubber, pulp and paper and hydrocarbons reserves. India exports refined petroleum products, maize, commercial vehicles, telecommunication equipment, oil seeds, animal feed, cotton, steel products and plastics to Indonesia. Vital Economic Statistics of Indonesian Economy Particulars Details GDP (nominal) Details GDP Growth $ 946.391 billion rate (2013) Currency 5.6% (2013) Credit Rating Rupiah Fiscal Deficit BB+ (S&P) BBB-(Fitch) BAA3 ( Moody’s) Current 3.2% of GDP (2012) account deficit
  6. 6. Forex In Focus Data from 30hSeptember 2013 to 11thOctober 2013 Will Walmart still bet on India? 20,528 .59 19,379 .77 6096. 20 earlier this week to go their separate ways, there were few gasps or shake of heads. The reasons for the split are plenty. The first reason has to be the vague FDI rules. Previously, foreign retailers were allowed only in the wholesale, or cashand-carry, business but the government eased rules in September 2012, paving the way for foreign retailers to enter 5735. 30 Sensex When Walmart Stores Inc, the world's biggest retailer, and Bharti Enterprises decided the front-end retail format too. Of course, FDI rules weren't the only reason. Walmart has been facing a decline in like-for- like sales (a comparison of a year's sales to the previous year's sales of a company in its Nifty home market), closed several stores in China and has still to complete introduction of 30487 EDLP pricing (promise of the lowest available price) strategy in Latin America. Walmart is also smack in the middle of an internal anti-bribery probe launched in the US in November 2012. 49246 But Walmart cannot give up on India because of the potential of its retail market. India is 28382 46925 Gold (10 gm) accounting for $1,066,922 million, following China ($3,160,917 million) and the US ($1,442,146 million). Indeed, in its statement announcing the split, Walmart has said that it will work with the government to create "conditions that enable FDI in multi-brand retail." However, it would be wrong to expect that Walmart would wait for a perfect Silver (1 Kg) setting — like 100% ownership in the multi-brand retail. Consumer and market knowledge of a local partner will be crucial. Therefore the retailer may replicate in the country a strategy which proved to be successful in other emerging 62.78 markets. A new JV partnership or an acquisition of a minority stake in a local player with an option to gain a majority stake later could be on the cards. 110.42 108.37 61.16 Crude Oil ($/barrel) set to become the world's third-largest retail market by 2018, with food retail format sales Dollar/INR For now, Walmart will have to be content with its existing cash-and-carry business. Despite its difficulties, Walmart has good prospects at least in the Indian cash-and-carry retail. Due to the absence of structured wholesale networks, especially outside large cities, India offers a great potential for its Best Price Modern Wholesale stores. No one these days can afford to ignore India. Not even the world's biggest retailer.
  7. 7. About Investeurs Consulting Private Limited For a good business, finance is as crucial as vision, management and product. Intuitively then Business Finance plays a vital role in the business prosperity. We, at Investeurs Consulting Pvt. Ltd understand and appreciate the vitality of this discipline and the responsibility that comes with it. As Business Finance Consultants we realize that finance is an enabler that Domestic Trade Finance: Negotiation of Inland Letter of Credit Working Capital Management International Trade Finance: Capital Investment: Buyers’ Credit and Suppliers’ Credit Project Funding and Term Loan Factoring Private Equity contributes significantly towards realizing your business goals. We bring to the table 18 years of vast and vivid exposure to different businesses, a profound understanding of business and financial dynamics and excellent TeamChronicle Rating Assistance relationship with banks/ financial institutions. Akanksha Srivastava Nidhi Gogia Harpreet Kaur Investeurs Consulting Pvt. Limited Disclaimer: InvesteursChronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided. S-26, 27, 28, 3rdFloor,Veera Tower, Green Park Ext. New Delhi-110016,