The consumer internet start-up space in India is virtually witnessing what seems to be a valuation war, write Abhilekh Verma and Rishabh BharadwajThe growth of the internet has unleashed the most disruptive technologies of our times and is impacting all walks of lives including trade and commerce. E-commerce has grown by leaps and bounds over the past few years and has become all-encompassing, with things being just a click or a tap away. This growth can be attributed to multiple factors like increased consumer demand, greater choices, undeveloped organised retail, ever growing internet access, and efficient delivery models.The investors also feel that they are putting their money where their mouth is, given the huge potential that India offers for consumption of goods and services.Broadly, e-commerce activities can be classified into four heads: (a) business-to-business; (b) business-to-consumer; (c) consumer-to-consumer; and (d) consumer-to-business. We see various business models at play, the marketplace model, the inventory model and the sharing model, just to mention a few. E-commerce in India is not just limited to foreign funded entities. More and more domestic entities, especially the ones that have a strong retail or manufacturing presence in India, are becoming active online. Online platforms and portals have provided established business houses with additional avenues and greater market penetration.E-commerce in India has had its share of legal and regulatory controversies. The business structures being adopted from the foreign direct investment (FDI) standpoint, data protection and privacy concerns, regulations governing online card transactions like the additional factor of authentication (AFA), indirect tax (VAT) issues on the goods of the sellers stored in the warehouses and alleged antitrust issues relating to predatory pricing and unfair trade practices are some of the oft debated issues.Debates on the FDI regulations governing e-commerce in India has been hogging the limelight, given the huge foreign investment inflow in the sector over the past few years being juxtaposed with the reluctance of the Indian government to open the retail sector for foreign investment in its entirety. Currently, the Indian regulations permit FDI only in business-to-business e-commerce and FDI in business-to-consumer e-commerce is not allowed. The government of India has recently reiterated its position on foreign investment in e-commerce and has decided to maintain the status quo. This seems to be driven by its compulsions to cater to the domestic retail constituency.Nonetheless, given the potential of e-commerce sector in India, regulation of foreign investment in e-commerce has not deterred foreign investment in this sector. Various innovative structures such as 'back-end' - 'front-end' model and the 'step-down subsidiary' model were tested against the backdrop of Indian regulations before the marketplace model was adopted (currently considered as the most FDI compliant structure). Most foreign funded e-commerce portals in India have switched to the marketplace model.In the marketplace model, the platform serves as a marketplace for buyers and sellers for carrying out the transactions and the platform provider charges a fees/commission therefor, from the sellers. The ownership of the inventory lies with the sellers registered with the platform and the platform provider usually acts as a transaction facilitator. However, there are instances of the platform providers being more than facilitators and providing warehousing and logistics support to the sellers.The discussions on e-commerce would be incomplete without touching upon the issue of valuation. The consumer internet start-up space in India is virtually witnessing what seems to be a valuation war. Not long ago, entrepreneurs were struggling to get funding. Tables seem to have turned now as investors as well as entrenched e-commerce players are chasing entrepreneurs having viable business models.In 2014, Indian internet start-ups received around four billion US dollars from investors. It appears that no one wants to miss out on the chance to participate in the next big thing and Alibaba's successful public offer has only helped in fuelling the bullish investment sentiments. The valuation race could have also been spurred by the belief that the winner takes all. Moreover, start-up funding is no longer the bastion of venture capitalists. With the increased participation of hedge funds, mutual funds, and strategic investors, cash available for venture funding is only burgeoning. As of June 2015, more than thirty companies across the world in e-commerce and consumer internet space have been valued at one billion US Dollar or more, per a report of the Wall Street Journal. Indian start-ups - Flipkart, Snapdeal and Quickr - also find a mention in this list. New methodologies of valuation, based on annualised gross merchandising value and gross transaction value, have become popular to justify the valuation in the absence of business profitability. The former is linked to the amount of goods and services sold by an e-tailer, and is more relevant in the inventory based model, whereas the latter is linked to the number of transactions carried out, and is more relevant to the marketplace and the sharing based model of e-commerce. However, these methods of valuation are new and a lot of commentators have expressed their reservations about the current levels of valuations as well as the methodologies being adopted to compute the same.Having said the above, it is a free market we are talking about. According to JM Keynes, nothing is as dangerous as the pursuit of a rational investment policy in an irrational world. Any valuation based solely on financials may not be possible in markets where perceptions of the participantsalso play a vital role. The caveat being, in the long term, markets have the ability to correct themselves, and valuations devoid of correct financials do not sustain. The spectre of the investors holding the parcel when the music stops with no exit in sight is most worrisome. How can one forget what happened in March-April of 2000 where nearly a trillion of US dollars' worth of stock disappeared and a lot of dot com companies were liquidated in a short span. Some experts argue that the current situation resembles the bubble burst of 2000, and infact, the scenario is grimmer because the valuations are high in a non-liquid market. Once the flow of money stops, the party will be over. The contrarian view being, the dot com bubble was a result of an unreal market created by the retail investors, while the current e-commerce scenario is based on market reality and a robust ecosystem, the unconventional valuation methodologies notwithstanding. It is also felt that once the consolidation phase kicks in, the absence of public money in the system will prevent the repeat of the dot com bubble, provided that the investors are patient and have a long term perspective on their investments.Investments at higher valuations create an expectation of even higher returns. However, if one were to look at the options through which investors can seek returns on their investments, they are limited. Usually, for financial investors, exit through initial public offering is the most ideal one. However, the current Indian regulations on listing and public offerings hinder listing of e-commerce entities, inter alia, on account of lack of profitability and minimum promoter holding norms. Further, foreign exchange regulations in India prohibit assured returns on foreign direct investments. Therefore, the only possible mode of exit available to the foreign investors in the e-commerce space is by way of strategic acquisitions. While strategic acquisitions are one of the modes of exits, it does not necessarily result in exit, and at times results in consolidation of investor holdings in various entities. We have already started seeing this. Acquisition of Freecharge by Snapdeal and TaxiForSure by Ola are the recent examples. In the past, we have seen the acquisition of Myntra by Flipkart.E-commerce and consumer internet businesses have created employment and have contributed significantly to the nation's economy. This would not have been possible without the influx of foreign investment in these activities since they are cash incentive businesses to begin with. Given its all-pervading impact in our lives, it is nobody's case that the e-commerce sector should be left totally unregulated. At the same time over-kill or unreasonable regulations may stymie the growth of the sector. Therefore, there is a need to create a balanced and technology neutral regulatory environment for e-commerce. It is about time that the long pending comprehensive law on privacy is made a reality. Further, clearing the maze on transfer pricing and indirect tax issues would help provide more regulatory certainty to the sector. Indirect taxes, in the absence of the much awaited unified goods and services tax regime, remain scattered. On exit routes for investment, the securities' regulator has proposed a new regime for alternate listing norms for technology based start-ups. This also needs to be expedited, failing which, start-ups will opt for listings in jurisdictions with a more favourable regulatory environment. Making the current intellectual property (IP) regime more robust and providing attractive incentives for housing IP in India would provide further fillip to the growth of the sector. The uniform application of the current FDI restrictions on assured returns across all sectors also needs to be revisited and the Reserve Bank of India has acknowledged this fact in its monetary policy statement of February 2015. The government of India would do well to take up these matters on priority, otherwise there is a real threat of flight of value from India (created in the e-commerce sector), to other jurisdictions providing favourable dispensation.The views of the authors are personal, and should not be considered as those of the firmAbhilekh Verma is partner, Khaitan & Co, and Rishabh Bharadwaj is an associate Khaitan & Co
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Mumbai-based BoxMySpace, storage solution provider, has raised Rs 1.92 crore from a consortium of investors led by Farooq Oomerbhoy, who was one of the co-founders of the early stage fund Orios Venture Partners. Ritesh Veera and Singapore Angel Networks also participated in the funding round.The funding will be deployed primarily towards expanding operations in other metro including Pune, Bangalore & Delhi and undertaking key marketing efforts. BoxMySpace also plans to launch other innovative storage solutions in the future and partner with online retailers and SMEs to streamline their need for an efficient storage solution for their goods.Farooq A Oomerbhoy, said “Shrinking living spaces, dynamic work patterns have resulted in people adopting a transient way of life, necessitating the need for storage solutions. Certain problems which plague consumers but do not consciously warrant attention unless a solution is bought forward for them, (for eg Ola/Uber) and BmS is one of them. Once consumers realise storage is no longer a hassle and expensive, BmS will become their preferred choice. We are working closely with BmS to introduce this solution to not only Indian consumer, but given the scalable nature of the business will be looking to expand in other part of Asia very soon.”Established in January 2015 by Pratyush Jalan, BoxMySpace was formed with an aim to bring the same convenience of cloud storage to the physical goods of a consumer’s home. The consumer can effortlessly avail on-demand storage service for their household goods at their doorstep either through the web or mobile application across Android and iOS platforms for a low monthly fee starting Rs 99.BoxMySpace delivers high quality storage boxes to customer’s homes/offices wherein they can pack their belongings in the boxes, thereafter BoxMySpace collects it and stores it safely for them! It also provides spaces for larger storage items through it’s 4x4 and 6x6 packages.BoxMySpace leverages the unused spaces in large warehouses and plugs the gap to provide a technology backed solution to retail customers. It also provides the consumer with their storage dashboard to create a visual catalog of all their stored items and a unique code to each item/box to enable recall within 12 to 24 hours.According to recent industry reports, on-demand storage industry is gaining strong foothold in US market with estimated revenues of US$24 Billion as of date, with 1 in 10 people in US owning a self storage unit. With the growth of urbainzation in India, micro-living, space constraints BoxMySpace can become a much needed solution. Similar entrants in the US, MakeSpace & BoxBee have raised US$10M & US$7M respectively and BoxFul in HongKong has recently closed a US$8M round.(BW Online Bureau)
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Toyota Kirloskar Motor (TKM) on Wednesday (15 July) announced the expansion of its used car business in the country.The company's used car business - "Toyota U-Trust", launched in 2007, will now cover 56 markets in 19 states, TKM said in a statement.With this expansion, TKM aims to cater to a wider audience and offer the used car buyer and sellers an experience at par with new car buyer, it added."With the expansion of Toyota U-Trust we are now equipped to provide quality cars, convenience, transparency and value for money to every customer on a much wider scale," TKM Director & Senior Vice President, Marketing & Sales, N Raja said.(PTI)
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Drugmaker Biocon Ltd has set the price band for an initial public offering (IPO) of its clinical research services arm, Syngene International Ltd, at 240 rupees to 250 rupees a share, it said on Thursday. Syngene's IPO shall open for subscription on July 27 and close on July 29, Biocon said in a filing to exchanges. Biocon said the red herring prospectus filed by Syngene with the Registrar of Companies was approved on 15 July. The company said in April that it planned to sell 22 million shares and provide an overallotment option.
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The US-based Stanadyne launched the next generation diesel fuel system, EcoForce, in Mumbai on Wednesday (15 July). The under 50 HP engines will be used in tractors across India, Europe and China. In India, Stanadyne is based in Chennai and plans to invest Rs 100 crore by 2016.This particular technology is aimed at farming, construction and industrial sectors and focuses on improved fuel economy, increased engine performance and reduced particulate emissions. This is expected to help farmers save up to Rs 14,000-15,000 per year.Speaking on the occasion, Dr John Pinson, president and CTO at Stanadyne said, “EcoForce is based on an innovative design concept for below 50 HP market which gives superior engine performance and fuel economy with a lower total cost of ownership.”Stanadyne has produced over 18 lakh pumps within India and overseas. It has claimed almost fifty per cent local market share of mid-sized generator sets.Sanjay Chadda, managing director of Stanadyne India said, “We will address the dual concern of high fuel costs and air quality emissions resulting in better quality of life. We have investment plan and we are expanding our plant production capacity to meet the increasing demand of the market. And we anticipate our sales to get double by 2018.”Haider Ali Khan
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Host broadcaster Sony India, sponsors like PepsiCo India, Vodafone India and certain key officials within the Board of Control for Cricket in India (BCCI) are in a huddle after two franchisee teams – Rajasthan Royals and Chennai Super Kings – were suspended from the Indian Premiere League (IPL) for two years by a Supreme Court appointed panel as a direct outcome the betting scandal that hit IPL two years ago.On Tuesday the verdict of the Justice Lodha committee was to suspend two of the most successful franchises of the league, Chennai Super Kings and Rajasthan Royals for two years on charges of betting and match-fixing. The co-owners of Chennai Super Kings (Gurunath Meiyappan ) and Rajasthan Royals (Raj Kundra) have been banned from cricket for life.The advertisers, officials related to broadcast of IPL and the media agencies that BW spoke to sounded in unison –the future of IPL, its financial viability, viewership etc will now depend on how BCCI takes course corrective steps. According to experts, a six-team IPL is financially not feasible due to reduced number of matches which in turn leads to reduced on-air advertising slots for the host broadcaster Multi Screen Media that airs the IPL matches on its network of Sony Entertainment Channels.“Two teams less means reduced matches which in turn mean lesser ad slots. That scenario simply means lesser revenue for the host broadcaster. Why will a host broadcaster suffer losses because of problems in the management of two franchisees? BCCI will need to get two more teams or compensate the broadcasters,” said a head of sports marketing firm that handles key IPL players. “There is some degree of uncertainty at the moment. Let’s wait for the BCCI to respond and let’s not get into speculations,” he added.When contacted, a senior sport administrator associated with the BCCI said: “The board has a lot on its plate. It must realise that the IPL is now under a global spotlight because of non-cricketing issues. Creating overnight teams out of thin air may not work every time to suite television interests.”BCCI insiders say in two months or so, the same Justice Lodha committee will come out with concrete suggestions on improving the functioning of the board itself. “Even the board may have to wait before looking into easy short cuts and quick fix solutions like it has done in the past,” said a former state-level cricketer who is familiar with cricket administration matters. Meanwhile, the IPL sponsors are maintaining a brave face. As per PepsiCo India, the title sponsor for IPL, discussions with BCCI will be able to find a solution with regard to the suspension of the two IPL teams. Vodafone India, one of the sponsors for IPL did not react on the day the news of suspension of the two IPL franchisee teams was out."The verdict has just been announced and we are reviewing our position in the matter," Aircel said in a statement on Tuesday.According to Shailendra Singh, Joint Managing Director, Percept Holdings, “T20 as a sport will survive, but the corrupt administration will finally fall apart”. Singh said he hopes that the BCCI will be able to now clean up some of its systems and unfair practices. “Advertisers should renegotiate as the brand IPL has taken severe hit now,” Singh said.Melroy D'Souza, chief operating officer at Professional Management Group believed that the sponsors associated with CSK and RR (like Aircel and Ultra Tech cement) will not suffer because of the manner in which the sponsorship contracts are drafted where payments are linked to team’s participation, etc.Paytm, the mobile wallet firm and a sponsor for IPL 2015 season has decided to adopt a “wait and watch” policy as there are eight more months to go before the start of next IPL season. ashish.sinha@businessworld.in
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Global aircraft maker Boeing and Tata Advanced Systems on Wednesday (15 July) signed an agreement to collaborate in aerospace and defence manufacturing as well as to tap into integrated systems development opportunities, including unmanned aerial vehicles. The companies intend to access markets jointly for products and platforms developed together by Boeing and TASL. The agreement was signed by Shelley Lavender, president of Boeing Military Aircraft and Sukaran Singh, managing director and chief executive officer of TASL. TASL is already on contract to manufacture aero structures for Boeing's CH-47 Chinook and AH-6i helicopters. "This agreement with TASL is significant because it demonstrates Boeing's commitment to expanding its aerospace manufacturing footprint in India," said Lavender.(Shelley Lavender, president Boeing Military Aircraft, and Sukaran Singh, chief executive officer and managing director of TASL, sign a pact in Hyderabad on Wednesday) The collaboration, which is in line with the government's Make in India initiative, will not only work in the domestic market but will also be for international markets. "As we step into our 100th year in business, a new aerospace partnership with India is the perfect milestone to accelerate the momentum we have generated for making in India," said Pratyush Kumar, president for Boeing India. "It is noteworthy that TASL will produce Chinook helicopter parts in India even before the procurement contract is signed with the Indian government," he said. S Ramadorai, Chairman of TASL, said this gives them an opportunity to explore the massive potential in India for aerospace manufacturing and make the investments required to grow the industry. {(Left to Right): Dennis Swanson, vice president, Boeing Defence, Space & Security, India; Shelley Lavender, president Boeing Military Aircraft; Sukaran Singh, chief executive officer and managing director of TASL; and Pratyush Kumar, president, Boeing India at the signing ceremony in Hyderabad} Government is in the process of clearing a contract worth over $2.5 billion for 22 Apache attack helicopters and 15 Chinook heavy-lift choppers. Other Tata group companies - Tata Advanced Materials Ltd (TAML) and TAL Manufacturing Solutions (TAL) - are also supplying important components to Boeing. TAML has delivered power and mission equipment cabinets and auxiliary power unit door fairings for the P-8I long range maritime surveillance and anti submarine warfare aircraft. TAL is manufacturing floor beams out of composite materials for the Boeing 787-9. TAL has provided ground support equipment for the C-17 Globemaster III strategic airlifter.
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Agri-logistics firm Sohan Lal Commodity Management (SLCM) has tied up with Myanmar’s United Amara Bank for collateral financing in Myanmar. The step aimed at strengthening the network for providing collateral management solutions to farmers, processors, traders, exporters & importers across Myanmar.Sandeep Sabharwal, SLCM Group CEO said, “Our process-oriented model has been successful in India where scientific warehousing is gradually becoming a priority. Collateral financing has been a challenge in Myanmar but recently we have seen a paradigm shift in the policies & economy, especially relating to agriculture and collateral financing. Myanmar is an important region for pulses production as India imports 70 per cent to 80 per cent of its pulses from Myanmar. As per our strategy this fiscal, we are expanding into key geographies to replicate our model and this is another step towards this goal.”United Amara Bank will offer their customers financing for their commodities which will be stored at SLCM managed warehouses for a stipulated period. SLCM would undertake sampling, testing, grading, assaying, fumigation, aeration and quality certification of the commodities to ensure the quantity & quality of the pledged commodities.Than Win Swe, CEO, United Amara Bank said, "A collateral management Scheme will allow us to explore expanding this activity and provide more options for our customers."Myanmar, where collateral based lending is limited mostly to land holdings, the recent shift of banks to include stock and goods as collateral is a landmark achievement.(BW Online Bureau)Through the initial tie-ups with Yoma Bank and C B Bank, SLCM has enabled disbursement of loans amounting to $625,000 and have managed 110,000 sq feet of space, 14 different commodities with a throughput of approx. 4.5 MT since commencement.With this, SLCM becomes the only warehousing & collateral management services provider in Myanmar & has tie-ups with three leading nationalised banks including Yoma Bank, C B Bank & United Amara Bank.
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