Here Is Why Flipkart Valuation Takes A Fresh Hit

Signalling a tough road ahead for India's largest e-commerce company Flipkart, a mutual fund managed by Morgan Stanley has marked down the value of its shares in the Indian e-commerce major by 15.5 per cent, valuing it at under $10 billion.

The successive markdown comes at a time when its American rival Amazon is aggressively gaining traction in the burgeoning Indian e-commerce market.

The development also comes at a time when global investors have turned cautious while investing in start-ups and some experts are questioning the high valuations enjoyed by a few. According to a Bank of America Merrill Lynch estimate by 2025 online merchandise sales will hit $220 billion in India from $11 billion last year.

In January, the Indian e-commerce giant announced a major management reshuffle when Sachin Bansal stepped down as chief executive officer to don the role of executive chairman. He was replaced by co-founder Binny Bansal. There were also two high profile exits when Mukesh Bansal, who led its commerce and advertising business, and Ankit Nagori, chief business officer, resigned.

Many global investors had earlier made a beeline to put their money into Indian start-ups attracted by the huge potential here. However, the consistent cash burn among these companies in their quest to increase the market share has seen investor interest waning in recent times.

In fact, Tata Sons chairman emeritus Ratan Tata, who has invested in a clutch of start-ups, had admitted that valuations of some of these companies have become pricey.

A recent report released by brokerage firm Kotak Institutional Securities, which examined the financials of 22 of the country's top e-commerce entities, said losses rose by 293 per cent to Rs 7,884 crore for 2014-15 on a combined revenue of Rs 16,199 crore. The higher losses, it said, was because of more advertising spends as companies looked to beat their competitors, according to a report in The Telegraph.

A number of investors like Fidelity Investments and T Rowe Price have also made similar mark downs of Flipkart, which was considered as the poster child of Indian e-commerce industry.

Reacting to a previous cut in valuation, Flipkart’s new CEO Binny Bansal had told a leading financial daily that such devaluations are “mostly a theoretical exercise by small investors.”

According to a report in The Hindustan Times, Flipkart is said to have been in talks with Alibaba early this year, but the Chinese e-commerce giant did not agree to value it at more than $8 billion, and the deal fell through.

Flipkart had termed that report “false and baseless”.

According to a US Securities and Exchange Commission (SEC) filing, Morgan Stanley has marked the value of their Flipkart shares at $87.9 per share as of March 2016 from $103.9 per share as of December 2015.

The December value was lower by over 23 per cent from $135.8 per share as of September last year.

The markdown brings down the valuation of Flipkart to under $10 billion. According to reports, the Bengaluru- based firm had raised capital in July last year at a valuation of over $15 billion.

Comments could not be obtained from Flipkart as emailed query remained unanswered.

Morgan Stanley had picked up stake in Flipkart in 2013.

According to reports, Flipkart has been facing funding crunch and falling valuations.

It has also deferred joining dates for campus hires from IIM Ahmedabad and IITs citing restructuring of its businesses.

(PTI also contributed to this story)