Skip to main content

On Indian E-Commerce Valuation

In an interview to Mint, Aswath Damodaran - the well known US-based valuations expert  - has opined that India’s e-commerce and consumer technology start-ups "may be collectively overvalued". "The size of the macro story may not justify the micro-valuations," he says.

Economic Times (in its Corporate Dossier supplement) had earlier featured the views of two local practitioners - Sharad Sharma, Angel Investor and Jacob Mathew, Founder of MAPE Advisory - on the same topic.

Sound Byte from Sharad Sharma:
"Unfortunately, due to just one individual - Lee Fixel of Tiger Global - Flipkart has gone from being a poster child to being the single biggest risk to the technology ecosystem." 

His main argument:
Right now, Flipkart is valued at about $500 per transacting user. This is comparable to what Vodafone paid for Hutch in 2007 - the most expensive mobile operator acquisition ever. Built into the Vodafone offer at that time was a belief that the hockey stick subscriber growth would happen in the coming years. And indeed, that did take place. The Vodafone subscriber base has grown from 22 mn in 2007 to 173 mn today. E-commerce players like to point to this mobile growth story to justify their current sky-high valuations. India is not China. There are only 50 mn households in India with disposable income of Rs 3 lakhs or more. And, offline retail isn't going away like landlines. It's a lot stickier than we imagine. In US, even today 10 of 11 dollars are spent offline and this share isn't shifting dramatically. Given all this, further valuation growth in Flipkart from here would be in completely uncharted territory. After all, Flipkart is already at a 2-3X multiple on GMV compared to Alibaba's 0.7X. 
Sound Byte from Jacob Mathew (quoting a friend) :
"Earlier, enterprises were about selling to consumers and giving dividend to shareholders; current mood is all about selling to shareholders and giving dividend to consumers." 
His main argument:
Valuations are too much into the future and are based on humungous assumptions. You can justify the Flipkart valuation if you assume that by 2020 the Indian online market will be $100 bn and they have 60 per cent market share and that they are making EBITDA margins. Will the current $5-6 bn market actually jump to $100 bn in 5 years? Will the leader have 60 per cent market share and that too in a market like India where not much consolidation is happening? Will the topline hold when you are charging all costs plus a small profit margin to the customers? 
Forget valuation, at times the business model itself is problematic. Will buyers pay 2 per cent commission for buying/renting a house in India where the touch point is only online? How can you use a car to home deliver restaurant food with ticket sizes of less than Rs 500/order? Just because somebody has downloaded your shopping app in his/her smart phone, can you start talking about the lifetime value of a customer? 
Venture Intelligence is the leading provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India. Click Here to Sign Up for the FREE Weekly Edition of the Deal Digest: India's First & Most Exhaustive Transactions Newsletter.

Popular posts from this blog

Avendus tops League Table for Transaction Advisors to PE deals in H1'24

Citi and Ambit claim the No.2&3 slots Avendus topped the Venture Intelligence League Table for Transaction Advisor to Private Equity Transactions in H1’2024 advising 12 deals worth $2.4 Billion. Citi stood second, having advised 1 deal worth $2 Billion. Ambit followed with 7 deals worth $797 million. Kotak Mahindra Capital ($735 million across 2 deals) and Ernst & Young ($657 million across 7 deals) completed the top five for H1’ 2024. The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on the value of PE and M&A transactions advised by Financial and Legal Advisory firms. Among the larger deals in the latest quarter, Citi, KPMG , Ernst & Young advised $2 Billion acquisition of the Indian business of American Tower Corporation by Brookfield . Avendus, Ernst & Young, JM Financial, Barclays and KPMG advised $ 554 million acquisition of Shriram Housing Finance by Warb...

Citi tops League Table for Transaction Advisors to M&A deals in H1'24

  Ernst & Young and Avendus claim the No.2 & No.3 slots Citi , which advised the  $2 Billion acquisition of the Indian business of American Tower Corporation by Brookfield,  topped the Venture Intelligence League Table for Transaction Advisors to M&A Deals   during H1 2024. Ernst & Young stood second advising 8 deals worth $1.5 billion. Avendus followed with 7 deals worth $1.2 billion. KPMG ($1.1 billion across 5 deals) and JM Financial ($900 million across 4 deals) completed the top five. The  Venture Intelligence League Tables , the first such initiative exclusively tracking transactions involving India-based companies, are based on the value of PE and M&A transactions advised by Financial and Legal Advisory firms. Among the other larger M&A deals in H1 2024 (other than the  ATC-Brookfield deal) , Ernst & Young, KPMG and Deloitte advised $1.1 Billion acquisition in PNC Infratech 12 Road Projects by Highways Infrastructure Tr...

AZB tops League Table for Legal Advisors to PE deals in H1’24

Trilegal and Khaitan & Co. claim the No.2 & No.3 slots AZB & Partners (AZB) topped the Venture Intelligence League Table for Legal Advisor to Private Equity Transactions in H1 2024 advising 41 deals worth $5.4 Billion. It was followed by Trilegal ($5.1 Billion across 54 deals) and Khaitan & Co. (4.8 Billion across 46 deals) in the second and third spot respectively. Cyril Amarchand Mangaldas (CAM) ($2.9 Billion across 34 deals) and Talwar Thakore & Associates ($2.4 Billion across 9 deals) completed the top five. Among the larger Private Equity deals during H1’2024, Khaitan & Co., Talwar Thakore & Associates, S&R Associates ,and Trilegal a dvised the $2 Billion acquisition of the Indian business of American Tower Corporation by Brookfield which was the largest PE-VC investment in 2024 . AZB advised the $900 Million acquisition of Altimetrik by TPG Capital and the $840 Million acquisition of Healthium Medtech by KKR . Resolut Partners , Khaitan & ...

AZB & Partners tops League Table for Legal Advisors to M&A deals in H1’24

Khaitan & Co. and J Sagar Associates claim the No.2 & No.3 slots AZB & Partners topped the Venture Intelligence League Table for Legal Advisor to M&A Transactions during H1 2024 advising 37 deals worth $14.8 Billion. It was followed by Khaitan & Co. ($12.8 Billion across 32 deals) and J Sagar Associates (JSA) ($9.8 Billion across 13 deals). Cyril Amarchand Mangaldas (CAM) ($6.2 Billion across 38 deals) and Trilegal ($4.8 Billion across 20 deals) completed the top five. Among the largest M&A deals during H1 2024, AZB, JSA and Khaitan & Co. advised $8.5 Billion acquisition of Disney Hotstar by Reliance Jio . S&R Associates , Talwar Thakore & Associates (TTA), Khaitan & Co. and Trilegal advised the $2 Billion buyout deal   of  ATC India by Canadian infrastructure investor Brookfield Asset Management . CAM advised the $1.3 Billion in the acquisition of a  further  stake in Ambuja Cement  by Adani Enterprises . Among fo...

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry. Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back? Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms...