Has the Indian e-commerce valuation bubble burst?

Welcome to the May issue of ValueNotes Connect.

India is one of the fastest growing e-commerce markets no doubt. Until late last year, firms had no trouble raising new funds at exorbitant valuations. But the tide has changed. To use Flipkart as an example – at a valuation of $15 billion, the firm is struggling to find new investors. In fact, Morgan Stanley, an investor in the firm, recently marked down the value of its holding by 27%.

With the collapse of markets in China, and pressure on Internet company valuations; questions about business models, sustainability and returns are finally being asked. Essentially, valuations are built on the size of the “moat” or barriers to competition. In the Indian context, how many of our unicorns have really built such moats?

India’s e-commerce policies have also put restrictions on online retailers. This spells the end of discount sales – a blessing in disguise perhaps? Maybe firms won’t have to burn as much cash to acquire new customers. But what about product return policies? Could analytics be the answer to this logistics nightmare, and potentially lower losses?

The one area which is sure to benefit is the logistics industry. In a structure where on-time delivery (to smaller tier 2 & tier 3 towns as well) is critical, warehousing will become one of the key differentiators. Our research showed just that… India’s warehousing industry will grow at a rate of 18%. Do take a look at our infographic

The challenges faced by the e-commerce sector don’t necessarily spell doom for all start-ups in India. We recently helped select the IE20 (India Emerging Twenty) companies for London & Partners, the Mayor of London’s business and promotional organisation. The quality of the winners was amazing, spanning across life sciences, artificial intelligence, IT services, cyber security, sports tech, travel tech, ad tech, analytics, and of course e-commerce.

And lastly – do read our case study on how we helped an international payment solution provider tap into a USD 350bn opportunity in India’s cashless payments market.

As always, we hope you enjoy reading our newsletter, and we look forward to your comments.

Best regards.

Of unicorn valuations and business models – India is not China!
by Arun Jethmalani
	In the last few years, Indian e-commerce valuations have generated much hype, debate and inspired innumerable start-ups. However, with the collapse of markets in China, and pressure on Internet company valuations; questions about business models, sustainability and returns are finally being asked. Essentially, valuations are built on the size of the “moat”… or barriers to competition. The moat makes it harder for customers to switch and harder for competitors to steal customers.
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Product returns – Analytics could help reduce a ‘returning’ problem
by Nidhi Purohit
	“Returns” – a word that most e-commerce companies dislike. Understandably so, as it involves repackaging, reimbursing and losses to already narrow profit margins in e-commerce. Though most Indian players claim a single digit product return rate, in reality many actually have a higher return rate (nearly 10-12% especially in apparels and fashion). To remain competitive, a strong return policy is a must and companies will do themselves a disservice if they discontinue it. I believe that using smart analytics on the data for product returns will help companies minimize the number of products returned.
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