Valuation of Flipkart: Wake up call for start-ups?

“Start-ups” the most talked about word in India during the last one decade.

The emergence of new age entrepreneurs re-energized the business atmosphere and created a paradigm shift over the centralized control held by the handful of business corporate houses to a large number of aspiring and enthusiastic youth who with their self-belief , risk taking abilities and innovative ideas created their own company – which we generally refer to as “Start-ups”.

The rise of start-ups in India can be traced from way back between 1995-2000 when the world saw a dot com boom and one of the first Start-up emerged in India during that time was InfoEdge (best known for naukri.com). During all these years start-up ecosystem has evolved and has been supported by a lot of government economic policies which includes the Internet Policy (1998), New Telecom policy (1999) and the IT Act 2000(2000). The early 2000 also saw two other trends hitting the Indian market – first being the entry of foreign companies through acquisitions of Indian Start-ups( eBay acquisition of Bazee.com and Monster acquisition of Jobsahead) and second trend came from the government’s side in terms of higher emphasis on shifting towards the e-governance.

But it was in the year 2006 which changed the way India was placed in global map in the Start-up domain, a company started as an online platform to sell books quickly grew itself to sell other products such as electronic goods, e-books, stationery supplies and fashion products and grew to an all-time height of $15.2 billion valuation company in 2012. With more and more consumers turning to buy from Flipkart and with increase in both mobile phone and internet penetration in the country the revenue of the company increased exponentially. With such high growth perspective and drastic shopping behavioural change in Indian consumers the company gained a lot of attraction from some of the biggest venture capitalist around the world. The company raised funds from Accel India, Tiger Global, Morgan Stanley Investment Management and a Singapore based sovereign wealth fund GIC.

The top shareholders in the company are divided as below

 

 Source: www.livemint.com

So what is the concern? Well in the September 2016 valuation done by a mutual fund managed by Morgan Stanley the value of Flipkart got slashed by around 38.2% of the previous valuation, bringing down the value of India’s most valuable Internet company to $5.54 billion. This raises a lot of concerns not only about Flipkart but also about a lot of other companies whose business model have been on similar lines to that of Flipkart i.e. to increase the customer base and generate more revenues rather than focus on making profit.

Data Source: AceAnalyser

   

The above data forces everyone to rethink whether the start-ups in India are sustainable or are they just a part of a temporary bubble. The concern gets more deepen when we analyse the health of 10 unicorn start-ups of India, valuation of more than $ 1 billion dollar but ironically 9 out of 10 unicorns are posting huge losses and looking at the business model that they are working on and the historical financial data it seems quite impossible for a majority of them to turn the tables and bring some positive returns for their investors.

Company	2015(Fig in Rs. crores)
Paytm	-337.8
Ola	-754.87
Zomato	-34.9
Musigma	304.5
Inmobi	-27.4
Quickr	-440
Snapdeal	-261.1
Flipkart	-826.6
Hike	0

Data Source: AceAnalyser, Wikipedia, vccircle

So does it means that start-ups have no future in India? Well the answer is not as simple as it seems to be, keeping the financial data on one side we need to look at the other side of the coin i.e. the consumer base in India; the only force that is driving investors around the globe crazy and getting attracted towards India. India with more than 50% of its population below the age of 25, the second highest number of internet users of 340 million next only to china and this number is about to increase to 730 million by 2020, more than 1 billion mobile subscribers topping the world list and above all the recent initiatives and policies taken by government of India under Prime Minister Narendra Modi like Start-up India and Stand-up India, Digital India, Make in India will push the growth of start-ups to next level. So it will be too early to say whether we have reached the saturation level for start-ups or whether it is a wakeup call for other start-ups, only the time will tell whether these driving forces will be able to help the start-up companies’ turn into green health.