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Flipkart’s logistics arm earmarks $460.7 mn for investments, acquisitions

09 October, 2017

Homegrown e-commerce major Flipkart’s logistics arm eKart, which is operated by Instakart Services Pvt. Ltd, has allocated Rs 3,000 crore ($460.7 million) for investments, acquisitions, and inter-corporate loans, recent filings with the Registrar of Companies show.

The company passed a resolution with regard to this funding on August 28, the filings state.

“Considering the future requirements of the company whereby it may have to make strategic investments in other business/acquire companies for inorganic growth, extend loans and/ or guarantee to other corporates or provide security in connection with loans availed by other corporate…it is proposed to fix the limits at Rs 3, 000 crore,” the company stated in its filings.

Subsequently, Flipkart also altered one of the clauses in its memorandum of association (MoA), where it stated it will invest from borrowed funds besides its surplus funds.

“To make investments from time to time in deposits, units, government securities and in other securities that include shares, bonds and debentures as may from time to time be determined by the directors,” the clause stated.

The development comes after eKart received $147.1 million (Rs 961.4 crore) earlier this month from its parent FIipkart.

This also comes after Flipkart, last month, bumped up its reserves for investments, acquisitions and loans from Rs 3,000 crore to Rs 8,000 crore ($1.25 billion).

Flipkart did not respond to e-mail queries at the time of filing this report.

Industry observers feel that a majority of this reserve is likely to go towards expanding Flipkart’s warehousing capacity and to relaunch its grocery business that it scrapped after a pilot last year. eKart could also indulge in some company-shopping to scale these initiatives at pace, experts added.

With a deep-pocketed rival like Amazon already snipping at is heels and even as it is looking to get its next set of customers from the hinterlands, it is imperative that Flipkart expands its storage capacity, industry observers feel.

“Amazon currently has far more warehouses and is well ahead of Flipkart at this moment. So Flipkart will be significantly ramping up its warehousing and fulfillment capacity for the next one to two years even as it expands deeper across the country,” said Satish Meena, senior forecast analyst at market research firm Forrester.

To give perspective, with the launch of its largest fulfillment centre last month in Hyderabad, Amazon’s current storage capacity is reportedly close to 15 million cubic feet, with a total of 42 fulfillment centres across 13 states and is on track to open five to six more warehouses by the end of this year. However, while these figures are not available for Flipkart, industry analysts state that the homegrown firm lags behind Amazon considerably on this front.

Flipkart too has been ramping up its logistics infrastructure significantly of late. The firm recently opened nine warehouses to handle large appliances and ensure next-day deliveries during the festive sales season. According to information available on its website, eKart currently delivers 10 million shipments a month to more than 3,800 pin codes.

“If they are going for a warehouse-heavy strategy in some of the smaller Tier 2 and Tier 3 towns, where they are looking to expand, Rs 961 crore is a small amount for that,” said Anil Kumar, chief executive of consulting firm RedSeer Consulting.

Likewise, all the e-commerce majors are currently focusing on the large appliances category, which is currently a fast-growing segment in this category. To keep up with the trend, Flipkart launched its first in-house brand for large appliances MarQ earlier this month. Venturing into this new category forms another reason for the e-commerce ventures to expand their warehousing capacity.

A significant investment is also likely to go towards the grocery segment, which by varying accounts will take off anytime between the end of this year and the middle of 2018. It is expected that eKart will develop capabilities to handle this segment.

“Grocery is an ecosystem by itself, which needs significant hyperlocal logistics capabilities and investment. Hence, the reserve is also likely to go towards this as well,” said Meena.

eKart may also indulge in some acquisitions to scale this up at pace as the grocery segment will take a long time to stabilise.

“eKart is trying to integrate its associated companies. This presents a significant opportunity for distinction in terms of customer service.

Likewise, grocery would need cold chain capabilities and a different kind of infrastructure, which again entails significant investment,” said Kumar

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Flipkart’s logistics arm earmarks $460.7 mn for investments, acquisitions

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