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Future growth justifies today’s high valuations in ecommerce, say experts

27 March, 2015

Ecommerce companies have run past the carping experts to emerge as one of India’s high-growth sectors. Investors are ready to shell out cash based on six to seven times valuations and expect the online marketplace to surpass the offline model in India.

According to venture capitalists, the ecommerce and internet boom in India is a reflection of what happened in the Silicon Valley years ago.

These views and more were expressed by panellists at the recent Techcircle Ecommerce Forum 2015. The panel on “Ecommerce play in India – too expensive a bet or futuristic investment at a nominal price?” was moderated by Vikas Dawra, managing director, investment banking, YES Bank. Others like Avnish Bajaj, managing director, Matrix Partners; Prashanth Prakash, partner, Accel Partners; Ambareesh Murthy, founder and CEO, Pepperfry.com; and Sundeep Malhotra, founder and CEO, HomeShop18 participated in the discussion.

The panellists started off with a discussion on expensive valuations, increasing risk appetite of entrepreneurs and the growing internet and mobile phenomena. They justify the higher price paid today to enjoy a piece of the ecommerce model which will grow on the back of strong demand and customer service. “Valuations story has played out all the time but the difference this time is that there is a market. In the past, it was clearly a bubble and it was very easy to call. This time it is a futuristic investment at a very high price,” says Bajaj of Matrix Partners. “If you sum up the total sales of Reliance Retail, Pantaloons and all the organised offline players, I believe Flipkart, Snapdeal and Amazon are 30-40 percent larger than them. They have gotten there in the last three-four years. The other offline companies got in there in probably 20 years,” he added.

“The velocity of this growth is something that everybody is factoring in. India getting to 100 billion in GMV (Gross Merchandise Value) is a given in our opinion,” says Prakash of Accel Partners.

Industry experts who formed the Techcircle panel also see a new breed of entrepreneurs cropping up who take sale and M&A in their stride. “Domestic M&A has never been a great option for exit for any entrepreneur because Indian entrepreneurs are historically cheap. M&A was generally a distress sale which is not the case with the new breed. They are fearless, ambitious and want to create very large businesses,” Bajaj says. “Entrepreneurs today seem to be willing to move on. Indian entrepreneurs never valued other companies but today are actually paying a reasonable price for them,” Prakash says.

“M&A occurs when the culture of two companies is similar; when it is a new breed of companies, they are more willing to go forth,” says Murthy of Pepperfry.com. “M&A is a great thing to do because not everyone will be able to make a horizontal marketplace as successfully as an Alibaba or Flipkart or Snapdeal or Amazon. But there are a lot of guys who can do support businesses,” says Malhotra of HomeShop18.

Panellists see a real opportunity for entrepreneurs in the ecommerce space. They see growth numbers increasing as consumers interact more through online model for price comparison even though purchase is through the offline model of retail. “An at-scale multiplier happens once in the lifetime of a country and we are going through that right now. This happened in China in the last seven years. At least 70-100 billion dollars plus companies got created in China in the last seven years,” Bajaj of Matrix Partners says.

“Our ecosystem has not changed, our physical retail has not changed, logistics and infrastructure have not changed and even the government regulations have not changed. So, there are so many catalysts which are going to change now. They will take the industry to a multiple level,” Malhotra says.

Panellists expect the coming one-and-a-half years to be crucial in terms of regulatory changes and to form a robust ecosystem for the industry.


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Future growth justifies today’s high valuations in ecommerce, say experts

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