Flipkart, the Indian ecommerce website started by two former Amazon employees, has raised $1bn in fresh funding, as it confronts fierce competition from its US role model and local rivals for a slice of India’s internet shopping market.
Coming just two months after it raised $210m, Flipkart’s additional $1bn equity injection is the largest single funding round by an Indian internet company, and values the business at about $7bn, according to people familiar with the deal.
While Flipkart’s existing backers led the funding, Singapore’s sovereign wealth fund, GIC, also participated, investing in the online retailer for the first time.
Flipkart, which sells everything from electronics to clothes, plans to use its enhanced war chest to invest in mobile technology, in a bid to keep pace with growing use of smartphones among Indian consumers. Mobile users now account for about half of Flipkart’s transactions, up from less than 5 per cent a year ago.
The retailer also plans to hire more than 1,000 engineers over the next year, and to use data and analytics to improve mobile users’ shopping experience. “The way people shop on mobile is very different,” says Sachin Bansal, Flipkart’s co-founder and chief executive.
“Profitability is not a short-term goal for us,” Mr Bansal said. “We don’t intend to become profitable any time in the near future.”
The $1bn investment comes amid intensifying competition in India’s ecommerce sector, which is growing rapidly as the expansion of bricks-and-mortar retail chains is stifled by the lack of suitable, affordable real estate, and logistical difficulties.
“Flipkart has set a benchmark, which raises the bar for investments in this space,” said Pragya Singh, an analyst at Technopak, a New Delhi-based retail consultancy. “All the players realise the potential this market has, and investors are increasingly backing the leaders, and reaffirming their faith in the sector.”
At present, India’s ecommerce market is worth just $2.3bn in annual sales, or 0.4 per cent of total retail sales, according to the most recent estimate by Technopak, the consultancy. But that market is projected to grow to about $32bn within the next six years, helped by growth of smartphone technology.
At a valuation of $7bn, Flipkart would be worth nearly 13 times Future Retail, one of India’s largest listed brick-and-mortar store chains, highlighting investor concerns over the obstacles facing traditional retailers.
Over the past year, Amazon, the US-based ecommerce pioneer, has increasingly turned its attention to India, launching aggressive advertising campaigns, including television commercials during popular cricket matches.
On Monday, Amazon also announced it was opening five warehouses in India, which will double its storage capacity to 500,000 sq ft and allow it to expand its same-day delivery services in several cities.
No Indian ecommerce group is operating profitably as yet, however, as all have been focused on scaling up their operations, and building their market positions.
Ms Singh said the new Flipkart investment would increase competition in the sector. “All the players are studying each other and eyeing each other’s moves very closely,” she noted. “Flipkart has upped the ante. I’m sure everybody will have to pull up their socks.”