Valic marks down Flipkart's value by a quarter in a year

US-based insurance corporation Valic has marked down the value of India's largest e-commerce marketplace, Flipkart, in which it is a minority shareholder, by nearly a fourth in the 12 months that ended May 31.

In a filing with the US Securities and Exchange Commission, Valic valued Flipkart at $108.04 a share for the quarter that ended in May, down from $142.24 in the same period last year.

Going by the share price set by Valic, Flipkart’s value has dropped from a peak of $15 billion in May last year to $11.4 bn this year. The drastic markdown of 24.1 per cent comes despite Valic marking up the value of the company by 10 per cent in its latest filing, from $98.19 per share in the quarter that ended February 29. Flipkart, whose competitive position has come under attack from US e-commerce giant Amazon, has been subject to markdowns from multiple investors — Morgan Stanley, T Rowe Price, Vanguard and Fidelity. It’s difficult to pinpoint the valuation, as each company sets its own price; it ranges from $10.5 to $13 bn.

“Overall, these are financial cycles that happen in the whole world. I think the internet sector itself is going through a down cycle but as the positive cycles don't last forever, the down cycles also don't last forever,” Flipkart chairman Sachin Bansal had said when their valuation was first marked down.

Experts say people shouldn’t read too much into the valuations given by mutual funds and other big investors, since these are often calculated keeping in mind the overall performance of a sector. Prices of e-commerce and information technology stocks have taken a beating after the Initial Public Offers of equity in GoPro and Box weren't well received.

In India, while funding in the start-up and especially e-commerce markets is going through a lull, growth of the sector remains healthy. Sector watchers say the growth slowed a little due to a reduction in predatory pricing practices by Flipkart, Snapdeal and Amazon but the fundamentals remain strong.

However, while Flipkart might write off these markdowns as a “theoretical exercise” in co-founder Binny Bansal’s words, the drop in value could have adverse effects on the ability to raise money at a valuation higher than its previous round at $15 bn. With Amazon becoming more aggressive in India, it seems the premium Flipkart once demanded for the lead it held is slowly eroding.