There was a feeling of having missed the bus among some investors when they saw the sky-rocketing valuations that e-commerce companies were getting in the private equity space. With no pure play listed company on the bourses, investors were looking for avenues to participate in the e-commerce boom.
However, the more astute investor has always been sceptical on the sector given the aggressive pricing and lack of profits in the sector. The rate at which e-commerce companies are closing down or shedding staff in the recent past has proved these investors right.
Private equity companies are now shying away from further investments and at the same time forcing mergers among their invested companies. At a time like this an Ahmedabad based company; Infibeam is considering tapping the equity markets with a Rs 450 crore issue, the first e-commerce IPO in the country.
All eyes will be on the issue for the only reason that it will gauge the appetite of investors for the sector. We take a closer look at the company to understand its business and comparative strength.
Following are 10 points worth considering in the Infibeam IPO.
1) Infibeam has two main lines of businesses. First is a e-commerce marketplace called BuildaBazaar.com and second is the e-retailing business under Infibeam.com
2) Under the BuildaBazaar (BaB) marketplace, the company offers customizable online storefront solutions on a scalable platform, including mobile applications, digital product catalogue, content management, promotions handling, access to payment gateways as well as fulfilment services.
Cutting through the jargon, the BaB business manages and helps other players set up their e-commerce venture. It uses data analytics to help merchants target consumers and increase the rate of conversion from visits to transactions. They also offer merchants training and education to help them improve the operation of their online storefronts and marketing and sales activities.
3) As of December 31, 2015 the BaB business had 48,724 registered merchants as compared to 350 registered merchants as of March 31, 2012. Among the clients in this part of the business are Unitech Amusement Parks Limited, Panasonic India Private Limited, Crossword Bookstores Limited, Spice Retail Limited, Adlabs Entertainment Limited, Gulf Oil Lubricants India Limited, Hidesign India Private Limited, Eros Electricals LLC, Axiom Telecom LLC and Mumbai International Airport Private Limited.
4) Infibeam.com is like any other e-commerce retailer. This e-retail business of the company had more than 15 million SKUs of products across 40 product categories including mobile and tablets, computers and accessories, electronics and cameras, housing and kitchen, books and magazines, fashion and accessories, baby care and toys, movies and music, beauty and health, auto and auto accessories, travel and tickets and gifts.
5) Key to an ecommerce website is the logistics network that the company has. Infibeam has 12 logistics centres across 11 cities in India including in Mumbai, Bengaluru, Delhi, Gurgaon, Kolkata, Hyderabad, Jaipur, Pune, Lucknow, Ahmedabad and Chennai. It has six warehouses located at Delhi, Gurgaon, Bengaluru, Ahmedabad, Mumbai and Kolkata.
6) E-commerce sites are also known by the talent they attract. Infibeam has a total of 900 employees, including a large number of software engineers and information technology experts. The size however, is small considering the 45,000 employee strength of Flipkart.
7) The primary purpose of the IPO is for setting up of cloud data centre and purchase of property for shifting of the registered and corporate offices. The company also intends to set up 75 logistics centres and purchase software. However, through this issue the company which has been following an asset light model will be locking in a sizeable amount of money in buying office space. Over a period of three years, the company is likely to spend Rs 235.2 crore on its office and data centre. The amount is slightly lower than the Rs 295 crore consolidated turnover of the company in March 2015.
8) Like all other e-commerce companies, Infibeam is also making losses. Though in the first six months of the current year it has shown a marginal profit. But it is the size of the company which is an issue. At nearly Rs 300 crore (consolidated basis which includes revenue from BaB), the company is a small player in an industry (Flipkart had a revenue of Rs 10,390 crore in 2014-15) that believes in ‘shock-and-awe’ pronouncement like a billion day sale.
9) Infibeam is a relatively unknown player with hardly any ad-spend, which to an extent helps its cost structure. But the industry is all about grabbing market share and awareness which is where Infibeam fares poorly. Out of the current issue proceeds too no details are given on the amount the company wants to spend on advertisement and sales promotion.
10) One clear factor that can play against the company is the withdrawal of two important investment bankers from the issue. Out of the four investment bankers hired as per the DRHP —SBI Capital Markets Ltd, ICICI Securities Ltd, Kotak Mahindra Capital Co. Ltd and Elara Capital Ltd two have opted out according to the latest share sale document, as reported by Livemint. Kotak Mahindra Capital and ICICI Securities have opted out for which Infibeam has not given any reason. Investment Bankers, who normally are hungry for fees generally, do not walk out of an issue, unless they are not sure of the subscription.
At Rs 2,250 crore IPO market capitalisation, Infibeam is asking for a valuation of nearly 7.6 times its March 2015 revenue revenue, which is roughly the valuation enjoyed by Flipkart post its mark down by Morgan Stanley.One cannot blame these investment bankers of developing cold feet.