Morgan Stanley, a minority but a significant investor in Flipkart, has marked down the value of its holding in India’s largest e-commerce marketplace for the second time in three months. With the latest mark-down of 15.5 per cent, total value of Flipkart has touched a low of $9.4 billion.
At its peak in June 2015, when Flipkart raised $700 million from global investors, it was valued at $15.2 billion, the highest for an Indian venture capital-backed company. Since then, the Bengaluru-based e-commerce marketplace has seen five mark-downs by global mutual funds, as the company has lost both market share and a perception battle to Amazon.
The Morgan Stanley Institutional Fund has valued Flipkart at $87.9 per share as of March, compared with $103.97 per share in December 2015, it reported in filings to the Securities and Exchanges Commission in the US. Morgan Stanley had valued Flipkart at $142.24 per share in June 2015. In the past, Fidelity, T Rowe Price and Valic Co 1 had also marked down the value of their investments in Flipkart.
It is not just an India phenomenon. Mutual funds such as Morgan Stanley have marked down start-ups in the US such as Palantir and Dropbox as global investors turn cautious on new ventures with high valuations and no clear path to profitability.
Fund-raising has also become more challenging for start-ups, both in India and the internationally.
Flipkart is undergoing an organisational restructuring with co-founder Binny Bansal taking charge as chief executive officer. Since taking over in January from co-founder Sachin Bansal, Binny has been trying to streamline operations, cut costs by shedding jobs, improve efficiency and bring back the company’s focus on customers and more importantly, profitability, critical to sustain once the venture capital money dries up.
Since January, other e-commerce firms such as Snapdeal and Askme have also streamlined operations and shed jobs as they focus on profitable growth. As these firms try to improve shape, they also need to battle competition from an aggressive Amazon, and the emergence of e-commerce arms of traditional retailers such as Tatas and Aditya Birla Group. Chinese e-commerce player Alibaba, which has investments in Snapdeal and Paytm will also be a significant competition to the battle.
The latest mark down from Morgan Stanley would affect Flipkart’s plans to raise fresh funds to compete with Amazon, which is set to launch Amazon Prime — a membership service that offers guaranteed deliveries, special deals and incentives. Besides, Alibaba, the Chinese e-commerce major, will also step up its business in India. Flipkart has said that valuation mark downs are theoretical in nature and not based on real transactions. “I do not think anyone’s valuation has changed just because somebody or small shareholders of these companies have changed their opinion. I do not worry too much about that,” Sachin Bansal told an audience at the TiE summit in Delhi earlier this month.