Will India’s first ecommerce IPO pave the way for others? Probably not. Here’s why

Photo credit: Vendhq

Infibeam, which competes with larger players like Flipkart, Snapdeal, and Amazon in India, goes to an IPO (initial public offer) on Indian stock markets on Monday. This is the first public listing by an ecommerce firm in India. The sale will take place from March 21 until March 23.

How it does may signal market sentiment toward ecommerce businesses in India – especially if it gets a bad reception. (Update: The US$67 million IPO was subscribed 1.11 times.)

It comes at a time when hard questions are being asked about the business models of India’s ecommerce firms. Last year and earlier, they splurged on discounts to grab market share. But now investors want to see the drive for growth balanced by unit economics. Global financial firm Morgan Stanley’s Institutional Fund Trust marked down the value of Flipkart shares by 27 percent for the last quarter of 2015.

These valuations are based mostly on growth in how much people spend at the online stores and future potential.

A big Flipkart IPO has long been a subject of speculation, but co-founder Sachin Bansal claims “Indian markets are not yet ready for a large internet company listing.”

That may well be true, given the sky high valuations at which the likes of Flipkart and Snapdeal have raised billions of dollars in investment. These valuations are based mostly on growth in how much people spend at the online stores and future potential. Stock markets, on the other hand, like to see a clearer path to profitability.

Hence the rarity of tech IPOs in India, where startups are happy to ride the VC funding boom while it lasts instead of subjecting themselves to the quarterly scrutiny of shareholders after a public listing. In that sense, Infibeam is an outlier.

Bootstrapped and profitable

Infibeam’s IPO filing shows it turned in a profit of nearly US$1 million on revenue of US$26 million in the first half of this financial year 2015-16. In the previous financial year, it reported a loss of nearly US$1.5 million. The bootstrapped company’s founder is former Amazon executive Vishal Mehta, whose family owns Infinium Motors, a channel partner of Toyota Kirloskar Motors.

Photo credit: Jayel Aheram

He reckons that VCs may be kinder to ecommerce firms than the stock market.

Those are small numbers compared to the outsized ones of Flipkart and Snapdeal. But the Infibeam IPO – for raising US$67 million – may be a litmus test for others eyeing this route in India this year, as most observers expect big follow-on rounds of VC funding to be harder to get.

Sid Talwar, co-founder and partner at Lightbox Ventures, throws cold water on that notion. “The haircut they’ll get in the private markets will probably be less than what most of these companies will get if they go public in India,” says Sid, who is never one to mince his words. In other words, he reckons that VCs may be kinder to ecommerce firms than the stock market.

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