The choice facing SoftBank is not an easy one. If it agrees to sell its 21 per cent stake in Flipkart to Walmart, it stands to pocket $4 billion - a 60 per cent return on investment in nine months. But a hefty chunk will go to the taxman, and it will miss out on any future valuation jump in the country's leading etailer.
Unwilling to miss out on India's ecommerce growth story, SoftBank is reportedly exploring other avenues while it mulls on the choice above. According to The Economic Times, the Japanese conglomerate has held early discussions to invest as much as $3 billion in Paytm Mall, run by Paytm E-commerce Pvt. Ltd - just last month, SoftBank had invested $400 million (Rs 2,600 crore) for 21 per cent stake in the company also backed by China's Alibaba Group.
Citing a source, the report added that SoftBank could be freed from a clause in its agreement with Flipkart that restricts it from investing more than $500 million in Paytm Mall until 2020. However, these talks can only proceed if SoftBank finalises its exit from Flipkart. If this gambit plays out then the alignments in the Indian ecommerce battlefield will closely mimic the Chinese market where SoftBank-backed Alibaba is aggressively competing with Walmart-backed JD.com and Tencent. The latter, incidentally, will remain one of Flipkart's largest minority shareholders in Flipkart after the Walmart deal.
SoftBank's Paytm Mall play makes sense when you consider that it has already replaced Snapdeal as the third-largest player after Flipkart and Amazon India in just 14-odd months of launch. To remind you, SoftBank had invested over $600 million in Snapdeal in October 2014 to emerge as its biggest stakeholder. The Japanese investor subsequently pushed hard for a merger between Snapdeal and its arch rival Flipkart in order to take on Amazon, but the deal fell apart and SoftBank has since written off its investment.
Paytm Mall enjoyed a market share of about 5.6 per cent in its first full year of operations while the Flipkart Group, including online fashion retailers Myntra and Jabong, enjoyed a combined market share of 39.1 per cent and Amazon India cornered 31.1 per cent. The daily added that Paytm Mall ended 2017-18 with annualized Gross Merchandise Value or GMV of $3 billion and is targeting $10 billion GMV by the end of this fiscal. It also plans to triple its offline presence by the end of 2019. Incidentally, Alibaba has also invested in the hyperlocal grocery delivery company BigBasket and logistics player XpressBees to help flank Paytm Mall's expansion, and the three companies are reportedly working closely together.
Given that market research provider Euromonitor expects about half of India's population to be online by 2021, by which time the Internet retailing market size is likely to balloon to around Rs 4,000 billion, you can safely expect the rate race to get even more aggressive here on.
With agency inputs