THE FALL OF THE UNICORNS

They were all part of the fabled $1 billion plus valuation club. Now they have run into trouble.
by Rajeev Dubey   Delhi     Print Edition: March 26, 2017
THE FALL OF THE UNICORNS

Mrs Bahl is an avid seller of her specialty biryani on Shopo, the consumer-to-consumer platform set up by Snapdeal on the lines of Alibaba's Taobao. She also happens to be the mother of Snapdeal's founder and CEO Kunal Bahl. In 2015, Snapdeal announced it will invest $100 million in Shopo, providing its logistics platform and the payment gateways free of charge to sellers like Mrs Bahl for a hassle-free experience. It hoped to make money through advertising. It never did.

So when Snapdeal was forced to conserve cash, in February 2017, the axe first fell on Shopo. Next, it is believed to have put its payment wallet Freecharge on the block at between half to a quarter of the $400 million it paid to acquire it. About 600 Snapdeal employees have been given the marching orders, founders Kunal and Rohit Bansal have given up their Rs1.5 crore a year paychecks. Yet, Snapdeal continues to bleed. Having failed in its bid to outrun rival Flipkart in the race to No.1 last year, Snapdeal was even displaced from the No.2 spot by aggressive newcomer Amazon, which is now on the verge of overtaking--or, has already overtaken--Flipkart too.

Like Snapdeal, bit by bit, the story of India's Unicorns (start-ups valued at $1 billion or higher) is turning out to be a case of spreading themselves too thin, too fast. Besides Snapdeal, Flipkart, Ola Cabs (ANI Technologies), Paytm (One97 Communications), InMobi, Mu Sigma, Hike, Shopclues, Zomato and Quikr have been funded at valuations of $1 billion or higher, giving them the tag of Unicorns. On March 2, Paytm E-Commerce announced it was valued at over $1 billion in a $200 million infusion from Alibaba and SAIF Partners, making it the 11th Unicorn. Together, the first 10 Unicorns attracted cumulative funding of $8.5 billion, the biggest $3.2 billion by Flipkart, followed by Snapdeal's $1.7 billion. But, in just the past five years, they have cumulatively also burnt up Rs15,827 crore (nearly $3 billion) in accumulated losses and write-offs (some have been in operation for eight-twelve years). The maximum by two Flipkart entities (Rs5,698.4 crore), followed by Snapdeal (Rs4,745.5 crore).

Yet, there is a clear distinction between them. While the B2C or purely consumer Unicorns such as Flipkart, Snapdeal, Paytm, Shopclues, Quikr or Ola and Zomato are bleeding profusely, B2B or enterprise Unicorns such as the Bangalore-based Mu Sigma and InMobi are better off. If InMobi is comparatively either mildly profitable or mildly loss-making year-on-year, data science firm Mu Sigma Business Solutions (which raised $209 million in funding) was the only profitable Unicorn in the country in 2015/16, reporting a net profit of Rs463 crore on revenue of Rs810 crore.

NIKESH ARORA Former President & CEO, Softbank (Photo: Shekhar Ghosh)

"They tried to be everything to everybody. It just doesn't work," says Sanjay Nayar, Member and CEO of KKR India. "Entrepreneurs raised money at crazy valuations. All over-stated and over-estimated consumption and growth. Very few succeeded. If you don't make money, how do you value a company?"

As basic business metrics such as unit economics and need for healthy cash flows were disregarded, the Unicorns chased growth at the expense of profitability; chased customer acquisition at the cost of customer satisfaction. That race to outdo each other in customer acquisition through unsustainable discounting and cashbacks has blown a hole in their balance sheets while losses continue to mount uncontrollably. If 2015 was the year of funding, 2016 was the year of execution, says Nikesh Arora, former president and ceo of Softbank (which invested in Snapdeal, InMobi, Ola and Grofers): "People have to figure out how to fix this."

India's Unicorns may have been emboldened by the examples of Amazon, WhatsApp and Uber which continued to get funding despite reporting losses for years on end. But investors are pulling back. Several Indian Unicorns are today valued significantly lower than their peak valuation. Ola's latest round of $300 million funding from Softbank last week is estimated at a 30 per cent markdown to its peak valuation of $5 billion. American fund Morgan Stanley Select Dimensions Investment Series marked down Flipkart's valuation 38 per cent from $84.29 per share to $52.13 per share (between June 30, 2016 and Sept 30, 2016) in its filing to the US Securities and Exchange Commission. In all, Flipkart has had five markdowns till date. By some estimates it is now valued at just a third of its $15 billion peak valuation. Flipkart termed these a 'theoretical exercise' since they are not based on real transactions. Flipkart made some fatal errors such as the disastrous experiment to move to an app-only model which had to be reversed when sales fell. Or, the costly push into a la carte music with Flyte which bombed due to the emergence of music streaming sites such as Gaana and Saavn. Also, an unsuccessful attempt at a wallet Flipkart Money, now folded into 'Phone Pe'.

ALEXANDRE DE ROTHSCHILD Deputy Chairman, Rothschild & Co. (Photo: Rachit Goswami)

Last March, the founders of Flipkart and Snapdeal took potshots at each other on Twitter. Flipkart's Executive Chairman Sachin Bansal tweeted: Alibaba deciding to start operations directly shows how badly their Indian investments have done so far." Since Alibaba is an investor in Snapdeal, Bahl shot back: "Didn't Morgan Stanley just flush Rs5 billion worth market cap in Flipkart down the toilet? Focus on your business, not commentary."

Other Unicorns face an existential crisis. Is there space, for instance, for a No.3 (Snapdeal) and also a No.4 (Shopclues) player in e-tail? And, in some cases, such as Paytm, their business models are under the scanner.

As investors tightened their purse and began the crackdown on cash burn, panic-stricken Unicorns are responding in identical ways. Non-core businesses are being hived off, sold or shut; companies are going through widespread cost-cutting; employees are being laid off in hundreds. In many cases, investors are taking it upon themselves to run the company. Founders and senior executives are either being nudged out or kicked up, as in the case of Flipkart founders Sachin and Binny Bansal who are now in the roles of chairman and group CEO, respectively, while investor-backed Kalyan Krishnamurthy has been appointed the new CEO in January, 2017. Where they find synergies, there are rumours of a possible merger, for instance, between Paytm's loss-making e-tail business and Snapdeal. Alibaba Group Holding and Intel Capital are common investors in both. Besides, Softbank, the biggest shareholder in Snapdeal, is also the biggest shareholder in Alibaba. "We are deeply committed to our portfolio companies and help them achieve their strategic goals. We cannot comment on specific plans or transactions," says Alok Sama, President & CFO, SoftBank Group International.

SANJAY NAYAR, CEO, KKR India (Photo: Rachit Goswami)

SPOILT BY SUPERABUNDANT CAPITAL

Consulting firm Bain & Company reckons they fell prey to 'Superabundant Capital'. Its study "Strategy in an Age of Superabundant Capital" says global financial capital (today at 10 times the global gdp) has more than tripled in the past three decades. An average Unicorn globally has raised an astounding $516 million. Superabundant capital leaves companies with a hoard of cash which they struggle to deploy judiciously. Bain says it encouraged executives to remain committed to investments long after it was clear that they are not paying off.

"...for the balance of the next decade - at least - markets will continue to grapple with superabundant capital," said Karen Harris, managing director of Bain's Macro Trends Group. "Too much capital will be chasing too few good investment ideas for many years, requiring a fundamental shift in how companies implement their business strategy and manage capital."

When foreign owned rivals Amazon and Uber turned the heat on Indian competitors through their well-funded Indian entities, rapid cash burn forced Flipkart, Snapdeal and Ola to form an alliance and raise the nationalistic card by alleging that Amazon and Uber were "dumping capital" to eliminate them. But they conveniently ignored the reality that they themselves had been dumping VC-funded capital all this while to wipe out or acquire rivals. Despite their attempt to secure the backing of the RSS and its economic think tank Swadeshi Jagran Manch, their alliance didn't gain traction.

"It's a ludicrous proposition because there is no national champion," says Dhanpal Jhaveri, Everstone Group's Managing Partner. "The government is not to help companies survive or die, just because someone has made mistakes. The core thesis that we are Indians is incorrect because (in many cases) the Indian founders own less than 5 per cent today. Foreign capitalists own them."

ELUSIVE PROFITABILITY: VALUATION CHALLENGE

Economist John Maynard Keynes once said: If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has. So it is with investors. Due to the scale of investment involved, far from being the founders' problem, the wayward Unicorns are now investors' problem.

And it's hurting. In November 2016, Softbank, wrote off $550 million towards its investments in Snapdeal and Ola. That narrowed to $351 million by the end of December because of gains in the yen-dollar valuation. "The write-offs are due to intricacies of accounting practices and currency fluctuations, and in most cases represent a reversal of earlier gains. Our overall investment portfolio in India is marked well above cost. We are in for the long haul," says Softbank's Alok Sama.

DHANPAL JHAVERI Managing Partner, Everstone Group

It all began with the poster-boy of Indian Unicorns-Flipkart-sputtering at the finish line. Valued as high as $15.2 billion in the funding round of April, 2015, Flipkart's valuation has been in question ever since the world's largest e-tailer Amazon began nudging it for the No. 1 spot in India.

According to web traffic tracking and analytics firm Alexa (which incidentally is owned by Amazon.com), Amazon is already India's fifth most visited website while Flipkart is at No.9. Amazon recorded 8.73 daily page views per visitor against Flipkart's 3.38. And while a visitor spent an average 9.09 minutes per visit on Amazon, he spent 5.26 minutes on Flipkart. It attracts 14.7 per cent of traffic from search compared to Flipkart's 10.5 per cent. Suddenly, Flipkart wasn't as invincible. It tried to buy growth to stay ahead by acquiring fashion e-tailers Myntra and Jabong but Amazon raced past. As of March, 2016, Amazon reported a revenue of Rs2,275.4 crore against Flipkarts Rs1,951.7 crore. Meanwhile, Flipkart Internet's annual losses grew from Rs63 crore in fiscal 2012/13 to Rs2,306 crore in 2015/16.

As a result, investors Tiger Global and Accel took charge of the company more than a year ago. In January, 2016, CEO Sachin Bansal was promoted to the role of executive chairman. Co-founder and Chief operating officer Binny Bansal was given charge as CEO. In less than a year, in January 2017, the investors decided to appoint Kalyan Krishnamurthy as Flipkart's CEO while Binny was moved up to the group CEO's role. In a townhall meeting with employees in August, 2016, Sachin Bansal admitted his removal as CEO was linked to performance: "Just look at who was at management six months ago, one year ago, and who is management today. It's completely changed. Right? I was the CEO and I have changed. It was performance linked."

With Snapdeal already shifting focus from chasing growth to chasing customer experience, the Unicorns have continued to search for that elusive profitability. Jasper Infotech, which owns Snapdeal, reported a net loss of Rs2,960 crore at revenue of Rs1,456.6 crore in 2015/16.

The third most funded Unicorn in India, ANI Technologies which owns Ola Cabs, had a net loss of Rs754.9 crore on revenue of Rs418.3 crore in 2014/15. Its current valuation stands at $3.5 billion, down from $5 billion. Founder Bhavish Aggarwal, however, told BT in a previous meeting that the company can hit profitability by the end of fiscal 2016/17. "If we want, we could be profitable this year," says Bhavish. "We are investing aggressively in growth, in customer acquisition, in building our network, in adding more cars, in scaling more cities. That's where most of the investment goes. On the other side, it is in technology, products and all these innovations."

The next, One97 Communications which owns the most generic mobile wallet in the country 'Paytm' has widened its losses from Rs370.8 crore in 2014/15 to Rs1,548.5 crore in 2015/16 thanks to its entry into the cash-burning e-tail business (though Paytm is accelerating its entry into e-tail with a fresh round of investment). In the last round of funding in One97 in 2016, it secured a higher valuation of $4.7 billion as against $3.1 billion earlier. Since then, Paytm has seen a sharp 50 million subscriber ramp-up since demonetisation, as citizens scrambled to look for digital payment options, As of the end of February 2017, Paytm had an astounding 200 million subscribers. Paytm's founder & CEO Vijay Shekhar Sharma did not respond to bt's questionnaire.

InMobi Technology, a mobile-based digital ad network, has received $321 million in funding till date, but has struggled to find new backers since December 2014 (it raised $60 million in debt). ceo Naveen Tewari says the company did not require funding except for strategic acquisitions. It reported a mild profit in 2013/14, but as it expanded operations to 17 countries, InMobi reported a net loss of Rs15.52 crore on revenues of Rs262 crore in fiscal 2014/15, the latest available with the Registrar of Companies. "Technically, our burn rates are much lower, so we probably don't need the high level of capital it is perceived we require," says Tewari, founder and CEO, InMobi.

The mobile messaging and social media app Hike, founded by Kavin Bharti Mittal, the son of Bharti group chairman Sunil Bharti Mittal was valued at $1.4 billion in its last round of funding in August, 2016. It is most unique in its strategy-somewhat like Reliance Jio. Despite raising $260 million till date from Foxconn Technology, Tencent Holdings, Softbank and Bharti Enterprises, Mittal hasn't kick-started the revenue model as yet. Instead, it is focused on building a user base and developing an India-specific messaging solution in multiple local languages before it starts earning revenue. In 2015/16, Hike reported a net loss of Rs217 crore but it also had over 100 million users which makes it India's second most used messaging app after WhatsApp.

Clues Network, the owner of e-tailer Shopclues.com reported a net loss of Rs383 crore on revenue of Rs179 crore in 2015/16. It has been funded with $231 million and was last funded in January, 2016. It's trying to find a niche for itself in the home products space.

"There has been an enormous amount of capital chasing few opportunities and that has created a form of bubble," says Alexandre de Rothschild, Deputy Chairman of global investment advisory firm Rothschild & Co.

Zomato Media which has received $223 million in funding till date and was last valued at $1 billion in March 2015 reported a net loss of Rs266 crore on revenue of Rs154 crore in 2015-16. Zomato founder and CEO Deepinder Goyal did not respond to BT's questionnaire.

And classifieds platform Quikr, modeled on US-based Craigslist had a revenue of Rs95 crore and loss of Rs534 crore in 2015/16. Quikr founder Pranay Chulet did not respond to BT's queries. With total funding of $370 million, it was last valued at $1 billion in September 2014.

SEARCHING FOR A BUSINESS MODEL

If Flipkart, Snapdeal, Shopclues and Paytm have value destroying revenue models, others such as Hike have yet to unlock a revenue stream, focusing instead on customer acquisition only. Zomato and InMobi have spread themselves thin by expanding to global markets. InMobi's ad platform model faces the might of bigger advertising platforms such as Google, Facebook, Twitter, LinkedIn, Alibaba and even Flipkart and Snapdeal's own advertising platforms. And Quikr, which earns from advertisments and by charging for premium listings, has to find complimentary revenue streams since its model is yet to gain traction. Ola, which expanded into 102 cities and with offerings as lateral as e-rickshaws, will have to bear the brunt of the onslaught global No.1 Uber is bringing into India through rapid discounting. But Mu Sigma is roaring to profitability.

"Undoubtedly, capital management will remain a business imperative even in a time of superabundance - waste is waste," says the Bain study. "But, the new bedrock on which winning strategies will be built is the quantity of valuable ideas an organisation's people can generate and leadership's ability to successfully commercialise them."

The question is: which of these models has a greater chance of survival than others.

Those facing the greatest challenge are opportunistic business models such as One97's wallet Paytm, online classifieds Quikr and digital ad platform InMobi.

Paytm's wallet-one of the most relevant innovations of our times-is the best example of a product being in the right place at the right time, but only so long. The growing need to make small payments instantly through a medium other than cash was the need of the times. While other wallets, including those by leading banks, waddled around and shied away from the hard work of popularising it in the belief that it will proliferate by itself, Paytm raced ahead due to its merchant tie-ups and clever brand positioning and advertising. Then demonetisation happened and it appeared invincible-until the government-owned NPCIL got its act together to launch UPI, USSD and its own wallet killer BHIM app in quick succession.

Suddenly, despite its $807 million funding, Paytm appears vulnerable. Unlike Paytm, where the customer's money sits in a pre-paid wallet (a kind of an escrow account), BHIM transfers money directly from one bank account to another bank account, eliminating the need for an intermediary like a wallet. While Paytm is a closed loop network, BHIM is inter-operable between bank accounts. Paytm may also incorporate UPI or Bharat QR into its wallet for inter-operability. Yet, its biggest challenge is viability. The question is: whether users will stay the day it starts charging for transactions on the app! N.Chandrababu Naidu, Chief Minister of Andhra Pradesh, who has been tasked to head the committee of chief ministers to recommend digital payments told BT that wallets are 'intermediate' businesses and have no future. Instead, BHIM is the way to go. The question to ask is, "if you raise prices, will people stick with you?" asks Nayar.

Besides raison d'etre, a bigger question is over Paytm's business model, especially with the government determined to crash digital transaction charges to the bare minimum to promote use of digital transactions instead of cash. "There is not enough margin in the payment business for the wallets to have a future," HDFC Bank's managing director Aditya Puri said at the Nasscom India Leadership Forum in Mumbai recently. "Wallets as a valid economic proposition is doubtful. There is no money in the payments business," he said.

You may call it an outcry of the affected or a lash from the incumbent. After all, Paytm has the government's nod to morph into a payments bank which may compete with HDFC Bank. But globally payments bank business models have only succeeded with telcos or with e-tail/retail. Paytm had neither. So it began an e-tail business initially giving as much as 100 per cent cashback in the wallet to buy on its e-tail platform. Today, that's the primary cause of Paytm's parent One97's balance sheet being awash in red.

For Snapdeal, Arora says, "the Phase II is about ensuring a quality customer experience and making sure we have the right set of customers. That's where all the focus of Snapdeal needs to be" Bahl says he is at it. "People outside think that it is a slash and burn industry. Will never make money. It's absolutely untrue. Folks hadn't dug deep enough to say where am I losing most money, where am I making most money-on various dimensions such as categories, products, brands, customers, geographies," Snapdeal's Bahl told BT in mid-2016. "There are islands of profitability in each of these dimensions. You have to identify the islands of profitability, grow these islands. And the islands of non-profitability are shrunk."

Having given up in the race to be the leader, Snapdeal began focusing on building capabilities that cannot be replicated overnight. "We realised over a period of time that India has weak underlying infrastructure. Unless we smartly invest behind it, we won't be able to deliver a great experience to our customers and our sellers," Kunal Bahl says. His focus has been on building the best customer experience in e-tail: "We are now No.1 on delivery time-3.9 days order to delivery. Amazon is 4.1. Flipkart's 5.1." Snapdeal made strategic minority investment in logistics firm GoJavas so that it caters to 70 per cent of its shipments. "When someone wants to return something, he just presses 'return' on the app. In 24 hours, the stuff gets picked up and also refunded 85 per cent of the time. It was 24 per cent in September 2015."

For InMobi, the greatest challenge is to find its niche in the world of digital advertising dominated by the likes of Google, Facebook and now even e-tailers such as Amazon and Alibaba. Founder Naveen Tewari says he has a niche since even if 50 per cent of the $250 billion market is dominated by these players, there's still half the market to play for companies such as his. That may be simplistic. The challenge for digital ad platforms such as InMobi remains that any large Internet-based organisation such as Flipkart or Snapdeal, which has its own loyal visitors, also aspires to create its own digital advertising platform, eliminating the need for an intermediary such as InMobi. Companies such as InMobi that don't own the 'views or clicks' are at an inherent disadvantage. Snapdeal's Bahl, for instance, has its own digital ad platform, so does Flipkart. But Tewari says everyone in the world is looking for options outside of Google and Facebook. "That's one of the biggest reasons why many-many companies work with us. The fact that those very large companies do not want to share their data with Google and Facebook, do not want to handover a large part of their budgets or monetisation to Google and Facebook," says Tewari.

He insists his ad network is relevant in three buckets: the e-commerce companies, the telcos, the OEMs such as handset and television manufacturers. "They need it literally to run their business because advertising will be core to their revenue model, business model. They need ad platforms like us to build that business. Or they go to Google and Facebook but that's going to be very-very hard because they are going to take the business away," says Tewari.

As for Ola: Fearing Uber, it expanded laterally and entered every possible city and Tier II town and ever possible area, including autos, shuttle and electric rickshaws. Carpet bombing is the usual response of an incumbent to a threat, but it also spreads them thin. For, not every business or city will be profitable. Ola's Bhavish Aggarwal has to take the difficult call on where to turn off the tap to get into the black.

Hike's Kavin Mittal is still not planning to monetise his messaging app or the over 100 million users it has. Its users exchange over 40 billion messages per month and spend over 120 minute per week on Hike on an average. Mittal says a native messaging product in local languages catering to native taste was always his goal. "If you have to be in messaging, you have to be different than everybody else in the market. Our goal was not to build messaging. Our goal was how do we bring a billion people online. That was the big question Masa (Softbank founder Masayoshi Son) and I asked," says Mittal.

The first hit at Hike was Hike-to-SMS, where you could message people even if they didn't have smartphones. "It got a lot of people. That showed us the way that there is an opportunity to build something very local. Hike launched the hidden mode which gives privacy to youth using a common smartphone in the family," says Mittal. However, it's the nativity of the stickers that has caught on with Hike users in recent times faster than anything else. "We ourselves underestimated the power of stickers. Stickers told us that the content strategy is very important. Internally, we were against content because essentially we are not a content company. Today, inside Hike we have a machinery that actually produces content with 6-7 studio partners. India is a sight and sound market," says Mittal.

Hike's mission is to create a new kind of messaging app that simplifies how people connect with others and will change the way they interact with content and services on mobile, asserts Mittal. "We believe that messaging will do for mobile what the browser did for the desktop, times a hundred." This requires a very deep understanding of the Indian Internet market and more importantly how the youth of India live their lives.

The other Unicorn, food delivery firm Zomato, is struggling as its revenue model through advertisement, online ordering, table reservation and its offering for restaurants--the white label app and pos system Zomato Base--isnt firing on all cylinders. In late 2015, Zomato fired 10 per cent of its staff when it failed to meet sales targets. It is now valued substantially lower than its $1-billion peak.

As for Quikr: It expanded portfolio by acquiring property portal Commonfloor for $200 million but last year it reported losses of five times its revenues.

Nikesh Arora asserts technology led businesses are here to stay because of the efficiency they bring in. Since they allow us to go from supply-led businesses to demand-led businesses. "I expect there is 10-15-20 per cent inefficiency in supply led structures. Add to that the cost of real estate, distribution, inventory control, probably adds another 15 per cent. So you have between 15-30 per cent of cost structure to play with if you can deploy a new business with new technology," says Arora. He believes that the entrepreneurs of today would have created products at 20-25 per cent lower cost structure in 10-15 years' time-that's the efficiency eked out of deployment of technology.

But what about that profitable exit-that investors dream of for each one of their investments?

Valuations appear frothy when Unicorns deliver spectacular growth that fails to meet investor expectations. At that point, the biggest casualty is the public listing of the Unicorn. Now, not listing is not an option either. After all, PE firms invest in the hope of a wildly profitable exit. Such an irretrievable situation leads to all manner of compromises: IPO may be delayed or deferred; two investee companies may get merged; the Unicorn may be sold at a lower valuation; VCs may agree to cash out at a lower IPO valuation. "Most people who came in, came in, came with the fear of being left out. That fear drove all kinds of valuations in the business. It's almost like augmented reality rather than the real picture," says Jhaveri.

But if they hit the market with a bloated valuation, they tend to meet the fate of Facebook whose stock market valuation had halved within five months of its listing on May, 2012. Or, Alibaba, which dropped by one-third from its peak after the listing.

"Once the model is tested by commercial application and there are disappointments about conversion of indicators into real profitability, then there is an upset for sure. When companies have raised money a bit too quickly without having had the sequencing of proving their model, then there is also a valuation drop," says Rothschild.

Reality has hit India's Unicorns. That gross merchandise value is not real sale and profit; that app downloads dont mean traffic; and, that active users are not transactions. As a result, even the total number of horizontal e-tailers is down from over 550 in 2011/12 to just about 4/5 today. In ride sharing, the numbers have shrunk from nearly a dozen players to a two-way contest between Ola and Uber (besides Meru) today. It is reasonably apparent that not all of them may survive 2017. Deaths are painfully slow if you have capital. If you don't, it's quick fall from the cliff.

For more on the various funding rounds of Unicorns, go to:

businesstoday.in/unicornfunding

Data support by Niti Kiran

@rajeevdubey

THE OUTLIER

A billion dollar valuation with no leveraging ( zero debt company). Profits in the books and promoters sitting pretty with a comfortable 45 per cent stake. A successful pathbreaking IPO with no dependence on private equity money. And, not to forget, no layoffs so far! It's a unique phenomenon in the Indian e-commerce industry. The outlier is Infibeam Incorporation, a company founded by former Amazon employee Vishal Mehta a decade ago. Mehta is now stepping on the gas to further expand the scale and size of its e-commerce business. By March end, this Ahmedabad-based start-up is expected to close the year with `40 crore profit on revenue of `400 crore revenues. So how is Mehta's little known Infibeam not burning cash? "We are solving one of three things - demand, supply and capacity - using technology all the time," says Vishal Mehta, Founder and Chief Executive, Infibeam. Mehta has two growth engines firing at the same time. Mehta has pure e-commerce play 'Infibeam' where merchants sells directly on its platform without hefty discounts. There is also a services driven model 'Buildabazaar' that provides cloud based infrastructure services to small and medium enterprises. The company provides end-to-end IT backbone, marketing and logistics support and also payment gateway facility for online sales. There are already 66,000 SME and MSME businesses enrolled with buildabazaar. The big names includes Cannon, Imagica, Canon, Hidesign, Blackberry, etc. This is where Mehta's business model is working as his company earns by way of monthly fee as well as commission per transactions. In the nine months ( April-December) of 2016/17, the sale of products through e-commerce amounted to `214 crore and a loss before interest, depreciation and tax of `3.45 crore. But the sale of software or services was `105 crore and profit before interest, depreciation and tax of `61 crore. There is a very high EBITDA margin in the services business. This business is actually compensating the loss in the products business. The company expects the services business to grow further. In the last three years, the share of services revenues has grown from 18 per cent of the business to over 30 per cent. As it grows, the profitability will only rise because of higher EBITDA margins. Mehta's company looks to be in a sweet spot as it is flush with IPO money of over `400 crore. A bulk of the money is going for setting up a cloud data centre. The company has already spent `144 crore of the IPO proceeds on that project. This investment will create a large capacity to handle more online retailers under buildabazaar. The company is also planning to set up 75 logistics centre to help its merchants. The company has set aside `37.50 crore from the IPO for logistics expansion. "Consumption story is very strong in India. The online consumption is already getting a fillip because of higher penetration of Internet through mobiles, more fibre helping in speed, digital payments and the spread of logistics. Going forward, the GST is only going to make crossing border easier with a much simplified tax structure," says Mehta. There is every reason to bet on Mehta's business model as it is totally focused on building a sustainable business model. His stock price has jumped 220 per cent in the last once year. " It is not what you raise, but what you return matters ," Mehta had told us two years back. His new family of shareholders will surely vouch for that .

By ANAND ADHIKARI

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