And This is Super Quick: New Alibaba Buy may Value Paytm at Rs 23,600 cr

New Delhi | Bengaluru:
Chinese giant may raise stake to 40%; Saif Partners & founder may cut holding
China’s Alibaba Group is in advanced talks to increase its stake in Indian e-tailer Paytm to 40%, underscoring the world’s largest ecommerce firm’s keenness to be a major player in India’s rapidly expanding Internet retail sector.Alibaba, which first bought into Paytm last February when one of its affiliates Ant Financial picked up a 25% stake in the Indian firm’s owner One97 Communications, is negotiating to invest over $600 million (.`4,000 crore) to pick up a 20% additional stake, a source familiar with the transaction told ET. The fresh investment, which subsumes an outstanding tranche of the previous transaction under which Alibaba Group was to have pumped in another $375 million, will see Paytm being valued at $3.7 billion (Rs 23,600 crore) on a post money basis, a 270% increase on the $1-billion valuation in the previous funding round, once again underlining the red-hot nature of India’s ecommerce sector. Valuations have been soaring in this space, best exemplified by sector leader Flipkart, which raised money in May last year at a valuation of $1 billion and is now in the market to raise fresh funds at a target value of $16 billion.

“Paytm is expected to be Alibaba’s ecommerce play in India. The plan is to create an ecosystem through com panies that have large consumer touchpoints,“ said the source famil iar with the deal, adding that the fresh funds would be used to expand operations.

The deal is expected to catapult Paytm into the big league of Internet marketplaces alongside Flipkart Snapdeal and Amazon India, with its backing by Alibaba, the $200-billion behemoth, giving it both expertise and staying power in an intensely competitive business. The financial contours of the transaction being negotiated could see existing inves tor Saif Partners dilute its equity to 32% from 37% while Paytm’s foun der and Chairman & Managing Di rector Vijay Shekhar Sharma could reduce his shareholding to 21-22% from 27% now, the source said.

ALIBABA TO BE BIGGEST SHAREHOLDER

Alibaba Group Holdings could pick up a 20% stake in the company under this transaction while its affiliate Ant will see its existing 25% stake in the company reduce to 20%. The Alibaba Group will end up as the biggest shareholder in the company , although Sharma, 37, who founded One97 in 2000 two years after graduating from the Delhi College of Engineering, will still own more than what his founder peers in rivals Flipkart and Snapdeal own in their firms.Representatives of the Alibaba Group and Paytm declined to comment while an emailed query to Saif seeking its response did not elicit any response.

“As a matter of company policy , we decline to comment on market rumours and speculation,“ an Alibaba Group spokesperson said in response to a query seeking confirmation. “We decline to comment on market speculations,“ said a spokes person of Ant Financial, a financial arm of Alibaba. Paytm and One97 founder Vijay Shekhar Sharma also declined to comment.

Paytm had raised $200 million from Ant Financial, an Alibaba Group firm that controls its Alipay arm, in February this year in exchange for a 25% stake. The initial deal was to invest $575 million in two tranches, and one of the sources cited above said the latest $600 million funding is in place of the second tranche of the earlier investment.

Meanwhile, Paytm, which first began life as a provider of value-added services to telecom firms and later pivoted its business model to become one of India’s earliest mobile wallet firms, has been building on its latest pivot as an Internet retailer. Last month, Paytm said nearly 1,00,000 sellers from Alibaba’s online shopping portal AliExpress would start retailing on its platform in India from August. It is also targeting 100 million mobile wallet users by the end of December 2015.

ALIBABA WANTS TO CREATE ECOSYSTEM

In India, Alibaba wants to create an ecosystem of mobile devices, operating systems, electronic payment solution and services such as entertainment and commerce on top of the ecosystem. To that end, the company is in talks to invest about $700 million in mobile phone maker Micromax, ET reported on June 25. The handset vendor in turn is looking to invest up to $400 million to buy into startups, creating a bouquet of services for its buyers and at the same time adding to Alibaba’s ecosystem. Micromax has already picked up minority stake in Bengaluru-based health and fitness company `HealthifyMe’ in May, and is looking to make nearly 20 such investments this year.

Alibaba has also signed up former Citi executive Kshitij Karundia to a team headed by founder Jack Ma’s key lieutenant Ji Gang to chart out its investment strategy in India. Karundia has worked closely with Alibaba and Paytm as an investment banker at Citi. The Indian startup and ecommerce ecosystem has caught Ma’s attention. Ma, a former school teacher, has been to India twice in the past year, signalling his interest in investing in a country whose Internet market, according to Morgan Stanley, is expected to be the fastestgrowing in the world and reach a `8.7 lakh crore) size of $137 billion (.by 2020. Consulting firm AT Kearney said earlier this month that it expects the Indian retail market to grow to $1.3 trillion by 2020.

Source: The Economic Times

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Author:

Neeraj; an entrepreneur & a visionary in the field of Railway, Defense & Automobiles, is a graduate in commerce and a Harvard Business School Alumni. He’s an expert in govt. liasoning & contracting and has an exceptional network & connections at both local as well as global level. He’s an expert in Market Strategy & Planning and has served number of overseas companies as an advisor/consultant. He takes a profound interest in upcoming startups & is very receptive towards ground-breaking ideas & innovations. He likes to brainstorm those ideas and if the values & philosophies matches; he is even ready to invest his resources, serve as a mentor or act as an incubator to futuristic businesses.

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