Burning Cash to Burn Bright: Flipkart Lost Rs 14cr|Day in FY16

Big spends on attracting talent, customers pay off; revenues rise to Rs 15,403 cr
Flipkart ran up daily losses of over  14 crore in the last financial year as it fought to stave off competition from arch rival Amazon in one of the world’s fastest growing markets for online retail.The Bengaluru-based company , which spent aggressively to attract talent and customers thereby increasing losses, was successful in boosting revenue to 15,403 crore in fiscal 2016, according to filings made by Flipkart’s holding company registered in Singapore.

The filings, accessed by ET, indicate the company experienced slower revenue growth and deteriorating margins in 2015-16. In contrast, during fiscal 2015 Flipkart, which posted revenue of ` . 10,245 crore, had trimmed negative margins to 25%. The higher cost of retaining talent -including salaries and stock-based compensation that shot up by 124% to  1,880 crore -as well as business promotion expenses that doubled to about . 1,100 crore, drove a large part of ` the losses. Flipkart did not respond to email queries from ET.

However, the online retailer -which was estimated to be worth $15 billion in its last funding round in 2015 -has said that it has cut down losses since the beginning of the current financial year and is back on a growth track. “We will be getting into fiscal year 2018 with a growth tailwind,“ Flipkart CEO Binny Bansal told ET in an interview last month. By March 2017, the company will have cut burn rate by 50%, he said.

The turnaround is expected to be driven by greater profitability in its key fashion business, including from its subsidiary Myntra and a few other high-value segments such as large appliances. Besides online retail, Flipkart also runs a logistics business through Ekart, as well as a digital payments business under the brand, PhonePe.

India’s online industry, which is expected to be worth $60 billion by 2020 according to a Google-AT Kearney study , is dominated by three large digital marketplaces ­ Flipkart, Amazon and the Softbank-backed Snapdeal.

Jeff Bezos-led Amazon, which is snapping at Flipkart’s heels, posted losses of `3,571 crore, according to regulatory filings by its main India unit -Amazon Seller Services -in fiscal 2016.

The American company also operates through a number of other units like Amazon Transportation Services and Amazon Wholesale, but a large majority of its investments are routed through this unit.

Experts reckon that in the current financial year, Amazon has sharply increased its spending.

“The odds are against it (Flipkart) because Amazon can afford to lose more than it can,” said Vivek Wadhwa, a fellow at Carnegie Mellon University.

Industry analysts who spoke to ET on condition of anonymity estimate that while Flipkart’s monthly cash burn right now is about `260 crore ($40 million), Amazon India is losing about `600 crore per month as it eyes market leadership.

“This isn’t a fair match because the Western adversary is dumping billions of dollars into the Indian market in its attempt to create the same monopoly there as it has in the US,” said Wadhwa, who believes “Flipkart has to change the rules of the game”.

Flipkart’s revenues are categorised in two parts. The retail business showed an increase of 42% to `13,706 crore. But service revenues, which include commission from third-party sellers, increased at a faster clip by 158% to `1,697 crore as the company expanded its marketplace business during the year.

As of March 2016, Flipkart had `4,100 crore as `cash in hand’ and another `5,081 crore as investment in mutual funds,bonds under ‘available for sale’ investments, giving it a runway of about two years at the current burn rate.

Souce : The Economic Times (Delhi)

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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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