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Amazon announces a further $3B investment in India biz; pressure on Flipkart & Snapdeal

no credit necessary, came from PR

Less than a week after investing Rs 1,350 crore in its India operations, Amazon CEO Jeff Bezos announced that a further $3 billion (about Rs 20,000 crore) will be invested in its India unit, reports Reuters. He also mentioned that Amazon would set up a Web Services Cloud Region in India this year, and a software engineering and development center in Hyderabad. Note that the company had also pumped in funds worth Rs 1,980 crore (or $290 million) into its India unit in February this year.

With this Amazon’s total investment commitment in India goes up to $5 billion; the $3 billion announced now, plus the $2 billion investment announced back in July 2014, which the company has already completed in phases over the past two years.

Pressure on Flipkart and Snapdeal

Amazon’s additional investment plans will put pressure on Flipkart and Snapdeal to raise more funds:

In July last year, Flipkart had raised $700 million at a valuation of $15.2 billion, and had previously raised $700 million in December 2014. The ecommerce major had raised $1.91 billion in 2014 alone. Prior to Flipkart’s $1 billion round of funding in July 2014, it had raised $751 million in total. So far, Flipkart has raised $3.12 billion in 12 rounds of funding from 16 investors, including Tiger Global, DST Global, Accel Partners, Singapore GIC and T Rowe Price.

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Note that in March this year, it was reported that HDFC Bank had extended a line of credit of over Rs 450 crore to Flipkart. According to the ROC filings, Flipkart signed the deal on February 23, 2016 through its subsidiary Flipkart India Private Limited. Are we going to see more of this going forward in the Indian ecommerce space, as traditional investors tighten their purse strings? Over the past few months, the company’s valuation has also been marked down significantly.

In March this year, the company had claimed that it had crossed 75 million registered customers since its launch, and that its Android app crossed the 50 million installs mark. According to Flipkart, over 50% of its traffic comes from non-metro cities, with Tier II and Tier III towns showing a greater rate of adoption than larger cities. In January last year, Flipkart said that over 50% of its traffic was through mobile and mostly from Tier II and III cities.

On the other hand, Snapdeal raised $200 million in a round led by Ontario Teachers’ Pension Plan (OTPP) with participation from Iron Pillar and others, in February this year. In August last year, the company had raised $500 million from Foxconn, Alibaba and Softbank with participation from various other investors. It had also raised $627 million from Softbank in October 2014. Other than this, the company raised $100 million from Temasek Holdings and others in May the same year, $133.7 million from eBay and others in February, $50 million from existing investors in June 2013, and $52 million in 2011 in separate rounds of funding from Bessemer Ventures Partners, Indo-US Venture Partners and others.

Cloudtail & FDI in ecommerce regulations

However, it’s not all smooth sailing for Amazon India: It has to deal with ecommerce FDI guidelines, which doesn’t permit over 25% of the sales on its marketplace to originate from one vendor or their group companies. Amazon’s biggest seller is Cloudtail, a 51:49 joint venture between Catamaran Ventures and Amazon Asia, which reportedly accounts for 40% of sales on Amazon India.

Phil Hardin, director of investor relations said that the company was “happy to operate in any regime. So frankly, the more clarity, the better,” in reply to a question about India’s regulatory environment and Cloudtail.

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Amazon India’s financials

From the ROC data: Amazon Seller Services reported a revenue of Rs 1,022.1 crore for the year 2014-15, growth of 108.46% from the previous year. However, losses widened to Rs 1,723.7 crore during the period from the loss of Rs 321.3 crore in the previous year.

Expenses also shot up during the year to Rs 2745.7 crore, compared to Rs 490.3 crore in the preceding year. Employee benefit expenses stood at 7% of total expenses while other expenses stood at 93%.

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