After Unboxing Snapdeal Flipkart Finds It Worth $400 Million Only: A Correction or Under Valuation?

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Amid to all types of speculations about Snapdeal, last month the poster boy of Indian eCommerce industry Flipkart agreed to merge Snapdeal. It took rounds of discussions and negotiation for all Snapdeal stakeholders to come on terms before they agreed to ‘sell’ Snapdeal to Flipkart for about $1 billion. Interestingly, after a month of due diligence, Flipkart finds Snapdeal worth no more than $400 million.

According to people familiar with the matter, Flipkart is not willing to pay anything more than $400 million for Snapdeal – almost 60% less than what board of Snapdeal is expecting. The source also confirms that Snapdeal may agree with the new offer for its marketplace alone, without including the other two businesses – Logistic and Marketplace Management solution.

Together combined, both the businesses – Vulcan Express and Unicommerce eSolution – are valued worth $200 million, and doing fairly well.

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Snapdeal acquired Unicommerce eSolution, an eCommerce management and fulfilment solution in 2015. It allows online eCommerce players to manage vendors, warehouse, shipments and returns in much efficient manner.

Vulcan Express, a fully owned subsidiary of Snapdeal, is a logistics management business. Snapdeal floated it in the market to satisfy the growing in-house needs and also to serve other vendors, both in B2B and B2C. Snapdeal has been quite optimistic about the success of Vulcan as the company estimates that its business will increase four folds in 2017. Considering the growing penetration of eCommerce in India, Logistics has emerged as the biggest challenge, and most of the eCommerce players, including Amazon and Flipkart, are trying to grab the lion’s share of the Logistics market.

The tug of war between Flipkart and Snapdeal has delayed the possible sell out of Freecharge to other prospective bidders. Sanpdeal acquired FreeCharge for $400 million in 2015.

Snapdeal, which was valued worth $6.5 billion once, has been struggling to stay afloat for the last one year. Despite burning hundreds of thousands of dollars in one of the most expensive branding campaigns, Snapdeal has failed to keep customers hooked with the platform. The aggressive marketing strategy of Amazon India has rattled the homegrown eCommerce players who were riding high on the valuation until last year.

Flipkart has outrightly rejected the speculation stating company don’t comment on the speculative news. However, one more person familiar with the matter has informed that Flipkart is quite reluctant to pay $1 billion for Snapdeal.

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In the fast changing scenario in Indian eCommerce industry most of the startups, who were once riding high on valuation, are going through restructuring after the ongoing market correction. The valuation of Flipkart has tumbled to $11.6 billion from $15 billion.

However, the big question is, what is the adequate value of Snapdeal? Is it really worth just $400 million or Flipkart is just trying to take advantage of the situation? But, one thing is certain; if Snapdeal is sold for $400 million, or $600 million including logistics and eCommerce management solution, it will trigger a debate on the valuation of Flipkart as well!

Source: The Hindu BusinessLine

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