Snapdeal, the e-commerce company backed by SoftBank Group, filed for its initial public offering as it joins the nation's IPO boom that has already surpassed previous records.
A $39.4-Billion Opportunity
Snapdeal was founded in 2010 by Kunal Bahl and his friend Rohit Bansal as a deals website. It expanded into online retail, battling out deep-pocketed Amazon and Flipkart, now owned by Walmart Inc.
In 2017, when the firm was struggling to sustain, Masayoshi Son’s SoftBank Group pushed for its merger with Flipkart but the deal didn’t go through.
Cash burn amid competition forced it to scale down and pivot to a value-driven online retailer for the non-affluent, non-urban and non-tech savvy Indians. Snapdeal sells them everything from clothes, blankets and table mats to trimmers.
Snapdeal said in its draft prospectus that it’s the largest pure-play value e-commerce platform by revenue in a market expected to grow fivefold to $39.4 billion by FY26.
Key Businesses
The Gurugram-based firm primarily derives revenue through marketing, freight and collection fees it charges sellers. In April 2021, it removed shipping or cash-on-delivery charges to acquire customers and increase its delivered units and revenue.
The company expects “emerging shoppers” from the mid-income segment of Indian tier 2+ cities to drive growth. The value shopper base is projected to grow threefold to 25.6 crore by 2026, Snapdeal said citing RedSeer data.
It also has one of the highest range of products priced below Rs 600, it said.
Snapdeal’s subsidiary, Unicommerce eSolutions Pvt., offers software as a service to help traditional, direct-to-consumer brands and other retailers sell online. It contributes around 11.13% to its revenue.
Snapdeal also aims to rope in neighbourhood stores and new franchisees for distribution, similar to what JioMart does for grocery.
Snapdeal also has 13 private labels, called Power Brands, licensed to sellers.
Covid Hurt Sales But...
The Covid-19 pandemic hurt its business as certain sellers faced supply interruptions and delivery delays, the company said. “Full or partial lockdowns adversely impacted the volume of our delivered units during the first quarter of FY21.”
Its total net merchandise value dropped 48% to Rs 912 crore in FY21. The number of orders also almost halved to 1.8 crore. The business has since recovered.
The volume of delivered units in both the first and second quarters of FY22 were higher than a year earlier.
Snapdeal said its focus on the supply chain improve per unit cost efficiency. Due to healthy take-rate or revenue as a percentage of net merchandise value and low cost of fulfillment, its has a positive margin on every delivered unit for three and a half years through September.
Financials
Revenue fell over the last three fiscal and dropped by half in the year through March 2021.
Losses, too, narrowed by more than half to Rs 125 crore during the period.
Key Risks
Failure to acquire or retain users in a cost-effective manner.
Failure to increase the number of delivered units, net merchandise value and new customers as it plans to invest a significant part of its capital towards sales and marketing to build its brand and acquire users.
Snapdeal also faces heightened competition. Online competitors include Amazon, Flipkart, Reliance Jio, Nykaa, Meesho and others.
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