With competition from Amazon, its value erode, making it harder to raise funds at new valuation
Flipkart’s supply chain and logistics arm Instakart Services or Ekart Logistics has incurred losses of Rs 810 crore on a revenue of Rs 303 crore in the nine months to March, its first year of operation, after the Indian e-commerce major spun it off as a separate unit, people familiar with the development said.
The logistics arm losses come over and above the Rs 2,850 crore losses its two entities — Flipkart India and Flipkart Internet —showed for FY16. Ekart Logistics was incorporated in June 2015.
Ekart is trying to add more third party clients to increase its revenues. Flipkart did not respond to the questionnaire or repeated calls made to its team.
“The company is talking to a lot of third party clients. In 2017, their main aim is to make it sustainable. Right now, it is eating into Flipkart’s revenues. A lot of internal fine-tuning is happening at the moment. The company plans to generate at least 50 per cent of the business from external clients in the next two years. Right now, it is just around 10 per cent,” said a company source, withholding identity.
According to numbers sourced from data platform Tofler, the two entities – Flipkart India and Flipkart Internet – together earned roughly Rs 15,129 crore ($2.2 billion) in 2015-16, compared to Rs 10,390 crore in FY15. The loss for the two entities mounted to around Rs 2,850 crore, compared to around Rs 2, 000 crore a year earlier.
Flipkart India is the wholesale cash-and-carry entity, while the other company is an e-commerce marketplace, which books commissions on each sale.
Ekart already works with firms such as Paytm and offline players like Madura Garments and Apollo Hospitals. It has also branched out with its courier service to individual users. Flipkart Co-Founder and Chief Executive Officer Binny Bansal is betting on logistics investments to expand into newer areas and offset losses of the e-commerce arm. It had invested in MapmyIndia for digital maps to optimise best routes for its vehicle fleet and deliver goods to smaller towns and villages.
Ekart has e-tailers like Shopclues and Paytm and does daily shipments of around 30,000-40,000. Flipkart has set up a complex holding structure, with several entities listed in Singapore, making it hard to ascertain the exact revenue and loss figures.
Despite hefty growth in revenues in the previous financial year, investors continued to punish Flipkart’s valuation. After a series of markdowns by mutual fund investors, Morgan Stanley set a valuation of just $5.58 billion for the three months that ended September. Flipkart had enjoyed a peak valuation of $15.2 billion, making it among the top valued start-ups in the world.
With increasing competition from rival Amazon and an inability to curb losses, Flipkart has seen its value erode, making it harder for the company to raise fresh funds at a valuation it wants. Large investors such as Walmart – Amazon’s arch nemesis in the US – are said to have walked away from investing in the company, after being unable to settle on a price agreed upon by both parties.