Snapdeal's IPO Filing Reveals How It Pivoted To Accept A Changed Reality
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.
The decade-old firm, away from the limelight for the last few years, is now looking to mop up close to Rs 1,250 crore through the sale of new shares, according to its draft red herring prospectus filed with the Securities and Exchange Board of India on Tuesday.
Eight of its 71 shareholders, including SoftBank, Foxconn and Sequoia Capital, also plan to sell as many as three crore secondary shares. About Rs 900 crore of the proceeds from the fresh issue will be used for marketing and promotions and to enhance its technology infrastructure.
Snapdeal has taken the lead among its early rivals—the Flipkart Group and Amazon.com Inc.'s India unit—to file for an IPO. The company scaled down operations after hitting a turbulent patch and largely fulfills low-cost orders. About 70.74% of the products priced up to Rs 500 were sold on the platform in the six months ended Sept. 30, according to its filing. While the comparative number is not available for peers, a Technopak report estimates a higher average order value for Flipkart and Amazon at Rs 1,200-1,500.
Snapdeal In Numbers
4.01 crore: active users.
20 crore: app installs.
1.48 crore: annual transacting customers.
86.93%: Share of sales from outside metro cities.
86 lakh: Number of units delivered in July-September.
1,000: Number of sellers who fulfilled more than 80% of shipped units in the six months ended Sept. 30.
635: Total employees.
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.
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.
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.
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.