oppn parties Is the Ecommerce Cart Flipping?

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  • Supreme Court holds hotels liable for theft of vehicle from their parking area if parked by valet, says "owner's risk" clause is not a shield from such liability
  • Finance Minister says she is receiving feedback from many sectors that recovery is happening as there is lower stress
  • Sabarimala temple opens, but police bar the entry of women below 50 years
  • Finance Minister Nirmala Sitharaman says Air India and BPCL to be sold off by March
  • Media person Rajat Sharma resigns as DDCA president
  • Shiv Sena, NCP and Congress postpone meeting the governor of Maharashtra
  • Shiv Sena not to attend the NDA meeting on 17th November, says break up "a formality"
  • Shiv Sena says that the confidence the BJP is showing about forming the government in Maharashtra is based purely on its expectation of getting numbers through horse trading
  • Anil Ambani resigns as director of the bankrupt Reliance Communications
  • India beat Bangladesh by an innings and 150 rums inside three days in the first Test. Indian pacers excel after Mayank Agarwal's double century
  • Sena-NCP-Congress work out a common minimum programme, will form the government soon and it will last 5 years, says Sharad Pawar
  • Income Tax Appellate Tribunal upholds the decision to withdraw the charitable status of Young India, making it liable to pay Rs 145 in income tax. Rahul Gandhi and Priyanka Vadra are the majority shareholders in the company
  • CBI raids offices of Amnesty International across India
  • Supreme Court quashes NCLAT order against Arcelor Mittal and paves the way for the company to take over ailing Essar Steel
  • Finance Minister Nirmala Sitharaman says concerns of telcos will be addressed and no company will close down
Supreme Court dismisses plea for review in Rafale case, says no need for roving inquiry, maintains clean chit to government
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Is the Ecommerce Cart Flipping?

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
Is online retail headed south? Are top etailers like Flipkart experiencing a cash crunch and is this crunch a result of falling sales or on account of deeper discounts being offered due to competition? Or is it due to lack of funding from VC’s and falling valuations? These questions need to be asked since etailers are now in the market for bank loans, an area of funding that no blue-blooded etailer would have looked at even six months ago.

It all started in the last quarter of 2015 when the prima donna in the etail space, Flipkart, got as much as Rs 1400 crore from Kotak Mahindra Bank and Deutsche Bank by pledging assets. In March, it disclosed that it had accessed a further credit line of Rs 450 crore from HDFC Bank by pledging fixed deposits.

Now it has been disclosed that Paytm has borrowed Rs 300 crore from ICICI Bank in two tranches by pledging fixed deposits and mutual funds. While Paytm has said that this is a treasury management move to shore up working capital without liquidating paper assets, analysts are viewing this as a sure sign that the sector is witnessing a slowdown in terms of VC investments.

As is well known, etailers fund the discounts on their marketplace from their own pockets (read the article How Flipkat, Amazon and Snapdeal Fund Discounts in Livemint here). Increasing competition in the marketplace, with up to 80% discounts being offered in mega sales which now occur at alarming frequency and an urgency to grab customer eyeballs making these players spend big bucks on advertising has meant that the drain on the kitty is much more than what they are getting from the VC’s or internal revenue generation.

Pledging assets to “shore” up working capital in their business model can be dangerous. These firms are hoping that VC sentiment will improve and funding will start again so that they will be able to pay back the banks and get the assets released. They are also betting on continued upward revision of valuations. But where will the profits come from? In the absence of solid figures on the balance sheets, there will come a time when the VC’s will look the other way. The sellers on the marketplace also need to be wary. Pressed for cash, these etailers might choose to delay payments, as they are the ones who collect from the customer. If that happens, sellers can leave in droves. Then, the cart will truly flip.