From a period of exuberance, India’s e-commerce sector has entered a reality check phase with players focussing on cost cutting and business viability as investors seek performance, tech investor T V Mohandas Pai said today.
Pai, ex-CFO of software major Infosys, said 2015 was a year of exuberance as a lot of money flowed into the sector but it is no longer the scene now.
“Now, the funds have become very costlier. Now, they (investors) are demanding performance. Capital is also becoming scarce driven by interest rates in the US and potential meltdown in demand in China. Europe is not growing and Japan is not doing well and there is fear.
“That’s why venture capital flows have come down. They (investors) have become very selective. People are now beginning to ask questions as to when e-commerce business will be viable and when they will create a sustainable business and value for the money they have put in. That’s good news”, he told PTI.
Many e-commerce players believed that if they go on giving fat discounts and sell more, they would get more revenues and higher valuation. “That model is not sustainable,” added Pai, co-founder of Aarin Capital.
Now, investors are demanding performance. “Some sanity is coming (in the e-commerce space). E-commerce players should build business based upon efficiency and not upon steep discounting. Discounting can be there to the extent of savings they have compared to a conventional store. They are getting cautious and they are cutting costs, and that’s good news,” he said.
As for whether some top Indian e-commerce players are overvalued, he said, “Whether they are overvalued or not depends on who is willing to pay money for that valuation. If they are raising capital, if somebody is paying money, then it’s fairly valued. It’s very difficult to make comments. Some funds write it down based on their model.”
Pai does not think investment flows into the e-commerce play would slow down further. “Funding will come in for B2B and players with sustainable businesses and great technology. Direction of the funds may change. Funding will not come down in a substantial manner,” he said.
Pai, who is also Chief Adviser to the Manipal Education and Medical Group, dismissed reports that hiring is slowing down and salary packages are being slashed in the sector.
“Startups are also businesses. Some of them may succeed, many of them will fail. That’s the nature of the business. Nothing has changed in the last six months. Startups are coming, some of them are raising money, some of them are failing, it’s continuous,” he said.