Morgan Stanley marks down Flipkart shares

Morgan Stanley has marked down the valuation of its Flipkart shares by as much as 38 per cent to $5.54 billion, but analysts say it will not affect the e-tailer’s plans to raise $1 billion, which it expects to do soon.

A mutual fund owned by Morgan Stanley has marked the value of its shares in the e-commerce player at $52.13 per share as of September 2016, compared with $84.29 per share in June 2016, as per the filings. This is the fourth such valuation downgrade in the past nine months.

Harish HV, Partner at Grant Thornton, told BusinessLine that the leading e-commerce player should not be unduly worried about the downgrade. “This markdown should not directly affect Flipkart’s ability to raise a fresh round of funding given their recent success during the festive sale and their growth over the previous years. However, there may be a psychological impact on investors who are keen on funding Flipkart,” he said.

Harish saidthe downgrade is not a transaction-based valuation based on buying and selling shares, but an analytics-based valuation that Morgan Stanley has arrived at after looking at multiple parameters such as market trends, profitability of Flipkart vs other companies, and “desktop research”.

Early this month, Fidelity and Valic also marked down the valuation of Flipkart. Fidelity marked down Flipkart’s value by 3.25 per cent to $81.55 per share in the quarter ended August, while Valic marked down the value of the shares it invested in Flipkart by 11.3 per cent to $95.84 per share during the same quarter.

Flipkart is not the only online aggregator which is seeing marked down valuations. Japan’s SoftBank Group Corp, in a filing, disclosed that it was writing down about $555 million in cab-hailing firm Ola (ANI Technologies Pvt Ltd) and e-commerce marketplace Snapdeal (Jasper Infotech Pvt Ltd).

Rajeev Banduni, CEO of London-based, online advisory services firm GrowthEnabler said all businesses go through markdowns, so this is not new. Even Amazon has gone through these transitions and never really made any money from e-commerce. However, it diverted money from its other profitable businesses such as Amazon Web Services into e-commerce. “The only way out for Flipkart is to tighten its belt and fight it out with Amazon where it must focus on getting profitable and slashing all costs down to a minimum, except marketing costs, to continue to be in the pole position,” Banduni said.

He pointed out that Flipkart must adopt a flanking strategy to beat Amazon on homeground, just as Ola did with Uber, picking up a few key features that are key to locals and gaining ground on those.

Banduni said Ola understood that India is a cash economy and went strong on that — offering cash payments; it introduced a slew of new services — from rentals and outstation to share — to cover every consumer segment with a product, spreading its reach to Tier II and III markets to emerge market leader.

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