The Indian e-commerce sector has seen significant investment and growth in recent years, raising questions around whether it represents a boom or bubble. While companies like Flipkart and Snapdeal have raised billions in funding and seen high valuations, they also reported significant losses in 2014. There are positive factors like India's young population and rising incomes, but also challenges around infrastructure, regulations, and the need to eventually become profitable. Overall the document cautions against overly exuberant comparisons to China's e-commerce growth, arguing India's market and users are still nascent compared to China, and profitability and a sustainable growth plan will be important for the long-term success of the sector.

1. INDIAN ECOMMERCE
BOOM OR BUBBLE?
Facts and furore behind Indian ecommerce sector

2. Introduction
• Within the last 15 months foreign hedge funds, asset managers and investment firms
have invested almost $4 billion in just 26 Indian technology and e-commerce start-ups.
• Indian e-tail market—which is currently valued at $16 billion will grow to an astonishing
$50 billion by 2020. The report also projected that the ‘loss making’ sector will begin to
make clear profits by 2020 – UBS Report
Indian e-commerce industry is at a fascinating point of its journey, but
one needs to have a more realistic view on its growth engine.

3. The Rosy Picture
• The Indian e-commerce sector received more than $5 billion in funding in 2014
• Flipkart raised some $1.9 billion while Snapdeal found about $1 billion in funding.
• Together, these two online shopping firms are now valued much, much higher than the
total market capitalisation of India’s major brick-and-mortar retailers
5
1.6
0.76
0
1
2
3
4
5
6
Funding into Indian e-commerce business (in $ bn)
2014 2013 2012
12.5
5
0.8 0.6 0.6 0.2
Flipkart Snapdeal Trent Future RetailShoppers StopPantaloons
Valuation in $ bn
Valuation in $ bn

4. Why is it sunshine?
• Internet population - With 200 million active Internet users, India is next only to America’s 250
million and China’s 550 million internet users
• Rising incomes levels – India’s per capita income has risen to $1,500 increasing the
purchasing power, especially for 350 million strong middle and upper class
• Demography – Two-thirds of India’s population is under 35 -- the demographic that makes
up the largest share of the country's Internet users
• Expected long term profitability of e-commerce firms – With the market maturing and
consolidating, the discount regime will fade away improving profitability
• Drawing parallel between India’s e-commerce market with that of China’s – India is often
looked upon as China of mid 2000s

5. Reality check?
The highly anticipated
deal between Alibaba
and Snapdeal fell apart in
March
Disagreement in valuation
was blamed
Snapdeal was looking for
a valuation between $6
billion and $7 billion while
Alibaba wanted to
commit for a
valuation under $5 billion
“…..E-commerce is a hard
business. You need time and
scale to make money. But at
some stage there must be an
intention to make money. I
think there is no plan to make
money because of the infinite
supply of investment capital.
I’m not surprised they are not
making money because they
are not even planning on
making money…”
K Vaitheeswaran
Founder of Indiaplaza.com
30 28 26
68
52
43
0
20
40
60
80
Flipkart Amazon(I) Snapdeal
Revenue 2014 (in $ million) Loss 2014 (in $ million)
Flipkart, Amazon India and
Snapdeal reported a combined
revenue of $85 million and a loss of
$163 million in FY14. To put it simply,
for every $ earned, $ 3 were spent
by the companies.

6. Thorns in the Rose
• India has been placed at 115th rank on broadband speed in a recent united nations’ study on
ecommerce environment
• India’s regulatory environment for e-commerce remains unclear as the government is strongly
opposed to the idea of 100% FDI in B2C ecommerce, often citing close environment in China and
Japan
• India’s tax authority has also had troubles in aligning tax laws for the e-commerce industry leading
to arbitrary actions which has affected the overall business ease in the segment.
• India ranked 83rd out of 130 countries in terms of its e-commerce environment, judged by factors
such as the number of Internet users, availability of secure servers and credit-card usage
• India failed to make into the 30 country list by AT Kearny’s 2015 Global E-commerce index based
on parameters such as online market size, Consumer behaviour, Growth potential and
Infrastructure

7. India like China? Hold your guns!
• At $1,500, India’s per capita income is less than a quarter of China’s $6,800 which does not seem
to be catching up anytime sooner
• China has the biggest e-commerce market volume in the world at $ 426 billion which happens to
be about 85 times that of India’s e-commerce market, just too big to compare at this point
• Chinese internet users are much more sophisticated users than that of Indian users. One third of its
online users are connected continuously while 58% are online between 2- 4 times a day
Flowery comparisons have been made between Indian and Chinese e-commerce
markets and many have conveniently believed that just like the e-commerce sector grew
by leaps and bound in China, the fate of the Indian e-commerce market will be a replica

8. China, the ecommerce giant
426
305
82
71 63.3
38.3 33.1 24.6 17.4 16.2
5
35%
16%
17%
14%
22%
12%
13%
17%
16%
22%
27%
0 2 4 6 8 10 12
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
50
100
150
200
250
300
350
400
450
Volume 2014 ($ bn) Growth (on 2013)
10%
7%
13%
5%
7%
5%
9%
5%
2%
3%
1%
0%
2%
4%
6%
8%
10%
12%
14%
Online Retails as a % of overaall Retail
China US UK Japan
Germany France South Korea Canada
Russia Brazil India

9. So ?
• With only 39 million online buyers, that translates into approximately 3.2% of the total population,
online market place still is at a nascent stage in India
• Though the 27% growth in the e-commerce market in India in 2014 looks flattering, the high growth
figure is actually due to its very small base
• The sector is currently seeing headwinds in terms of sky rocketing valuations and huge employee
benefits, but monetising and making the industry profitable will remain a challenge in coming days
• Government support is absolutely critical on infrastructure point of view to increase user
penetration.
• Also, a more transparent policy on regulation and tax structure will go a great way to strengthen
the fundamentals of e-commerce industry in India.

10. Finally,
e-commerce industry in India is going through an aggressive transformation and while it
can be the sunshine sector for growth, it is imperative to understand the limitations and
risks in the sector, and handle these risks effectively
Addressing these risks should be our top most priority to avoid this boom turn into a bubble.
It is possible only when euphoria over virtual cash flows, imaginary cash rich P&L
statements and outrageous valuations makes way for a structured growth plan across the
business parks and government corridors, backed by more realistic aspirations, but of
course, with the same enthusiasm.
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