Saturday, June 28

Analysis of Flipkart-Myntra Deal


In the largest e-commerce deal in India so far, homegrown e-retailer and marketplace owner Flipkart has acquired online fashion retailer Myntra in an estimated Rs 2,000 crore deal. 
Flipkart has been good at replicating established models and strategies. Flipkart founders - Bansals- were ex-Amazon employees and started Flipkart selling books online - just what Amazon did in its early days. Even in case of acquisition of Myntra, the strategy is the same as that of why Facebook acquired WhatsApp - kill competition.

Fashion & Apparel has the largest potential in the e-commerce space and India is set to become the largest E-commerce market in the world - in terms of volume. As the urban (metro, Tier I and Tier II) population is getting more awareness and is getting exposed to E-commerce, India is slowly increasing its online spend. Apparel has been slow (it all began with books, to gift items to electronics - and now apparel) but has huge potential.
Myntra has been a forerunner in the apparel e-commerce space and Flipkart was still languishing behind in books and electronics. Acquiring Myntra is a good strategy as it sets to compete better with the likes of Amazon and E-Bay in the e-commerce space in India.

The deal size is pegged at close to Rs 2000 crore (according to sources and media - official data not found).

Some synergies:Flipkart’s and Myntra’s common investors Tiger Global Management, Accel Partners and Sofina Capital will get more shares in the merged entity. Tiger Global and Accel Partners first proposed the deal last year. 
Myntra sells products from over 650 brands like Nike, HRX by Hrithik Roshan, Biba and Steve Madden. 

Myntra has a last-mile delivery network covering 70 cities, while Flipkart's network covers 250 cities and towns. In a few months Myntra will also start identifying and using technology solutions created by Flipkart, especially in the mobile space. Flipkart has already started expanding its presence online - 40% of sales come through Mobile already.Myntra founder Mukesh Bansal would join the Flipkart board and would head the Fashion and apparel business.

ValuationFlipkart's investors have been encouraging as they have helped Flipkart compete with the global giants in India. Fortunately Flipkart hasn't disappointed them so far It has already reached $1 billion of annualised sales though the target was for 2015. Myntra clocked revenue of about Rs 1,000 crore in the previous financial year. 
Considering the estimated deal value, Rs 2,000 crore is only 2x historical Revenues which is reasonable considering the potential and this being a private deal influenced by common PE investors.

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