SoftBank has held early discussions to invest more in Paytm Mall even as it makes up its mind about selling its significant minority stake in rival Flipkart to Walmart, said two people familiar with the development.
The Japanese Internet giant could be freed from a clause in its agreement with Flipkart that restricts it from investing more than $500 million in Paytm Mall until 2020, one of them said. SoftBank, which in April announced a $400 million investment in Paytm Mall for a 21% stake, has since held talks to invest as much as $3 billion in the company, the second person said. ET could not independently confirm this.
A transaction is far from being finalised and may not go through, these people said, adding that talks with Paytm Mall would proceed only if SoftBank finalised its exit from Flipkart. SoftBank is undecided on selling its Flipkart shares because of tax implications and as it sees a further increase in valuation for Flipkart, ET reported on May 11.
A spokeswoman for SoftBank declined comment. Paytm Mall did not immediately reply to emailed queries from ET.
SoftBank Vision Fund invested about $2.5 billion in Flipkart in August last year after a failed attempt to orchestrate a merger with Snapdeal, which was its first bet in the Indian online retail space in 2014.
The Japanese company had invested about $900 million in Snapdeal in the hope the etailer would be able to challenge Flipkart’s market leadership, but saw the company slip to a distant third behind Amazon India by 2016.
Three-Way Battle in India
The US retail giant last week announced it was buying a 77% stake in Flipkart for about $16 billion.
Paytm Mall, the online marketplace spun off from Paytm owner One97 Communications, also counts Chinese ecommerce giant Alibaba Group (46% stakeholding) and venture capital firm SAIF Partners (20%) as its other two major shareholders. SoftBank’s investment in April valued Paytm Mall at $1.9 billion, making it a unicorn.
India is a unique market witnessing a three-way battle involving US retail majors Walmart and Amazon, and China’s Alibaba. If SoftBank exits Flipkart and invests additional capital in Paytm Mall, the alignments would become similar to the Chinese market where SoftBank is a big shareholder in Alibaba, which competes with Tencent and Walmart-backed JD.com. Tencent will remain one of the largest minority shareholders in Flipkart after the Walmart deal.
Paytm Mall had a market share of about 5.6% in 2017, its first full year of operations, with gross merchandise volume, or gross sales, of about $1 billion, according to Forrester Research. Flipkart Group, including online fashion retailers Myntra and Jabong, had a combined market share of 39.1%, and Amazon India, 31.1%.
Alibaba has also invested in India’s largest online grocery retailer BigBasket and logistics player XpressBees to help flank Paytm Mall’s expansion, and the three companies are working closely together, as reported by ET.
Paytm Mall focuses primarily on its online-to-offline (O2O) model, which drives almost 60% of its overall sales through its partnership with 75,000 stores. The company plans to triple its offline presence by the end of 2019.
Paytm Mall’s strategy has only been moderately successful in India but it’s early days yet, according to consultancy firm RedSeer.
Paytm Mall has been making inroads into the Indian ecommerce market, replacing Snapdeal as the third-largest player after Flipkart and Amazon India. The company ended fiscal year 2017-18 with annualized GMV of $3 billion and is targeting an ambitious $10 billion in annualised GMV by the end of this fiscal year.
