Flipkart denies report of sale talks with Amazon

Talks between both firms were reportedly held to sell Flipkart for $8 billion.

Flipkart, India’s largest online marketplace, has strongly denied a newspaper report that said they had exploratory talks with Amazon in the last quarter of 2015 for possible sale. 

Taking to Twitter, Sachin Bansal, Executive Chairman of Flipkart put out this cryptic tweet.

Citing several sources in the investment community, The Economic Times reported on Wednesday that Amazon had made a preliminary offer of up to $8 billion to acquire Flipkart, almost half of its previous valuation of $15.2 billion. The newspaper said they have spoken to three sources who were top executives in venture capital and private equity firms.  

ALSO READ: Flipkart opposes entry tax by states: Why it is a fight to the finish

Meanwhile, another source informed that Amazon had offered a little over $5 billion for Flipkart’s e-commerce business and $3 billion was pegged for the company’s logistics business.

The talks between both the companies, reportedly held in the last quarter of 2015, went cold after the offer was perceived to be too low. The sources also told the newspaper that there was no reason to believe that a deal will be struck or that the talks were still ongoing between them. 

Valuation woes

The development comes at a time when Morgan Stanley has marked down its investment value in the online marketplace by $4 billion to $11 billion. 

Meanwhile, Flipkart is also currently in talks with Alibaba to raise $1 billion, but the Chinese e-commerce player was said to be investing at a lower valuation than $15 billion.

Reforms in India will be slow, tedious: Morgan Stanley

Experts said domestic woes, including ballooning NPAs reported by banks and weak quarterly numbers in various other sectors, also added to the market weakness recently.

Big bang reforms will not be the operating template for India and the process will be a 'slow and tedious one', says a Morgan Stanley report.

The global financial services major said that the recently announced Budget for 2016-17 has proved once again that major reform initiatives will not be the operating template for the country.

"Reforms in India will be a slow and tedious process, requiring the buy-in of the opposition and the bureaucracy," it said. Since the beginning of this year, Indian markets have seen heavy volatility largely owing to high fluctuations in global markets led by the Shanghai Composite and domestic events such as the Union Budget, it said.

The Indian equity markets have seen extreme weakness due to various negative factors, including global economic slowdown fears, falling crude prices, worries related to Chinese economy and muted quarterly earnings.

Experts said domestic woes, including ballooning NPAs reported by banks and weak quarterly numbers in various other sectors, also added to the market weakness recently. Meanwhile, the index slumped to its lowest level in 21 months, when the Sensex crashed 807 points to drop below the 23,000-mark on February 11, this year.

"Moreover, what was evident once again this year, is that while India may be in a relatively better position based on external macro indicators compared to 2013, the correlations with global markets always rise disproportionately during periods of heightened uncertainty in other parts of the world," the report added.

Sun Capital

JP-UltraTech Cement deal: Stressed lenders to receive about Rs 4,000 crore

MUMBAI: In what could be the biggest recovery of loans from a struggling company, Indian banks will receive about Rs 4,000 crore from the sale of Jaiprakash Associates' cement units to UltraTech Cement, said three people familiar with details of the deal. 

Lenders such as State Bank of India, IDBI Bank and ICICI Bank played an active role in the sale of the cement plants at an enterprise value of Rs 16,500 crore, said the people cited above. 

Banks have agreed to transfer about Rs 12,000 crore of Jaiprakash Associates' loans to the Kumar Mangalam Birla-owned unit, they said. Indian lenders are tightening the screws on promoters who are behind schedule in loan repayments. 
The RBI has set a deadline of March 2017 to clean up banks' books. While Jaiprakash has not been declared a defaulter in the technical sense of the term, the company has been lagging behind in payments. 

"The company was not classified as NPA (non-performing asset) but their payments were not happening on due dates which shows that they were strapped for liquidity," said BK Batra, deputy managing director of IDBI Bank. "Therefore, we exerted pressure on the company to sell its entire cement unit to reduce debt. The company has been cooperating by putting up the best of assets on block to reduce debt." 

Banks are being pressed by the Raghuram Rajan-led RBI to clean up their books after stressed loans in the system touched a high of 11.3% of the total. More loans could be classified as rotten and the demand for capital from the government could rise. Analysts estimate that more than Rs 2 lakh crore may be needed in the next three fiscal years to capitalise banks. 

There was a significant increase in bank credit to Jaiprakash Associates in the last three years. Its share in the firm's total debt of more than Rs 29,000 crore at the end of March 2015 stood at 82%, up from 58% in 2012, according to a Morgan Stanley report. 

ICICI's total exposure to the group was at Rs 6,624.2 crore, or 32.8% of the total, at the end of FY15, up from Rs 3,615.3 crore three years earlier. Under the terms of the UltraTech transaction, lenders won't be taking any haircuts even as the deal has been struck at a time when corporates can push lenders to write off a part of their loans to arrive at better valuation. 

Transferring some of their debt to Ultra-Tech means that lenders now have exposure to a business group that's regarded as being financially more sound than many others, thereby reducing the risk of defaults. They can also assign lower capital on the loans as UltraTech is a better rated company. The riskier the borrower, the higher the capital assigned on the loan. 

Among the major financially stressed conglomerates, Jaiprakash Associates has been relatively more cooperative with banks. Others have been delaying asset sales in the hope of an economic recovery and increased cash flow to service debt or, in some cases, bargain for writeoffs. 

The central bank recently identified about 150 companies that are potentially defaulters but banks were yet to declare them as such. More companies could be putting their assets on the block as lenders go after bad loans.

By Sun Capital

Morgan Stanley slashes Flipkart’s valuation by over 25 per cent

Suncapital.co.in :

Is it sanity or is it the beginning of a bloodbath? Morgan Stanley has marked down its stake in Indian e-commerce company Flipkart to $103.97 per share, 27 per cent below the price of its last fundraising round. Last year, Morgan Stanley had valued Flipkart’s per share little over $142 per share. Importantly, the markdown comes just a week after Flipkart’s claimed that it’s valued $15.2 billion. The fall in share reduces Flipkart’s valuation to $11 billion.

Image credit: ShutterStock

Lowering valuation of Flipkart hasn’t come as a shocker to industry observers. Market observers have been anticipating correction in valuation of privately held Internet companies.  Mohandas Pai, ex-Infosys Board Member and founder of Aarin Capital, says:

These downgrades will happen in e-commerce till there is proper business model. The euphoria of fundraising at high valuations have to come to some reality and the current model of business is unviable because of the discount led model and high returns.

As per SEC filing, Morgan Stanley valued its Flipkart stake at $58.93 million in December 2015, as compared to $80.62 million in June 2015. While some see this mark down as only a modest one, analysts forecast that the implications will be bigger for other e-commerce companies as not many can digest a 25 per cent markdown (see this Twitter thread).

Interestingly, Flipkart’s rival Snapdeal witnessed a 30 per cent upward swing in its valuation when it raised $200 million recently. The Gurgaon-headquartered company is reportedlyvalued in the range of $6.5-$7 billion. The valuation of ShopClues also jumped significantly and it became the fourth Unicorn in the fledgling e-commerce market.

Satish Meena, Senior Analyst at Forrester Research, says:

Not many players in Indian eCommerce can digest a 25 per cent markdown. Flipkart’s valuation markdown will have consequences for others as everyone is riding on the same boat and valued based on the GMV number which is neither transparent nor correct but highly over stated.

Besides Flipkart, Morgan Stanley also  marked down shares of Palantir, a SaaS-based data analytic platform by 32 per cent, shares of Dropbox by 25 per cent, and those of Airbnb by 10 per cent.

Morgan Stanley reportedly uses multiple valuation methods for most of its private tech portfolio, including a 20 per cent discount for lack of marketability when using market comparable companies.

A few financial experts opine that investors in  Flipkart, Snapdeal and others would look to exit from these companies in the course of next two to three years (given their fund cycle and  obligation/commitment with limited partners).

“I believe that investors at some point are going to ask questions about e-commerce because certain funds will exit in three to five years. But the opportunity for the business in India is only going to grow,” says R Natarajan, CFO of Helion Ventures.
by Suncapital.co.in