Snapdeal Expects to Become Profitable in Two Years: CEO

9 Feb
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By Mudit Mohilay, The Tech Portal

Snapdeal CEO and co-founder Kunal Bahl expects that his e-commerce firm, which has been facing tough competition from native Flipkart and foreign Internet behemoth Amazon of late, will turn profitable in the next two years.

In an interview with Reuters, Bahl talked about an optimistic approach to business that appeared focused upon cutting costs and boosting efficiency. On the topic of profitability, which is one of the biggest question marks surrounding some of the biggest Indian startups, he said that the SoftBank backed online market was in no hurry to generate immediate profits.

He added that the company did not need to raise capital either, until and unless they have to make an actual acquisition. This could be taken as an indication that Snapdeal is planning another acquisition in the coming years, although investors are much more cautious with their money than they were say, a year ago.

Meanwhile, with more and more Indian middle class gaining access to affordable Internet, the trend of online shopping is in full swing. This is not only benefiting online marketplaces like Snapdeal, but is also helping India to evolve as the world’s fastest growing market in terms of Internet services. However, the cut-throat competition that is forcing firms to offer unusual discounts, is also hampering their profits.

As per the Bank of America Merrill Lynch’s note from last September, it is anticipated that the price of the commodities sold online in India could take a drastic ten-fold leap to reach $188 billion by 2025.

Meanwhile, Snapdeal was valued at $6.5 billion last year. However, that doesn’t say much considering that investment firms have been slashing the values of their holdings in Indian companies left and right. Just ask Flipkart.

In the previous financial year, Snapdeal produced a humongous loss of 29.6 billion rupees ($441 million). Undaunted, Bahl says that they are constantly improving.

I see a relatively clear line of sight to (profit) and we have been making great progress in that direction also.

He adds:

We needed capital to build the infrastructure which we have, now we have to take control of our destiny.

Snapdeal’s EBIDTA, which is earnings before interest, tax, depreciation and amortization, in the first nine months of the running financial year has however, improved by around 40 percent in comparison to previous year, tells Bahl. Apart from advertisements, the primary source of income for e-tailers like Snapdeal is the commission it receives from the sellers on its platform as a percentage of value of goods sold. Merrill Lynch estimates for 2016 reveal that Snapdeal holds just 12 percent share of the gross merchandise value, and trails behind Flipkart with 43 percent and Amazon with 28 percent.

However, Snapdeal, which boasts of having Chinese e-commerce giant Alibaba Group Holding and Taiwan’s Foxconn as its investors, has never viewed the gross merchandise value as a tool of measuring its growth. Bahl reiterated the point again while adding that his company focuses on delivering good quality products at the right cost on time.

Bahl also stated that Snapdeal’s captive logistics wing Vulcan Express, will evolve as profitable by the next month. Meanwhile, some profitability from the Indian e-commerce section would be a huge relief for investors. After all, the niche has gulped down billions of dollars of their money — money that was used to build businesses yes, but also to lure customers by offering them huge deals and discounts.