Ecommerce firms see mounting losses despite soaring sales

Losses at ecommerce firms piled up last year even as they blitzed their way into consumers' pockets. Although revenues rose sharply, costs including discounts, advertisements and expenses on employees skyrocketed, reports The Financial Express. And worryingly for them, the increase in revenues in FY16 matched the growth in FY15, suggesting no great buoyancy in the business.

For a clutch of 14 companies, which included eretailers, furniture sellers, travel portals and food ordering and delivery players, losses ballooned 138 per cent to Rs10,670 crore, according to Kotak Institutional Equities. Between them Amazon India, Flipkart, and Paytm contributed 70 per cent of the total losses during the year; losses at Paytm went up fourfold.

Not surprisingly, Amazon India reported the highest advertising spend of Rs2,163 crore - the American firm has been going all out to gain market share and has committed $5 billion to the Indian market. Paytm's tab was Rs1,115 crore as it spent a fair amount on advertising its marketplace. Flipkart ran up a more modest bill of Rs923 crore.

While the number of online shoppers is estimated at 35 million, showing that buyers recognise the convenience of having goods delivered to their doorsteps, purchases on the internet, it would appear, have been driven by discounts and freebies. This is probably true even for the payments business.

With few businesses showing a smaller cash burn, investors appear to be reluctant to fund ventures at what are undoubtedly lofty valuations.

Between January and November, just $3.7 billion has been invested in these ventures, about half the $7.5 billion which came in during the comparable period of 2015, data from Tracxn Technologies shows. KIE reports funding for ecommerce ventures from private equity and venture capital firms is down 72 per cent year-on-year between April and November to just $1.2 billion.

The consolidation in certain spaces following shutdowns and mergers may lead to smaller losses for some firms in FY17 and thereafter, KIE believes.

Peppertap for instance has shut down its grocery delivery business, PayU has acquired Citrus Pay and Ibibo is merging with Makemytrip.

However, sector experts point out, FY17 has been a tough year so far given that the economy has been sluggish. Moreover, e-retailers have been hamstrung by the government's regulations on price discounts. In late March, the Department of Industrial Policy and Promotion ( DIPP) issued guidelines for players that were funded by foreign direct investment (FDI).

These allowed marketplaces to function with financial support from FDI. However, marketplaces are disallowed from influencing prices on the platform. Moreover, an ecommerce marketplace should not allow a single seller to contribute more than 25 per cent of the total sales on the platform.