For Alibaba, India is a big market, and that’s not a secret. But what does its management really think of India’s e-commerce market? That’s the question on everybody’s mind.
A recent report throws some light on its management’s views, which is targeting a gross merchandise value (GMV) of $1 trillion by 2020, about 2.5 times the $398 billion GMV sales it reported in 2015. GMV, in retail parlance, is the total value of goods sold. If Alibaba achieves its 2020 target, the GMV it handles will be nearly half the size of India’s GDP today.
“India as an e-commerce market will change significantly in a year or two. Alibaba is not just interested in the small e-commerce market, but instead the larger US$1.3 trillion Indian retail market ,” says a Goldman Sachs report published on June 22, just a week after Alibaba hosted an investor day in China.
Goldman Sachs analysts who met with key management personnel at Alibaba, including Chairman Jack Ma, said that the management ruled out ‘inorganic growth’ at current valuations in India, which is higher than expected. But the company hinted that valuations are coming under pressure as Amazon just raised its game in the country.
The report, which gave a “Buy” rating to the Alibaba stock, said:
In an environment where valuations are 3x-5x GMV and headline GMV may not represent true demand, management ruled out an inorganic route to growth. At the same time, Mr Evans believes the pressure on private equity funded companies is rising as Amazon has agreed to spend an additional US$3bn in India.
(Mike Evans is the President, International of Alibaba.)
India’s PayTM figured quite often in the report, alongside Alibaba management’s global ambitions. Alibaba and Chinese financial services company Ant Financial together own nearly 40% in PayTM.
Ant Financial wants to serve nearly two billion customers globally in 10 years as compared to 451 mn people in China and 126 mn people on PayTM in India, Alibaba management said.
Alipay, an online payment platform operated by Ant Financial, is the payment backbone which lets millions of users pay on platforms like Taobao, Tmall, and Koubei in China. The company also uses commerce data from Alibaba to manage risk, run a money market fund, and disburse loans to small and medium businesses. (FactorDaily had earlier detailed Alibaba’s “Iron triangle” strategy in a story on the strategic drivers behind Alibaba, Flipkart, and PayTM coming together.)
According to the Goldman Sachs report, PayTM, which holds one of 11 payment bank licences in India, commands a 57% market share and is targeting a merchant network twice the size of Visa, MasterCard and Amex in the country by the end of the year. “PayTM aims to bring India’s economy to a digital platform with a target audience of 0.5bn,” write Piyush Mubayi, David Jin and Fan Liu of Goldman Sachs, the authors of the report.
Ma, also the co-founder of Alibaba, briefed analysts that the company expects growth to come from five areas — e-commerce, internet finance, logistics, data and cloud computing and cross-border trade.
Ma said that the company makes investments with a 10-year horizon to turn in profits, and by that yardstick, PayTM has until 2025-26 to show profits.Disclosure: FactorDaily is owned by SourceCode Media, which counts PayTM founder Vijay Shekhar Sharma and Accel Partners among its investors. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.
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