CRISIL : Myntra acquisition to acquire leadership in lifestyle segment

May 2014

CRISIL Impact Note

Flipkart to lead in lifestyle segment with Myntra acquisition

India's leading e-commerce player, Flipkart, has acquired online fashion retailer Myntra. The amount of the deal and nature remained undisclosed. The deal is aimed at consolidating Flipkart's position in a nascent, but fast-growing market and retaining market leadership position.

Deal to help Flipkart gain leadership position in the fast-growing lifestyle segment Flipkart, which introduced fashion in 2012, primarily focuses on providing a variety of options across price points to customers. It has, however, not been able to make a sharp impact in this space. Myntra, one of the leading online fashion retailers in India, that began operations in 2007, is seen as a brand-conscious fashion destination with its prime focus on quality and differentiation. The Flipkart-Myntra deal will fill a critical gap in Flipkart's current portfolio, thus allowing it to expand its scale after having a presence in all the segments.

Flipkart started as an online bookstore in the year 2007 and has come a long way to make its presence felt in the online retail space. The company has diversified into different segments like electronics, car accessories, computer accessories and many more. Lifestyle, a fastest-growing segment in the e-retail space, has been a weaker area for the company in comparison with other established players like Myntra, regarded as a leader in the fashion and lifestyle segment of the Indian online retail market. Myntra's acquisition will give Flipkart an edge to expand its customer base.
Further, Flipkart will require support facilities like logistics and payment gateway services to expand its presence further in tier-2 and tier-3 cities. The deal will provide the company with the necessary infrastructure to increase its penetration. Flipkart, which raised funding close to $160 million in October 2013 (taking total funding to over $560 million), was valued at around $1.5 billion based on the last round of funding as per publicly available information.

Lastly, we also believe that the deal will give the company more muscle to take on Amazon, the world's largest e-commerce firm, which is expanding massively in the Indian market and has recently started offering fashion items, as well as other players such as eBay, Jabong and Snapdeal.

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CRISIL Impact Note

Fashion and lifestyle segment to outperform market growth

Fashion and lifestyle is one of the fastest-growing segments in the online retail space. CRISIL Research believes that the share of the fashion and lifestyle segment in the online retail space will increase to 40-45 per cent by 2015-16 from 30 per cent in 2012-13.

Lifestyle segment's share projected to increase by 2015-16

Others,

20-25%

Electronics,

35-40%

Lifestyle,

40-45%

Source: CRISIL Research

India's e-commerce market poised for exponential growth

India's e-retail (online retail + online marketplace) market, estimated to be around Rs 139 billion in 2012-13, is projected to grow at a CAGR of 50-55 per cent to touch Rs 500 billion by 2015-16. This growth will be fuelled by increasing internet and smartphone penetration, efforts being made by firms in this space to expand their product portfolio and distribution networks, and greater awareness of the convenience and value offered by online retail. Besides, most firms offer the flexibility of paying by cash on delivery of the goods purchased, as long as the total ticket size is of a reasonable amount. The lifestyle segment in e-retail is estimated to grow from Rs 45 billion in 2012-13 to around Rs 250 billion by 2015-16.
While they do have huge potential, firms in the e-commerce domain are incurring losses, due to the upfront investment required in setting up logistics and systems and the high cost of customer acquisition (on account of discounts and deals offered, and cash on delivery). Therefore, it is imperative for firms to scale up fast to remain in the business for the long haul. Flipkart, for example, is estimated to have made a net loss of Rs 2.8 billion in 2013-14 even though revenues zoomed to Rs 60 billion as per media reports.
Nevertheless, investor interest in this space is very strong as the market is still at a nascent stage and profitability metrics for leading players should improve, going forward. Recently, Snapdeal.com raised $100 million, mostly from new investors including Temasek Holdings, Blackrock and Premji Invest, less than 3

months after it had received $133.7 million of funding.

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Flipkart vs M yntra

Flipk art M yntra

Founded 2007 2007

Sachin Bansal, Binny Bansal Mukesh Bansal, Ashutosh Law ania, Vineet

Founders

Saxena* and Raveen Sastry*

Promoter's stake 20 per cent 20 per cent

What India's largest eCommerce company India's largest online f ashion company

Funding (till date) $560 Million $175 Million

Tiger Global, Accel Partners Tiger Global, Accel Partners, Kalaari Capital,

Major PE

Premji Invest

Revenue estimated (2013-14 E) Rs ~60 Billion Rs ~12 Billion

Employee 10000** 1500

Note: *Moved out of company in the year 2011

** Including of contract employees

Source : CRISIL Re s e arch

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Last updated: May, 2013

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