Snapdeal recently poured $23.7 million (Rs. 152 crore) into it logistics arm Vulcan Express. Filings with the Registrar of Companies disclosed that the home-grown etailer invested this money in the month of August 2017.
Vulcan raised the funds by issuing 15.24 crore equity shares at Rs 10 per share to Jasper Infotech, Snapdeal’s parent company. The logistics firm had received $5.68 million (Rs. 36.5 crore) from Jasper in July 2017.
In the fiscal year 2015-16, the logistics company’s revenue, as well as losses, swelled. The losses went up from Rs. 3.2 crore in FY 14-15 to Rs. 20 crore in FY 15-16. Whereas, the revenue increased from Rs. 26.7crore in FY 14-15 to Rs. 184 crore in FY 15-16
Snapdeal trying to sell off Vulcan or would it be an asset?
After being in the news for all the wrong reasons such as fake audits and lying to sellers, the funding by Snapdeal brought a bit of good news for Vulcan.
After the Flipkart-Snapdeal merger was called off, the etailer released ambitious plans for Snapdeal 2.0. In July this year, Snapdeal had to sell Freecharge at 90% discount to Axis Bank. There’s a buzz that the Kunal Bahl-led company is looking to sell its logistics unit. The valuation was fixed at Rs. 200 crore, but it didn’t find many takers.
Experts believe that infusing so much money before selling it doesn’t make any business sense. And that Snapdeal might have a better plan in store.
“Now that the Flipkart-Snapdeal merger has been called off, it could mean that Snapdeal is trying to stand on its own. Also, after GST, having an in-house logistics arm makes greater sense as it won’t have to outsource this function. You also save a couple of margin points… With a pure marketplace model, marketing expenses and discounts would have come down significantly. We may even see a different merchandising strategy, wherein Snapdeal might shift to a lower volume, higher margin business model. Hence, logistics is the only service they will be providing to the consumers,” said Anup Jain of Redback Advisory Services.
In the competitive Indian ecommerce industry, Snapdeal is way behind Flipkart and Amazon. Therefore, keeping Vulcan would work in its favour as logistics is one key pillars of an online marketplace. Only time will tell if Snapdeal would tilt in the favour of in-house logistics service or immediate need for funds.