Pace of consolidation in Indian Internet Picks Up

Internet eCommerce IndiaConsolidation in the e-commerce sector seems to be picking up pace, with 21 mergers/acquisitions in 2015 versus 9 in 2014. The industry could see more such transactions going forward, as fresh funding declines. However, we still see pockets of growth for Indian e-commerce, primarily in the mobile software, gaming and content categories. These categories comprised 37% of total app downloads in 2015 but have seen very limited participation from Indian companies.

Fund flows in the e-commerce sector have slowed down meaningfully over the past three months. 4QCY15 funding at US$386 mn declined 80% yoy and 85% qoq. While there was some pick-up in January 2016 due to 2-3 big deals (US$145 mn fund-raise by CarTrade and US$100 mn fund-raise by ShopClues), January 2016 funding at US$357 mn was still below 2015 monthly average run-rate of US$440 mn.

Per data from Venture Intelligence, there were 21 instances of consolidation/mergers in 2015, compared to only 9 in 2014, indicating that consolidation is picking up pace. While some of these seem to have been stitched by common investors (such as acquisition of Commonfloor by Quikr and Delyver by BigBasket) to give them a part-exit, others were strategic in nature (acquisition of Pickingo by Shadowfax and Carwale by CarTrade). This ties in with our earlier thesis that as losses mount, there will be more instances of consolidation, which will pave the way for stronger but fewer companies to emerge in each key category.

Of the top-20 ranked websites in India, 13 belong to foreign owners (Google, Facebook, Yahoo etc.). This is also the case with app rankings, where 13 of the top-20 apps belong to foreign publishers. This is in sharp contrast to China, where Google debuts as the 25th ranked website and there are no other foreign websites ahead of it. While this is likely because of China’s protectionist policies, it also implies that search/social networking/messaging opportunities may be very limited for new companies in India.

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