Primary Offer. Infibeam: Battling for space

Infibeam, an e-commerce player that has been in the online retail business in India since 2007, is making a debut in the capital market.

The company operates infibeam.com — the on-line retail platform — besides offering e-commerce solution to businesses through buildabazaar.com. It plans to raise ₹450 crore at the higher end of its price band of ₹360-432 a share.

This puts the market value of the company at about ₹2,000 crore (at the lower end of the price band) and implies an ask price of 5.7 times the annualised sales of 2015-16. This is expensive. Recent estimates that hold Flipkart’s valuation at $11 billion indicate that the company trades at seven times its sales.

A year back, an IPO from an e-commerce player would have seen investors grab it by paying fancy valuation. But today, it is different. There is sanity returning to the market and investors are looking for visibility in profits. Recently, Flipkart’s key investor, Morgan Stanley, marked the value of its investment in the company down by 27 per cent.

In 2014-15, Flipkart India reported revenue of ₹9,351 crore but ended with a loss of ₹836.5 crore. Infibeam has made profits for the first six months of 2015-16 (revenue of ₹174 crore and profit of ₹6 crore). But it needs to be seen if profits are sustainable and if it will win the battle against the big boys in the e-commerce space. The company started its business in 2007; there was a breakeven in 2010-11 with a small profit. But in 2011-12, it slipped into losses again and has been in the red for four years till 2014-15.

The IPO seems a risky bet, as the business has a short track record of profits. The asking price for the stock is also steep. With valuations of e-commerce companies moving south, investors can give the offer a miss.

Key business faces challenges While the retail platform, infibeam.com, generates 70 per cent of the revenue, it is the e-commerce store solution business, buildabazaar.com that makes the entire profit.

At buildabazaar.com, the company provides online storefront solutions with offerings such as digital product catalogue, content management and access to payment gateways.

Hidesign India, Adlabs Entertainment and Panasonic India are some of its clients. This segment’s operating profit margin was 58 per cent for the six months ended September 2015.

All businesses that want to use the buildabazaar platform pay Infibeam an initial set up cost plus a service commission which is either fixed or variable (dependent on the business that happens via the site).

As of December 2015, Infibeam had about 48,724 registered users on the buildabazaar platform. Given that there are about 40-50 million SMEs in India, the opportunity is huge.

But competition is heating up with the global brand Shopify in India already and local players such as martjack.com, kartrocket and gito.me also eating into the pie. So, there is a risk of Inflibeam losing market share.

Infibeam intends to scale up its e-commerce store solutions business by leveraging on the contacts of existing clients and drawing new merchants through its .OOO (dot-triple-o) domain registry. But since launch in 2014, this new domain hasn’t taken off well, say experts.

E-retail business is small Infibeam.com is still making losses. In the first six months of 2015-16, on revenue of ₹122.7 crore, the segment made a loss of ₹4.8 crore.

The company says that, as of December 2015, it had about 7.8 million active users — a 30 per cent annualised growth since March 2012. But the segment’s revenue in this period (2011-12 to 2014-15) has grown at a slower 20 per cent.

There is a stiff competition in the Indian e-retail space and the fight for market share is rising by the day. Players such as Flipkart and Amazon are much bigger in terms of the gross merchandise value of products sold and also on revenue.

It may be a tough task for smaller players such as Infibeam to get market share from the already entrenched players. Alexa.com, that provides analytical data on traffic in websites and ranks them based on page views and number of visitors (in India, in the last month), shows that infibeam.com is at the 397th position. Flipkart.com is at 7th, amazon.in at 6th and snapdeal.com at 13th. While Infibeam has plans to scale up the retail business, it may not happen in a hurry.