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India’s delivery men offer prize investment as billions pour into e-commerce


October.30.2014 0 Comments

india-ecommerceMUMBAI/BANGALORE, Oct 30 (Reuters) – From Japan’s richest man to Jeff Bezos, everyone wants a piece of India’s booming online retail sector. For those without billions to pump into the tightly held firms who dominate e-commerce, the best bet may be the delivery men.

On Tuesday, SoftBank Corp Chief Executive Masayoshi Son joined Bezos’s Amazon.com Inc in pledging heavy investment in an e-commerce industry worth $10 billion and seen quadrupling in five years. Son’s gambit: a stake in Snapdeal, India’s third-biggest online marketplace.

Yet the little-known firms that deliver goods ordered online are already raking in rocketing earnings from e-commerce in a country with the world’s third-biggest Internet user base, and they’re listed. Shares in companies like Transport Corp of India and Gati Ltd have surged more than three-quarters this year as industry watchers seek a chance to invest.

“When you see the limitless growth in the e-commerce sector, you do want to get involved,” said Eric Mookherjee, a Paris-based fund manager at Shanti India, whose holdings include Transport Corp. “The next Alibaba or Tencent can be created in a country whose population is roughly similar to China. You will get that in India.”

Finance house Nomura estimated in a research note in July that India’s e-commerce industry could more than quadruple to $43 billion over the next five years, driven by online retail.

Pledging to invest $10 billion in India in the next 10 years, SoftBank’s Son on Tuesday said Snapdeal has the potential to become India’s Alibaba, the recently listed Chinese e-commerce giant. Son is well placed to know: his fast-growing Japanese telecom and media empire is the biggest Alibaba investor.

DELIVERY OUTSOURCING A MUST

Son’s move comes after India’s two biggest online retailers, the home-grown startup Flipkart.com, and Amazon’s India business, began spending billions of dollars to secure a bigger share of the market. Though India’s Internet population is huge, e-commerce infrastructure remains relatively under-developed and ripe for huge growth.

The forecasts for future expansion, and a key role in it for third-party delivery firms, have helped push the more than $50 billion Indian logistics sector, including Gati and Transport Corp, about 80 percent higher so far this year. That makes it the fifth-best performing major industry in India by the Thomson Reuters StarMine classification.

Earnings are also ramping up. Net income of Blue Dart Express and Transport Corp is expected to jump by 37 percent and 24 percent in this fiscal year respectively, according to Thomson Reuters’ SmartEstimates, which place an emphasis on recent forecasts by top-rated analysts.

In comparison, net profit of companies in the Bombay Stock Exchange’s main 30-share index is expected to rise just 15 percent on average.

As the market surges, competition for customers among e-commerce firms will see them seek to cut delivery times and expand into smaller cities. While Amazon and Snapdeal use both in-house logistics networks and external service providers, new services will see them relying increasingly on outsourcing.

“Amazon is today advertising 24-hour delivery and that’s where people like us come in,” said Areef Patel, executive vice-chairman of Patel Integrated Logistics Ltd, which serves Amazon India. The 24-hour delivery offer applies only to select postal codes and is not available across the country.

“We are looking to get e-commerce market share today because that’s the flavour of the day,” he said. Patel said his firm aims to increase the portion of revenue it generates from e-commerce companies to 20-25 percent within two to three years from just 5 percent currently.

With more than 45 percent of Amazon’s orders in India coming from outside the top eight cities in the country, the company is looking to work with more logistics partners, Amazon India said.

“The biggest advantage of working with specialist logistics firms is the wide reach that they provide,” said Ashish Chitravanshi, vice-president of operations at Snapdeal, speaking before the SoftBank investment was announced. (Additional reporting by Nivedita Bhattacharjee in MUMBAI; Editing by Miyoung Kim and Kenneth Maxwell)