With Rs 4,470 cr war-chest Amazon gets ready to take on Flipkart

Amazon’s fresh investment in its India entities come at a time when the Seattle-based firm has faced losses in several of its business entities in India, such as seller services, wholesale, transportation services and digital payments, for the 2018-19 financial year.

As Amazon’s India unit cuts down losses further in its fight for supremacy in the country’s growing online commerce market, the e-tailer is pumping in more funds in its India units to turbocharge the company in this festive season.

According to regulatory filings, Amazon has decided to infuse about Rs 4,472.5 crore in its various business entities in India, including seller services, digital payments and retail.

The funding is expected to help Jeff Bezos-led firm take on Walmart-owned Flipkart, with which it is in a fierce battle for dominance in India’s online retail market as well as competition from the yet to be launched e-commerce business of Mukesh Ambani-led Reliance Industries.

The company’s online marketplace arm, Amazon Seller Services Private Limited, has raised Rs 3,400 crore by allotting 340-crore equity shares of Rs 10 each to the existing shareholder on the right basis, according to the regulatory documents filed by Amazon, which were sourced from Paper.vc.

The resolution for this capital infusion was passed by the board of directors of Amazon Seller Services on October 14.

The allottees were Amazon Corporate Holdings Private Limited and Amazon.com Incs Limited.

The same allottees have invested Rs 900 crore in Amazon Pay India Private Limited, the digital payments arm of the online retail giant, in exchange for 90-crore equity shares of Rs 10 each to the existing shareholder on the right basis.

The resolution for this capital infusion was passed by the board of directors of Amazon Pay India on October 17.

The same day a resolution was passed for Amazon Retail India Private Limited to raise Rs 172.50 crore by allotting 172,500,000 equity shares of Rs 10 each to the existing shareholder on the right basis.

The allottees again were Amazon Corporate Holdings Private Limited and Amazon.com Incs Limited.

According to experts, players such as Amazon and Walmart have invested enough in India to be serious contenders and are unlikely to cut back growth-oriented investments.

“E-commerce is a deep pocket game given cash burns and it takes time for businesses to turn profitable and for habit-forming (for consumers).

"As they (Amazon) are getting into newer segments like groceries and payments, they will need to deploy more growth capital," said Ankur Pahwa, partner and national leader, e-commerce and consumer internet at EY India.

"Because they are growing and expanding rapidly, while there will be efficiencies, the losses would continue to increase due to the growth driven spends.”

Interestingly, US Commerce Secretary Wilbur Ross at the recently concluded World Economic Forum's India Summit hinted that Amazon is cutting back on its spending in India, which was a third of what it spent in India last year, owing to uncertainties around the e-commerce policy.

“Certainly there is an issue due to the lack of clarity of the e-commerce policy and when it would be implemented and there is an obvious concern about it.

"But having said that both players (Amazon and Walmart) are here for the long haul,” said Pahwa of EY.

“While regulations would evolve and they work with the regulators to solve such problems, I don't think the commitment to India is any way reducing.

"India is such a very large market,” he added.

The e-commerce market in India is expected to touch $ 200 billion by 2028, from about $ 30 billion last year.

Amazon’s fresh investment in its India entities come at a time when the Seattle-based firm has faced losses in several of its business entities in India, such as seller services, wholesale, transportation services and digital payments, for the 2018-19 financial year.

The combined losses of these entities stand at over Rs 7,000 crore, according to the data accessed by Tofler.

Photograph: Brendan McDermid/Reuters