Will Tiger man Kalyan Krishnamurthy ride Flipkart out of trouble?

Shedding whatever remaining trappings of an advisory role, venture capital investor Tiger Global has taken direct control of Flipkart with the appointment of its former executive Kalyan Krishnamurthy as CEO of the e-commerce firm. Krishnamurthy will be responsible for the company's profit and loss, apart from "operationally driving it", with the COO and heads of categories, marketplace, engineering and marketing reporting to him.

An old hand with exhaustive understanding of e-commerce, Krishnamurthy certainly has the credentials to lead India's biggest e-tailer and, maybe, even effect a turnaround. However, the management change gives away Tiger's frustrations over Flipkart's slowing momentum and its impatience over dimming chances of a big exit in the near term, something it has been desperately looking for.

Techcircle dove deep into the reasons that could have prompted the move and the way forward for India's biggest e-commerce company.

Tiger's predicament  

Flipkart is Tiger Global's biggest bet in India. Of the $2.5 billion the US hedge fund has invested in India, it put in around $1 billion in Flipkart alone and holds a third of its shares, according to estimates. Tiger Global has drastically slowed down its investment activity in India as it looks for an exit in the next 2-3 years from its biggest bet in the country, chances of which do not seem very bright at the moment. It has invested in around 45 companies in India over the past 12 years and holds the biggest portfolio of unicorns that includes Flipkart, Ola, Quikr, Shopclues and Hike.

Persons familiar with Tiger Global's game plan in India have said that the firm is looking for an exit from Flipkart, Ola or Quikr through either a public listing or a strategic buyout. Flipkart and Ola are still some time away from becoming financially self-sustaining and would require substantial capital infusion to tide over offensives from their respective deep-pocketed global rivals Amazon and Uber. On the other hand, Quikr's revenue from operations remain below Rs 50 crore while it continues to make losses ten times that of its earnings.

Persons familiar with Tiger's plans say it's looking for an exit from Flipkart, Ola or Quikr through an IPO or strategic buyout

"Lee Fixel (partner and co-head at Tiger Global) appreciates your interest but respectfully declines to comment at this time," a Tiger Global spokesperson said in response to an e-mail from Techcircle.

Although Flipkart touched on its efforts to achieve 'IPO-readiness' during the latest management change, the prospects do not look bright in the current scenario. It had a tumultuous year that saw sharp and successive markdowns, constant CXO level churn, tough competition in the market and slow growth. Meanwhile, a strategic buyout looks increasingly possible with each passing day.

The Krishnamurthy factor 

Tiger Global first invested in the fledgling internet venture in November 2009. According to people familiar with Flipkart's affairs, Krishnamurthy has been well-entrenched within the organisation for a fairly long period. As director of finance for Tiger Global's portfolio companies, Krishnamurthy oversaw the finance division of Flipkart and later served as its chief financial officer on a full-time basis till he moved back to Tiger Global in December 2014. He later returned to Flipkart in June 2016 as head of category management and has now been appointed chief executive, a clear sign of the US-based asset management firm wielding greater control over the e-commerce company.

"The task for Flipkart is how they seek market growth. There are two parts to it. One, how to fight day-to-day competition from Amazon and, two, how to explore and create more avenues of growth. It is difficult to focus on both at the same time," Anil Kumar, chief executive at RedSeer Consulting, said. For now, Flipkart will look to grow its existing market and business organically and will guard its market share. This is what Krishnamurthy, who is known for successfully executing strategies, will focus on, according to Kumar. However, he added, the e-commerce firm would have to come with many outrageous ideas to make a big leap, "That is where someone like Binny (Bansal) can focus on."

A veteran investment banker said, "There is no taking away credit from what they (Bansals) have created. They were early movers. They grew when the funding environment was far more benign and the landscape was more virgin. With the passage of time, two or three things are surfacing. The lack of experience and the inability to weather difficult times are beginning to show."

Flipkart's Sachin Bansal met Alibaba executives in Hong Kong last year, though discussions fizzled out

However, a former CXO at an e-commerce firm said a venture capital takeover of a company's operations is not a good sign: "This is a typical template before some drastic development."

Alibaba, Reliance or Walmart: Who will win over Flipkart?

There are some talks about Alibaba hitching its wagon to Flipkart in its battle for dominance in the Indian market where Amazon has already set up shop. "Alibaba will do something in the near future; they are in for the long haul," said a VC investor who did not wish to be named. "Flipkart has built a big platform which is much stronger than its peers'. That makes it attractive to Alibaba, which will need to opt for an inorganic route to establish itself in India," he added.

Flipkart's co-founder and executive chairman Sachin Bansal is learnt to have met Alibaba executives in Hong Kong last year. Although their subsequent conversations fizzled out, back channels are still open.

"I don't think Flipkart can survive as a standalone entity anymore. The best suitor for Flipkart would be Reliance Industries," said the investment banker cited earlier. "Reliance has on-ground presence across categories. They are into fashion, retail and footwear, among many others. They have a telecom background. They have a payments bank joint venture with State Bank of India," he added. However, Reliance Industries would only consider buying Flipkart at a realistic valuation and if the e-commerce firm assumes the character of distress.

Winning India's e-commerce market is a long race and it is too early to count anyone out. It is still up for the taking of companies with adequate capital, right set of capabilities and partnerships, according to a section of industry experts. The Indian e-tailing market is still in infancy, and it is expected to be at $80-100 billion in the next four to five years, Kumar of RedSeer Consulting added.

Arvind Singhal, chairman and managing director of consultancy firm Technopak Advisors, said, "All kinds of rumours are feasible scenarios. Now, the two co-founders are not directly engaged with the company. From what it looks like, they are semi-passive investors rather than participants." Singhal feels Flipkart could see either a strategic investment from Walmart or a forced merger with Snapdeal, with Alibaba in the background. He thinks the latter is the most likely scenario to play out.

"Merging with Amazon would be a surprise. It has built such a strong business, unless they want to exterminate the competition," he said.

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