Who thought
that there will be a day when a relatively young company (started in 2007)
called Flipkart could dwarf big companies like Nestle India, Dabur India,
Godrej Consumer etc. in terms of company valuation based on market cap. As per many media news in 2015, Flipkart was valued at around
$15.2 Bil. However, current reality is strikingly different. Investors like Morgan
Stanley and other
have done consistent mark down on the valuation of the Flipkart during the year
of 2016.The latest valuation of Flipkart may be around $5.54Bil, which is
around third of what it was valued in year 2015.Though this kind of gyration in the valuation figures for start-ups/young companies is nothing unusual but
after such drastic mark down on valuation when announcement came that Tiger
Global the largest investor (owns around 35% in Flipkart) appointed Mr. Kalyan
Krishnamurthy as CEO of Flipkart, it has sent some strong signals.
Let me try
to do quick analysis of this announcement in two parts;
Part-1: its’
impact on the Flipkart.
Part-2: Its’
impact on other start-up companies and on start-up ecosystem in India.
Impact on Flipkart :
Move over from founder to the professional:
Flipkart the e-commerce market leader
in India is going to witness for the first time the change which comes from
the professional (Mr. Krishnamurthy) managing company as compared to the
co-founders ( Bansals) managing the company. This may lead to for sure some
organizational cultural and hierarchical rejig. Instead of focusing on vision,
mission, higher level strategies and some larger than life goals (which are
generally propagated by founders to all the stake holders) the focus may shift
to growth drivers, sales, cost control, loss reduction, efficiency, execution
etc. Companies are reflectors of their leader’s personality, attitude, approach
etc. and Flipkart is no exception to this. Many key positions roles may face
restructuring, some may be shown the door and new recruitments may find the way
in. I think the key slogan at the Flipkart after the change of leadership is
going to be “we mean business”.
More focus on sustainable turn
around:
I think the
job of Mr. Krishnamurthy as new CEO of Flipkart, will be cut out to maintain
market leader position in the India along with sustainable turn around where
focus will be on sales and bringing firm into profit. In this case, it seems
sustainable turn around and scaling up of business is going to be two very
important ingredients for future higher valuation. Lee
Fixel who is Tiger Global head of PE & VC operations would eventually
be interested in selling his stake in Flipkart at some eye-popping valuation
figure and pocketing the exorbitant profit. In order to fulfill Lee Fixel’s
dream Flipkart first has to reach such a high valuation figure. To reach high
valuation number Flipkart has to allure and attract equity investors to invest
in the company at higher marked-up valuation which will be cyclical and lead to
further higher valuation of the firm. But to convince new equity investors to
invest in Flipkart is going to be anything but easy from now on. Assuming new
equity investors will be more critical evaluators of Flipkart after it has gone
through rough patches before making further investment, Flipkart has to prove
under new CEO that it is sustainable turnaround story in the largest market,
where focus is not only on sales but also on profitability. This is what new
CEO’s role might be at Flipkart. If this does not go right, it can spook the
idea of bringing IPO at high valuation in future which generally works as exit
gate for many VC investors.
The above flow is represented diagrammatically as below;
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