Snapdeal stands to gain big from Freecharge acquisition

Snapdeal is reportedly in advance talks to buy online recharge company Freecharge for Rs 2,800 crore. Freecharge, which allows users to recharge their pre-paid phones and get an equal value discount coupon, has emerged as a popular recharge option and a head-on competitor of PayTM, which recently attracted investment from Chinese e-commerce giant Alibaba.

Freecharge has raised multiple rounds of funding. In February 2015, it raised $80 million from San Francisco-based hedge fund Valiant Capital Management and Hong Kong-based Tybourne Capital Management along with Sequoia Capital, RuNet and Sofina Capital.

In September 2014, the company had mobilised $33 million from Sequoia Capital, Sofina and RuNet. It had also raised Rs 20 crore from Sequoia Capital in 2011.

If the deal goes through, this will the largest acquisition in the Indian e-commerce space . It will even trump Flipkart's acquisition of fashion e-tailer Myntra last year for a whopping $370 million.

If the acquisition comes through, there are several reasons it will make sense for Snapdeal, the leader in the marketplace business.

Snapdeal will ride on Freecharge's growing popularity and its huge user base of over 20 million users. Freecharge works with upwards of 300-odd retailers, selling their discount coupons and processes recharges worth over Rs 100 crore per month. For most mobile recharge companies like Freecharge, PayTM, Mobikwik or Oxigen, mobile recharge is a very thin margin product but has worked well to grab a massive user base.

Having scaled up to a few million, these companies have used their customer base as launch pads for a host of other services, including DTH recharges, utility bill payments, online shopping, bus ticket bookings, movie bookings and ordering from fast-food chains such as Dominos and Pizza Hut.

For instance, Oxigen Services (India), launched in 2004 as a mobile recharge venture, now does Rs 600 crore worth of transactions per month - the biggest chunk of its business comprising money transfers (Rs 200 crore), followed by recharges (Rs 100 crore) and bill payments (Rs 30 crore).

The deal will help Snapdeal diversify into a host of other online services, get more retailers onboard and provide it an edge over its emerging competitor in the marketplace model -- PayTM, now backed by Alibaba's might. Also, since mobile is the most important leg of growth, this acquisition will make the Snapdeal brand resonate better on mobile phones.

So, will Snapdeal rival Flipkart also acquire a recharge player, maybe Mobikwik or some other? What's your thought?