Valuations of Indian e-commerce startups dive by more than half

Valuations of Indian e-commerce startups have dived by more than half in 2012 compared to the stratospheric levels of the previous year, an executive from Intel Capital said.

However, the company thinks valuations need to moderate further before it can turn bullish on the sector.

"Last year, some e-commerce startups were commanding 10-15 times revenue multiple. That is half of Facebook's valuations that got a multiple of 25X during its IPO. It has come down to 4-6X this year but this is still expensive," Intel Capital's MD of Asia Pacific Sudheer Kumar Kuppam said, talking to Business Today on the sidelines of an Intel Capital summit at Huntington Beach in southern California.

Bigger e-commerce companies like Flipkart enjoyed valuations in the range of $500 million last year. The company had a top line of Rs 500 crore in 2011/12.

Intel capital, which operates a $250 million fund in India, has so far invested in three online retail companies in India - online shopping store Fashionandyou, online deal company DealsandYou and online marketplace firm IndiaMART.

The VC arm of chipmaker Intel invests in sectors that are strategic to the parent company. E-commerce is at the top of the list for the company in India because the firm thinks the growing trend of buying online will spur more PC buying in the country, and thereby, the sales of Intel's processors.

"There is no reason why Indian e-commerce companies should enjoy these valuations. The country's e-commerce infrastructure for logistics and payment mechanisms is not yet ready," Kuppam said. "Valuations shot up because there are very few high quality companies and multiple investors chased these few high quality deals."  

But India is not alone. China, which has a far bigger e-commerce market than India is also seeing valuations tumble, but for entirely different reasons.

"The valuations around the middle of last year were trending at five times the topline. That has now moderated quite a bit because the US IPO route appears closed. There are concerns in the US over the accounting practices of Chinese companies," MD of Intel Capital China Richard Hsu said.

(The writer is attending the Intel Capital Summit in Southern California on the invitation of the VC firm.)