The e-commerce industry has been currently expectantly waiting for the roll-out of various reforms which were proposed last year by the Securities and Exchange Board of India (SEBI), the regulator for the Indian securities market. These roll-outs were aimed towards enhancing capital investment and fuel growth in the e-commerce sector.
Currently the e-commerce sector is experiencing great enthusiasm to avail public listing options (as is evident from the approval granted last year by SEBI to Infibeam Incorporation, the first e-commerce company, to list its shares). Raising funds through IPOs has been a herculean task in India because of SEBI’s stringent listing requirements, which includes profitability criteria for at least three years and lock in on promoters’ shareholding of at least 20% for three years.
Most e-commerce start-ups are focused on increasing their market share instead of profits in initial years. The high cash burn rate of giants like Flipkart and Snapdeal, due to heavy discounting strategy, is a classic example of this focus. Becoming profitable without having enough market share could be a recipe for disaster, but acquiring customers base through continuing discounts is also not a feasible strategy in the long run.
