Maturing e-commerce, expected to book profits in two years

With India’s e-commerce sector showing strong growth momentum and registering higher sales than brick and mortar stores, experts predict leading players like Snapdeal and fashion portal Myntra will turn profitable in the next two years. Leading as well as new e-tailing ventures are focusing

on expanding high margin product categories while getting rid of high value yet low margin products.

Clear focus on profits

Snapdeal

, for instance, expects to touch Rs 6,220 crores in gross merchandise sales by the next financial year. It aims to be profitable in the following year. In fiscal 2013, Jasper Infotech, the parent company that owns and operates Snapdeal, posted losses worth Rs 120.1 crores, much bigger than the Rs 81.2 crores loss in fiscal 2012, revealed the company's financials filed at the Registrar of Companies. However, the focus on turning profitable is supported at a time when the company is planning to list its shares in the United States over the next 12 to 24 months.

On the other hand, fashion retailer Myntra’s target is to be profitable by the end of 2014. The company aims to clock in a turnover of Rs 800 crores in fiscal 2014. It has decided against selling fast-moving, low-value apparels that would have boosted sales but brought in lower margins. In fiscal 2013, the company had sales worth Rs 212.4 crores at a loss of Rs 134.7 crores, according to the Ministry of Corporate Affairs' (MCA) website.

As per industry experts, the main reason for this focus on profits is to attract investments to scale up operations. Since 2011, equity investors have put in almost 1.2 billion dollars (over Rs 7,450 crores) into online product retail, says a Venture Intelligence study. But, 2013, did not witness too many investments. More than half of the over 600 million dollars (over Rs 3,700 crores) raised by e-commerce companies went to market leader Flipkart.

Flipkart India, the wholesale cash and carry entity of online retail firm, reported a loss of Rs 281.7 crores before extraordinary items and tax in fiscal 2013, reveal documents filed with the MCA, compared with a Rs 109.9 crores loss in fiscal 2012.

Maturing e-commerce sector

With players understanding the online retail business, the Indian e-commerce market is gradually showing signs of maturity and healthy competition. While players earlier took six to seven years to break even with investors looking at a more reasonable time frame, are now making efforts to reach that goal faster.

Globally, Amazon, the world's largest online retailer, founded in 1994, has never seen profitability since inception while, China's Alibaba, the world's largest online marketplace that does not own any products sold on its flagship websites, Taobao and Tmall have been profitable.

With market leaders clearly emerging and research reports gung ho about the prospects of e-commerce segment in India, there is no doubt that online players have realized the need to adopt measures that would satisfy consumer demand and also keep cash registers ringing. And with DIPP releasing a discussion paper on the prospects of FDI in Indian ecommerce, the industry is now looking forward to thrive with fresh hopes.