Sources: India’s Flipkart in talks to raise up to $1B, likely in a down round

After years of raising hundreds of millions of dollars to tap into the burgeoning e-commerce market in India, one of the country’s biggest tech companies is facing a markdown in its valuation as it aims to pick up yet more investment. TechCrunch has learned from sources that Flipkart is looking to raise up to $1 billion in funding to grow its business and shore up against competition from local rival Snapdeal and global giant Amazon.

But those efforts are coming at a price. Reportedly valued at over $15 billion when it raised $700 million last year, Flipkart is now facing a down round, with some investors willing to put more money into the company, but at a valuation below $15 billion.

“The funding is now delayed and should take another 3-4 months. A down round is certain,” said a source.

According to our sources, one potential investor is Chinese e-commerce giant Alibaba. The company — already a backer of rival Snapdeal — reportedly met with Flipkart management in Hong Kong to discuss investing at less than $10 billion. Other sources say a round would not be this low, and more likely in the range of $11 billion to $14 billion. Alibaba’s alleged interest in Flipkart has been reported previously.

Another investor that has been eyeing up a stake in Flipkart is the Fosun Group, sometimes referred to as the Berkshire Hathaway of China. It’s not clear what valuation Fosun has discussed with Flipkart.

Neither company responded to requests for comment in connection with this story, and Flipkart declined to comment.

Coincidentally, Alibaba this week finalized a $3 billion loan, which could point to the company making more investments or acquisitions in the near future.

Flipkart says it has 46 million users and lists some 30 million products on its platform, making it one of the biggest e-commerce companies in India. Its other claim to fame is that it was the first e-commerce startup in India to reach a $1 billion valuation, as recently as 2014 — a marker of how rapidly investors’ estimation of the company has ratcheted up.

But there are also challenges. One issue for Flipkart — which has raised over $3 billion to date — has been that some existing investors have revised their valuations of the e-commerce giant. In February, it emerged that Morgan Stanley marked down its stake in the company, valuing it at $58.9 million. This was 27 percent below the price of its last valuation, giving the whole of Flipkart an implied valuation of $11 billion.

The company has also been through a management shakeup. One of the most significant changes is that in January of this year, Flipkart changed CEOs, with co-founder Sachin Bansal stepping down and Binny Bansal, the other co-founder (the two are not related), taking over. Sachin is the company’s executive chairman.

Another issue may be that the company is finding it a challenge to meet internal targets. A report in Indian financial publication Mint noted that the company had set a goal back in 2014 for annualized gross merchandise value (the total value of goods sold on its platform) of $8 billion, but current annualized GMV figures are at around $5 billion.

On top of this are the margins that e-commerce companies in India are playing with. The competition in the market has led to a costly price war between Flipkart and its rivals, for example around key holiday periods like Diwali.

Armed for more marketing and growth, Snapdeal has raised less money than its local rival — around $1.5 billion to date. But Flipkart is also staring at another huge competitor from the global arena.

Much has been written about how Amazon is intent on conquering India, which it believes longer term could be its second most-important market after the U.S. according to this Fortune profile of Amazon’s India operation.

Amazon has been building up not just its brand in the country but its infrastructure. As part of this it acquired an online payments company and is reportedly working on a digital wallet initiative. This is, incidentally, another area where Amazon is facing local players. Paytm is also in the process of fundraising right now, and some have even suggested that Paytm and Flipkart merge to stand taller.

There is an undeniable amount of potential in India, a market approaching 1.3 billion people where eMarketer projects e-commerce will be worth $55 billion by 2018, up from $14 billion in 2015. But with investor appetite cooling a little on overheated valuations, the pressure is on for highly capitalised businesses to tighten up their operations for the next phase of growth. That’s a trend impacting others beyond e-commerce marketplaces, too. Ola shuttered its food delivery operations this week; and Zomato also downsized last autumn.

Pankaj Mishra is editor-in-chief and cofounder of FactorDaily, a new media startup.