Morgan Stanley cuts down Flipkart value to $11 billion

BENGALURU: Indian e-commerce posterboy Flipkart's value has dropped 27% after the Wall Street powerhouse Morgan Stanley marked down its investment in the eight year-old company. This comes amidst nervousness about steep valuations of several celebrated startups following a global markets rout.

Flipkart, which has a 45% share of Indian e-commerce market, is now worth a little over $11 billion down from $15.2 billion.

A mutual fund managed by Morgan Stanley, which invested in Bangalore-headqurtered Flipkart nearly three years ago, said it valued Flipkart at $103.97 per share in December last year compared to $142.24 in June last calendar. The latest valuation is lesser than $117.96 per share in December 2014, according to Moray Stanley's regulatory filings in the US, which was first reported by The Information.

The mark down by Morgan Stanley, one of the most bullish investors on Flipkart and the broader Indian consumer internet story, may dampen Flipkart's ongoing fund raising plans. The latest development could prompt Flipkart to consider a down round (when the company's share is valued lower than what was ascribed by earlier investors) unless it already has enough cash in the bank to fend off an increasingly aggressive Amazon.

Flipkart has so far raised $3.4 billion and its top investors include Tiger Global, Naspers, GIC of Singapore, Qatar Investment Authority and Yuri Milner's DST.

These marquee investors won't readily allow a new investor to come at cheaper valuation even though speculation about a down round at Flipkart has been intense in recent months. Such a development is likely to snap Flipkart's momentum and also spell trouble for the country's wider startup ecosystem.

Morgan Stanley, which owns around 1.5% stake in Flipkart, has marked down shares in other tech companies such as Palantir, Dropbox and Airbnb. In fact, several top fund houses including Fidelity Investments and T Rowe Price have been correcting valuation of their investments in tech companies which have stayed private longer than earlier generation startups.

Flipkart has been in similar situation before, when funding for tech startups dried up in 2011-12. It was then bailed out by existing investors Tiger Global and Accel Partners.

Meanwhile, the company has also been witnessing top level management changes in 2016. On January 11, Sachin Bansal moved to the role of executive chairman and Flipkart co -founder Binny Bansal was elevated to the role of CEO — a move which surprised many. A few weeks later, Mukesh Bansal, head of the e-tailer’s commerce and advertising business, decided to resign from the company.

Home grown e-commerce players such as Flipkart and Snapdeal witnessed heavy rounds of capital infusion starting 2014 till mid last year as the scale of their business grew exponentially. The scenario changed in the last six to eight months with investors starting to question soaring valuations and putting stress on the companies to improve unit economics. Recently, online marketplace Snapdeal has closed a $200 million financing round, majority of which is in the form a secondary transaction, pushing up the e-commerce firm's valuation to $6.5 billion from $4.8 billion in August last year.