Paytm Mall in talks to acquire majority stake in BigBasket for $200 million

Sunny Sen July 10, 2017

In a development with wider ramifications for Indian ecommerce, Paytm Mall has started talks to invest $200 million for a substantial stake in BigBasket, India’s biggest e-grocer.

Three sources with knowledge of the negotiations have confirmed this to FactorDaily.

Paytm Mall has started due diligence of the accounts and operations of BigBasket, owned by SuperMarket Grocery Supplies Pvt Ltd. “(Even) before the due diligence, Paytm (Mall) has offered $200 million to own a majority stake in BigBasket… The final agreement will be made only after due diligence process gets over,” said one source, who like the other two sources, wanted to remain anonymous.

Paytm Mall, a subsidiary of India’s largest digital wallet company Paytm, is a marketplace that competes with ecommerce market leaders Amazon and Flipkart. (Paytm’s other businesses are Paytm Payments Bank that also handles wallet services and Paytm, which offers loans, sells gold and other digital services including movie tickets, recharges, bill payments, among others.)

“(Even) before the due diligence, Paytm (Mall) has offered $200 million to own a majority stake in BigBasket… The final agreement will be made only after due diligence process gets over” — a source with knowledge of the negotiations  

Calls to cofounder Vipul Parekh and promoter K Ganesh of BigBasket for comment were not answered. Paytm denied any investment talks.

A second source said that a deal for a significant stake in BigBasket could be the first step before a strategic buyout by Paytm Mall. “BigBasket is the largest e-grocer, and was valued at $450 million in March 2016,” the source said. “This can, however, be a precursor to an acquisition.”

The third source said: “Paytm Mall is taking Amazon’s plans head on finally.”

The news of Paytm-BigBasket talks comes at a time when it is increasingly clear that the Indian ecommerce war will be fought between Amazon and Alibaba, the Chinese new economy giant. While Amazon has committed $5 billion to build its India operations, Alibaba (through Paytm) is on a different tangent. It is consolidating India’s ecommerce players. Flipkart has already acquired Myntra and Jabong. It is in final stages of discussion to acquire Snapdeal (which counts SoftBank of Japan and Alibaba as investors).

Also read: SoftBank holds back Paytm-FreeCharge merger until Flipkart, Snapdeal agree to deal

Paytm, which has Alibaba as its main investor, recently raised $1.4 billion from SoftBank. FactorDaily had written earlier that Flipkart will eventually be acquired by Alibaba and merged into Paytm — a scenario that gets likelier every passing week.

Grocery, the new battleground

Grocery is a big attraction for ecommerce companies. Food and grocery put together is a Rs 23.03 trillion industry, and only 0.5% of that is online. By 2020, it is expected to almost double to Rs 54.20 trillion, and 2% of which will be online.

Partial or full acquisition, Paytm Mall will be directly competing with Amazon, which is flexing its muscles in the grocery space. Amazon has already applied to the government to allow it to store fresh fruits and vegetables to start inventory-led AmazonFresh in India.

Reports suggested that Amazon was earlier in talks with BigBasket, as the American ecommerce giant eyes the Indian online grocery market, and had signed a 60-day exclusivity agreement.

It is not clear that Amazon has withdrawn its interest in BigBasket or whether it is still in the fray for a big bang e-grocer acquisition.

Partial or full acquisition, Paytm Mall will be directly competing with Amazon, which is flexing its muscles in the grocery space  

BigBasket is said to be seeking a valuation of $1 billion, which would give it a unicorn status. (That would make BigBasket the tenth startup to cross a billion in value, after Flipkart, Snapdeal, Ola, Paytm, Zomato, MuSigma, Quikr, ShopClues and InMobi.) If BigBasket is able to get a valuation of $800 million to $1 billion, Paytm will own 20% to 25% of the company.

BigBasket has already raised over $290 million in eight rounds of funding, and counts Bessemer Ventures, Dubai’s Abraaj Group, Trifecta Capital, among others as investors. Its closest standalone competitor, Grofers has raised $165.5 million.

Also read: Patanjali to drive hard into ecommerce, in talks with Amazon, Flipkart, BigBasket

One expert said BigBasket is the most established e-grocer with scale and presence in 25 cities. “If Paytm has to compete with Amazon, it will need scale,” said an executive of a competing e-grocer. “Moreover, the promoters of BigBasket are known to build and sell off businesses, and the money that Paytm is investing is to test the water for a larger acquisition.”

BigBasket is backed by Ganesh, who sold Tutor Vista to Pearsons in 2011, and started Growth Story that incubates, mentors, funds and builds startups. Ganesh has also launched online jewellery store Bluestone and Portea Medical.

The third wave in e-grocery

Paytm Mall is targeting two-hour delivery with grocery. BigBasket already has this feature, which comes at an additional cost. “Grocery is one end of the spectrum — very frequent buy, and of low value… The other end of the spectrum is electronics, which is high value and low frequency,” Amit Sinha, chief operating officer of Paytm Mall, had said in a separate conversation with FactorDaily.

Amazon runs its Amazon Now service in a few Indian cities that, too, has an option of delivery within two hours.

Rahul Hari, founder and CEO of Gurgaon-based e-grocery firm Satvacart called the latest development the “third wave” in online grocery and “it is here to stay”.

Also read: Meet Paytm Payments Bank CEO Renu Satti. Renu who?!

The first wave was in 2011, Hari said. ZopNow, BigBasket, Local Banya, AtYourDoorStep and EkStop (acquired by Godrej Nature’s Basket) opened shop — all with an inventory-led model. In 2014, PepperTap and Grofers came in with a marketplace model. That, too, worked initially.

“Then there was rapid expansion, and that is a recipe of failure” said Hari. LocalBanya, AtYourDoorStep and PepperTap have shut down. Grofers stopped operations in nine cities. ZopNow pivoted into a managed marketplace for large grocery chains.

“The third wave is when the big boys comes and survive,” said Hari.

At one end there is Amazon. At the other end there is Paytm (backed by Alibaba and SoftBank). Flipkart, too, has started grocery.

Updated at 11.10pm on July 10, 2017, to add a links to related stories.