May 21 (Bloomberg) -- Flipkart, India’s largest online retailer, will buy competitor Myntra.com, according to people with knowledge of the talks, to gain a business with higher margins and boost competitiveness against Amazon.com Inc.
The deal values Myntra, the country’s biggest online apparel store, at about $330 million and its shareholders will get a combination of cash payouts and stakes in Flipkart, according to one of the people who asked not to be named because the information is private. An announcement is expected as early as this week, another person said.
Acquiring Myntra will give Flipkart, founded in 2007 by former Amazon employees Sachin Bansal and Binny Bansal, a larger share of the nation’s online retail market, which CLSA Asia-Pacific Markets projects will jump more than sevenfold to $22 billion by 2018. The combination would add customers and help challenge Amazon, which has expanded by buying several rivals, including the $1.2 billion deal for online shoe retailer Zappos.com in 2009.
“If Flipkart has to compete with giants like Amazon, it has to do deals like this to grow its market-share,” said Ruchi Sally, head of retail advisory at consultant Elargir Solutions Pvt. in Mumbai. “Consolidation in this industry is inevitable. Small players will not be able to compete with the giants.”
Flipkart doesn’t comment on “market speculation,” the company said in an e-mailed statement. Myntra Chief Operating Officer Ganesh Subramanian didn’t reply to three calls to his office and an e-mail seeking comment. The company plans a press conference tomorrow to make a “strategic announcement,” spokesman Brian Ammanna said by phone.
Myntra, which started in 2007, stocks products from more than 600 brands, according to an e-mailed statement. It has a 41 percent share of India’s 17.1 billion rupee ($291 million) online apparel and footwear retailing market, according to researcher Euromonitor Plc. Flipkart, which entered the apparel segment in 2012, has a 12 percent share.
“I think it is very good for Flipkart if this were to actually happen because Myntra is a pretty solid fashion vertical,” said Niren Shah, managing director at private equity firm Norwest Venture Partners’ Indian unit.“It’s a bit like Amazon buying Zappos.”
Accel Partners, based in Palo Alto, and Tiger Global Management LLC, the $14 billion investment firm run by Chase Coleman, were early investors in both Myntra and Flipkart. The apparel retailer’s other investors include a fund controlled by Indian software billionaire Azim Premji, Kalaari Capital and IDG Ventures India.
The Times of India newspaper reported in January that the two online retailers were in talks for a merger.
Flipkart began as a seller of books and music CDs and offers products including smartphones, cameras, home furnishings and jewelry. Apparel and footwear are now its fastest-growing areas, according to the online retailer.
Both companies have a “highly fine-tuned” delivery and supply chain system, and the transaction will make it difficult for smaller rivals to keep getting funding to stay in business, Dhvani Bavishi, a retail analyst at brokerage ICICI Direct, said in a phone interview in Mumbai.
Online retailing in India “is an extremely crowded market now,” Bavishi said. “Not everybody can survive, and consolidation will happen.”
Myntra Designs, which runs the Myntra.com portal, reported a loss of 1.35 billion rupees on total sales of 2.12 billion rupees last year, according to company filings.
Flipkart operates its business through a Singapore-based holding entity, and it uses more than five companies based in India to run the website, handle delivery logistics, and carry out wholesale trading, according to company filings in Singapore and India.
The deal comes as rival Snapdeal.com raised $100 million in funding from investors including BlackRock Inc. and Singapore’s Temasek Holdings Pte., according to an e-mailed statement today. EBay owns a stake in Snapdeal since 2013 and was a part of consortium that invested $133 million in February.
India bars foreign direct investment in e-commerce. Amazon and eBay Inc. operate online platforms, allowing local traders to sell their products to consumers. Amazon, based in Seattle, opened its India marketplace portal in 2012 and has since invested in warehouses, logistics networks and tie-ups with local shopkeepers.
(An earlier version of this story was corrected to fix a citation to a newspaper report.)
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