The Snapdeal board, which snubbed Flipkart's acquisition offer and plans to revive the company are unlikely to make much headway in the future. Experts feel that Snapdeal founder Kunal Bahl and Rohit Bansal's aim to make the company more leaner and productive after getting rid of 80 per cent of its employees will only hit a roadblock in the future. The cash burning rate of the company is very high and eventually the valuation of the company will go further down.
“Companies such as Snapdeal were burning huge amounts of cash which are required to offer huge discounts to attract more customers. Many such companies were getting free VC money and so were able to burn huge cash. However,with more free money, productivity takes for a toss. Snapdeal was initially offering huge salaries to its employees and were hiring people from IITs and IIMs but all of a sudden when the VC money started declining, trouble started showing. They laid off many of its employees as the profits were not showing and the company was burning huge amounts of cash for advertising purposes. I do not see the fortunes of Snapdeal reviving in the future and in no way the company will revive and will eventually fade away,” Amit Chandra, IT analyst at Mumbai based HDFC Securities told THE WEEK.
Experts such as Alok Shende of Mumbai based Ascentius Consulting feel that despite Snapdeal selling FreeCharge to Axis Bank for a sum of around Rs 385 crore the revival plans will fail. “The company will soon burn out this cash as there is pressure to offer huge cash discounts. They have received billions of dollars from investors and compared to that the money which they have received from Axis Bank is a very small amount and will not help sustain the company, say even for a few months. This business requires huge amounts of cash to be burnt to offer discounts and advertise big time. This revival plan will fail in the long run,” Shende told THE WEEK.
Experts say that all the big e-commerce companies such as Amazon and Flipkart are bleeding in the Indian market and have reported huge losses here. However, they still have huge cash to burn, foremost amongst them being Amazon which is pumping huge sums of money in the Indian market. “Snapdeal is a distant third from the big two and they do not have the kind of cash to burn which Amazon and Flipkart have.” added Shende.
Experts such as Kris Lakshmikanth, the founder of the recruiting firm Head Hunters India Limited, feel that both the founders of Snapdeal do not want to let go of their control of the company. “The founders have just received money from Axis Bank after selling FreeCharge. However, how long will this money last as they would require huge funds to run the company in the long run? When companies like e-bay did not succeed in the Indian market, I do not see Snapdeal reviving itself,” said Lakshmikanth.
