Decoding Flipkart's international listing: Why the company wants to be on Nasdaq, not Nifty

Having raised $2 billion last year, e-commerce giant Flipkart is now reportedly readying for an international listing, and Nasdaq seems to be the preferred choice, considering it is  known for listing technology companies and the fact that investors in the US are known to chase a ‘growth story’ over the profit story. It is a known fact that Flipkart does not make profits yet and is currently chasing revenue. Do Indian retail investors really have an appetite for such a business model yet? Ace investor Rakesh Jhunjhunwala answers this question best. In an  interview with CNBC-TV18 he says"Wwhere is the completed business model? I want to know Flipkart’s business model. I want to know how you will be profitable? Second is if you look at any company in the world, the real companies who have given returns to investors had been built by the cash flows of those businesses, not by investors’ money. When are these cash flows going to come?" Even PricewaterhouseCoopers recently said that Indian e-commerce companies should establish a business model that is profitable in the short and long run for survival. ““If the companies do not become profitable, the private investors will run out of patience and unless the companies are profitable, they cannot get listed,” PwC’s director, operations, Saurabh Srivastava had said. [caption id=“attachment_2103495” align=“alignleft” width=“380”]  Flipkart founders Sachin and Binny Bansal.[/caption] A report in the Business Standard  today says Flipkart might consider Singapore, too, as listing norms in that country aren’t as strict as in many others An Indian IPO in the next 12 months would not be possible because Indian rules do not allow a non-profitable company to go public. Flipkart’s model is to maximise revenue and market share so that its investors can exit with huge returns. “For public issues of companies without a three-year ‘profitability’ record, the Securities and Exchange Board of India had, in 2012, reduced the retail investor quota from 35 per cent to 10 per cent of the issue size. The move, aimed at protecting retail investors (those investing up to Rs 2 lakh) from IPOs of loss-making companies, limited the participation of small investors in successful IPOs such as those of Just Dial and Snowman Logistics,” said a Business Standard report today. Times of India in January had reported that the e-commerce giant has amped discussions with investment banking firms like Morgan Stanley, Goldman Sachs, Citigroup and Europe’s Deutsche Bank to help them raise a minimum of $5 billion through an IPO listing in New York Stock Exchange (NYSE), which would value the firm at a whopping $30 billion. In 2014, Alibaba raised a record $25-billion through its IPO at NYSE. Sources told Firstpost that Flipkart is setting up an aggressive M&A team to scout for acquisition targets as it seeks to take on rival Amazon and Snapdeal in India.  Its biggest investors include Tiger Global, Naspers and Accel Partners and the company is growing at a frenetic pace. And data on on internet penetration backs the scale of operation. There are currently 243 million internet users in the country and, as per various studies, the e-commerce industry is growing at 38 percent annually. Analysts expect the market size, now at $15 billion, to touch $100 billion in the next five years.  While Flipkart has  already started using using mobile apps to increase its reach, it has even set aside huge funds to acquire companies that develop mobile apps. Earlier this month, Flipkart acquired Bangalore-based global mobile network AdIQuity for an undisclosed amount. The ad network enables app developers and mobile publishers to earn revenue from their mobile inventory. “Flipkart has acquired AdIQuity, a leading mobile ad network company. M&A is a key focus for us this year. And given our concentration on mobile, companies that have made a mark in this space will be on our radar. AdIQuity has a history of mobile innovations, extremely valuable experience in the ad space and a talented tech team – all of which are a great strategic fit for Flipkart,” the company said in a statement. In January the company bought a stake in marketplace and auctions start-up WeHive Technologies Pvt and is looking to invest in or acquire at least 15 more start-ups this year before its public listing. “An internet company of our size cannot afford to ignore the importance of acquisitions. It’s something we are looking at very closely this year. We are open to good ideas – but our focus will be on mobile and technology start-ups that can either help us fill a market gap or add to our talent pool,” Mukesh Bansal, wHead - Commerce Platform at Flipkart, told Firstpost in an interview in February.