The sector could witness mergers or acquisitions between firms with same investors, while niche and specialty players could be acquired by larger firms.
NEW DELHI: Entry of e-commerce giant Amazon in the Indian market in June last year has not only spurred heightened competition, but has also increased the pace of consolidation in the USD 2.3 billion e-tailing market, a report said.
According to report by consulting firm Technopak, the sector could witness mergers or acquisitions between firms with same investors, while niche and specialty players could be acquired by larger firms.
The report says that Amazon's entry in the e-commerce market is a development worth noting.
"The global leader is expected to vie for the top slot in India as well, which has triggered an increased urgency and competitiveness within the sector.
"As a result, there has been a significant increase in the investments that are being injected as well as the speed of consolidation," it said in a report.
According the report by the firm, although Indian online retail (e-tailing) market is still a small contributor to retail, accounting for only 0.4 per cent of the overall market, it is on a rapid growth trajectory.
The USD 2.3 billion e-tailing market in 2014 is expected to reach 3 per cent of Indian retail (USD 32 billion by 2020).
"Going forward, the consolidation process will continue. Players sharing common investors will increasingly look at mergers/acquisitions, while niche and specialty players possessing unique positioning, assets or capabilities will attract acquisition by the bigger players," Technopak said.
In May this year, marking the biggest consolidation in the e-commerce space in India, homegrown e-retailer Flipkart acquired online fashion retailer Myntra in an estimated Rs 2,000 crore deal.
Technopak said that investors have reaffirmed their faith in this sector by continuing to invest large amount of capital as a result of which an entirely new sector has emerged.
"Indian e-commerce (of which e-tailing is a part) has attracted a total funding of USD 1.6 billion across over 140 deals since 2012," the report said.
As of May 2014, the sector witnessed 20 deals worth USD 637 million compared to 60 deals worth USD 592 million in the entire 2013. In 2012 the sector saw investors pouring in USD 371 million for a total of 73 deals.
In the initial phases, investors were betting on a large number of players since all the players were small in size and the market leaders had not emerged, Technopak's report said.
However, as the market is moving towards an inflection point, leaders are emerging and, consequently, investors are getting more selective, it added.
While the number of deals in e-commerce has reduced from 73 in 2012 to 60 in 2013, the aggregate value of investment has increased substantially in the past year.
"Interestingly, no major Series A investments have been received in this period and funds have largely been drawn by mass market leaders and players leading within the specialty space," the report said.
Many smaller players struggled for sustenance due to the limited access to capital and high cost structures and were eventually forced to shut shop or get acquired, it added.
In May this year, homegrown online marketplace Snapdeal said it has raised USD 100 million (about Rs 590 crore) in a new round of funding from Temasek, BlackRock Inc, Myriad, Premji Invest and Tybourne.
During the same month, its rival Flipkart announced raising it has raised USD 210 million in a fresh round of funding, bringing the private equity firm DST Global on board as an investor.
Analysts say that such developments signify the growing thrust in the Indian e-commerce space towards consolidation with big online firms eyeing small start-ups and firms to expand their presence, reach as well as add specific categories to their portfolio.
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