Online retailer Paytm Mall has held talks with e-grocer Grofers for a potential investment, multiple people in the know told ET, adding that the ongoing discussions may even lead to a merger.
Japanese conglomerate SoftBank, a common investor in Paytm Mall and Grofers, initiated the deal talks, sources said.
“SoftBank does not have any fresh capital, so it is looking to push consolidation and an investment or a merger between Grofers and Paytm Mall is something that will work…,” said a person aware of the development.
Paytm Mall, which has about $170 million of cash on hand, is well poised to back a company in the grocery retailing space, which has emerged as a bright spot for the ecommerce industry during the Covid-19 outbreak induced nationwide lockdown.
For SoftBank, the push to bring the companies together is largely aimed at helping Grofers access that cash to deepen its runway, a person in the know said.
To be sure, the talks may fall apart as there is disagreement between both the companies on deal terms, sources in the know said.
SoftBank Vision Fund (SVF) is an investor in Grofers, while SoftBank Group (SBG) is on Paytm Mall’s cap table.
SBG owns about 20% in Paytm Mall, while Alibaba holds close to 35% stake, with SAIF Partners, eBay and Paytm’s founder and CEO Vijay Shekhar Sharma being the other shareholders.
SVF’s stake in Grofers is more than 40% and is its largest shareholder.
Separately, Paytm Mall has also held discussions to invest in or acquire milk delivery startup MilkBasket, as it explores multiple other options in the online grocery segment, the sources said.
MilkBasket counts Kalaari Capital, Mayfield, Beenext and Unilever Ventures, among others, as investors.
When contacted, SoftBank declined to comment, while a spokesperson for Paytm Mall denied the merger talks.
Grofers said in an email, “We are not aware of any investments by Paytm Mall. We are an independent business and do not comment on speculation.”
MilkBasket did not respond to ET’s queries till press time on Thursday.
The entry of Reliance JioMart, which went live across almost 200 cities in the online grocery market, has also led to investors in other vertical players looking to consolidate against the oil-to-retail behemoth.
Mergers and acquisitions are likely to rise in India’s startup world over the next 3-6 months, as companies and investors gear up for a year starved of capital and revenue due to the Covid-19 pandemic, ET has been reporting across multiple stories.
ET reported on May 4 that the Gurugram-based Grofers was in the market to rack up $60-$70 million in new funding even as it projected Ebdita-level profitability in May on the back of a demand surge for grocery and essentials due to the lockdown.
The online retailer had also engaged with food-delivery app Zomato for a possible sale, as reported by ET on April 14. The talks were centered around Zomato acquiring Grofers in an all-stock deal which source said is off the table for now.
Paytm’s Mall grocery business
Paytm Mall already lists Future Group’s Big Bazaar stores and online grocery firm BigBasket’s inventory on its platform. It also operates an online to offline (O2O) corner store model for grocery retail. Grocery accounts for 40% of sales for Paytm Mall, said a person in the know.
“The grocery business has grown during the lockdown period but given the complexity of the category itself, a specialized player would be the ideal way to scale the vertical,” said a source in Paytm Mall requesting anonymity.
Paytm Mall also sells mobiles, electronics, fashion, home and kitchen products on its platform. Most of its traffic is, however, directed from Paytm.
Paytm Mall also sells mobiles, electronics, fashion, home and kitchen products on its platform. Most of its traffic is, however, directed from Paytm and almost 100% of its revenue comes from the digital payments platform.
Paytm Mall, which has been burning a bunch of cash historically, reduced its quarterly losses to $2 million from $17 million in 2019, said a company executive.
Despite being in a not-so-great position, in July last year, the company said eBay had picked up a 5.5% stake in Paytm Mall for $160 million – its third bet on India’s e-commerce market after backing Snapdeal in 2014 and Flipkart in 2017. Before eBay, Paytm Mall had raised Rs 1,510 crore in 2018, led by SoftBank and Alibaba.
In January last year, Paytm Mall shut its national e-commerce shipping business and moved away from discounting and cashback-led business. For the financial year 2018, Paytm posted a loss of Rs 1,787.55 crore on total revenue of Rs 774.86 crore.
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