Also in this letter:
Dream11clocks Rs 180-crore profit in FY20
- Mobikwik reserves 7% of equity for employee stock options
Flipkartto hold flagship sale from October 7 to 12
Two ministries, NITI Aayog object to parts of proposed ecommerce rules
India’s plan to tighten its rules for e-commerce companies has run into internal government dissent, Reuters reported, based on memos it reviewed.
Catch up quick: In June, the consumer affairs ministry announced a number of proposed changes to the ecommerce rules, including banning ‘flash sales’, reigning in private-label brands, and increasing scrutiny of relationships between online marketplace operators and their vendors. It is yet not clear when the ministry plans to implement the new rules.
Details: The finance ministry has a dozen objections in total and has described some proposals as “excessive” and “without economic rationale”. An August 31 memo from the ministry’s department of economic affairs said the rules would hit a sector that could boost job creation as well as tax revenue. It also said a proposal that makes ecommerce firms liable for their sellers’ mistakes would be a “huge dampener” and could force companies “to revisit their basic business models”.
On July 6, NITI Aayog vice chairman Rajiv Kumar wrote to consumer affairs minister Piyush Goyal, saying the rules could hurt small businesses. “Moreover, they send the message of unpredictability and inconsistency in our policy-making,” he added.
On July 22, the corporate affairs ministry objected to a clause in the proposed rules that says ecommerce firms should not abuse their dominant position in India. It termed the provision “unnecessary and superfluous”, and said this was best handled by the Competition Commission of India.
Policy rethink? It’s not clear how these objections will ultimately reflect in the proposed changes to the ecommerce rules, which were announced in June, the report said, adding, “but watchers of the influential government arm say its complaints won’t fall on deaf ears in the upper echelons of Prime Minister Narendra Modi’s administration”.
“The ministry of finance raising such concerns would likely spur a rethink of the policy,” said Suhaan Mukerji, managing partner at PLR Chambers, a law firm that specialises in public policy issues.
Response: A spokesman for the consumer affairs ministry told Reuters in a statement that “internal discussions among various stakeholders including government agencies is (a) sign of mature and healthy decision-making process in a democracy”.
Big picture: The arguments laid out by the finance ministry and NITI Aayog are in line with concerns raised by ecommerce companies, and even the US government, which said that India has changed its ecommerce policies too often in recent years and taken a hardline approach that especially hurts US companies.
In July, less than a month after the new draft rules were announced, Flipkart, Amazon India, Tata Group and other ecommerce companies told the government they were especially concerned about the “related-party clause”, which could prevent them from selling on their own platforms. In August, we reported that the consumer affairs ministry was revisiting the draft rules, specifically the definitions of ‘related party’ and ‘ecommerce entity’. Now, objections from within the government look set to delay them further.
GST clarification: Meanwhile, the IT-BPO industry said a clarification issued by the GST Council on the intermediary status of companies on Monday will ease litigation and release significant refunds of the industry that were held up owing to confusion over whether exports were an intermediary service. Industry body Nasscom also welcomed the clarification on the GST export status of subsidiary group companies.
On Monday, the government clarified that services outsourced to India or carried out in the country for foreign entities would not be treated as intermediary services, and hence wouldn’t face 18% GST.
Dream11 clocks 2.5x revenue, Rs 180-crore profit in FY20
Dream11 cofounder and chief executive Harsh Jain
Online fantasy gaming platform Dream11 recorded a profit of Rs 180 crore in FY20, making it one of the few Indian consumer-tech unicorns to have turned profitable. The company had recorded a loss of Rs 87 crore in the previous fiscal.
- Omni-channel beauty and personal care retailer Nykaa is the only other major consumer-focused startup that has recorded a profit—close to Rs 62 crore in FY21.
The numbers: Dream11 also saw its revenue increase by over 2.5 times to Rs 2,070.4 crore in FY20 from Rs 775.5 crore in FY19, according to the latest regulatory documents sourced from business intelligence platform Tofler. It attributed the revenue growth to “innovative marketing strategies” and “exciting new products”.
Its expenses increased to Rs 1,867 crore in FY20 from Rs 934 crore the previous year. The company spent Rs 1,328.02 crore—71% of its total expenses—on advertising and promotions, compared to Rs 785 crore in the previous fiscal. Its spending on employee benefits rose by 133.6% to Rs 153.21 crore during FY20.
Trouble in Karnataka: Cofounded by Jain and Bhavit Sheth in 2008, Dream11 had over 9 crore active users who play fantasy cricket, football, kabaddi, hockey, according to the filing. While the Supreme Court said that Dream11’s fantasy sports format was a ‘game of skill’ in July, last week the Karnataka government tabled a bill that would ban such games as part of ‘online gambling’. The bill, however, made exceptions for lotteries and betting on horse races.
Valuation: Dream Sports closed a $400-million secondary funding round earlier this year that valued it at around $5 billion. Another secondary round is underway at a significant valuation jump, according to industry sources. In a secondary transaction, existing investors sell their shares to new ones and the money doesn’t go to the company’s coffers.
To expand its non-fantasy gaming offerings, the company set up a corporate venture fund with a corpus of $250 million in August to back sports-tech startups. It is financing the entire fund from its balance sheet and has already made more than eight investments.
Tweet of the day
IPO-bound Mobikwik reserves 7% of its equity for employee stock options
Digital payment company Mobikwik said today that it has reserved 4.5 million shares or 7% of its equity for its employee stock option plans (Esop) for its impending initial public offering (IPO).
Employee stock options are a type of benefit granted by companies. They give employees the right to buy the company’s stock at a specified price for a finite period of time. Mobikwik said in a press statement that its Esop programme is meant to “attract, retain and reward deserving employees in a competitive talent market”.
The company said its last fundraise in July, in which it got $20 million from Abu Dhabi Investment Authority (ADIA) at a valuation of Rs 895.80 a share, saw a six-fold jump on average for stock options held by its employees. The round valued Mobikwik at $720 million.
Based on this valuation, Mobikwik claimed seven of its employees had stock options worth more than Rs 10 crore, 31 had more than Rs 1 crore each, and 118 employees, or one-fourth of the total, had more than Rs 10 lakh each.
IPO: The firm plans to raise Rs 1,900 crore ($255 million) in its IPO, scheduled for later this year. According to its draft IPO prospectus, Mobikwik aims to raise Rs 1,500 crore through a primary share sale. The remaining will be a secondary transaction in which existing investors will sell portions of their stakes. The 11-year old startup counts Sequoia Capital India, Bajaj Finance, American Express, Cisco and Abu Dhabi Investment Authority among its investors.
Flipkart to hold flagship sale from Oct 7 to 12
Flipkart said that it will hold its flagship sale, Big Billion Days, from October 7 to 12 this year. It said the six-day event will see a host of new launches, games, interactive videos, live streams and rewards.
The Walmart-owned e-tailer said customers who haven’t subscribed to its Plus membership will also be able to gain early access by redeeming 50 earned SuperCoins on the Flipkart app.
Flipkart said it continues to strengthen its seller base and is on track to have 4.2 lakh sellers by December 2021. It currently supports digital commerce for 3.75 lakh sellers and said it has onboarded 75,000 new sellers in just the past few months, mostly from tier 2 and 3 markets such as Agra, Indore, Jaipur, Panipat, Rajkot and Surat.
In August we reported that Amazon India and Flipkart chose a muted approach to marketing their Independence Day sales to avoid further regulatory scrutiny. The Competition Commission of India (CCI) is currently investigating allegations of deep discounting by the companies and their alleged preference for certain sellers.
Blockchain-based fantasy soccer game Sorare has raised $680 million in a funding round led by SoftBank. Football players including ex-England international Rio Ferdinand and Spain’s Gerard Pique also were among the investors, the company said.
Paris-based Sorare said the investment valued the company at $4.3 billion.
Founded in 2018, Sorare is an online game where players buy officially licensed cards representing soccer players and build teams that play against each other, with the outcome based on the players’ performance in real-life games.
The cards are traded in the form of non-fungible tokens (NFTs), a kind of crypto asset which records the ownership status of digital goods on the blockchain. The market for NFTs exploded in 2021, with collectable and sports-related tokens proving the most popular. Read our explainers on NFTs here.
Today’s ETtech Top 5 newsletter was written by Zaheer Merchant in Mumbai. Graphics and illustrations by Rahul Awasthi.