INTERNET: Alibaba Fixates on India With E-Payment Investment
Bottom line: Alibaba’s boosting of its stake in a leading Indian e-payments firm is part of a broader strategy that aims to replicate its China success in India through a series of acquisitions, and looks relatively well conceived.
Just a week after abruptly pulling out of a major US investment, e-commerce giant Alibaba (NYSE: BABA) is increasingly focusing on India as the first major stop on its global expansion, with word that it’s in talks for a major new investment in a local e-payments firm. The new investment in Paytm, which would be worth about $600 million, is just the latest in a growing string of similar Indian acquisitions for Alibaba as it tries to replicate its success in China in overseas markets.
From a strategic perspective, India looks like a smart bet for Alibaba. The Indian market shares many characteristics with China, including the lack of a mature western-style retail industry from the pre-Internet era. As a result, a far bigger percentage of people in these markets are more likely to shop online. What’s more, the Indian retail market is relatively less competitive than western markets, and is experiencing rapid growth.
Alibaba certainly isn’t the first Chinese tech company to discover India. That distinction goes to the telecoms equipment duo of ZTE (HKEx: 763; Shenzhen: 000063) and Huawei, which are helping to build out the country’s networking infrastructure and have been in the market for a decade. Chinese smartphone makers have also recently discovered India, with start-up Xiaomi notching big sales there just a year after entering the market.
Against that backdrop, Alibaba’s latest plan to invest in Paytm looks like an extension of this ongoing trend. According to the latest reports, Alibaba is in advanced talks for a deal that would ultimately give it a 40 percent stake in Paytm. (English article; Chinese article) This particular deal is actually an extension of another one early this year, which reportedly saw Alibaba and its financial services affiliate Ant Financial pay $550 million for a stake in Paytm’s parent One97 Communications. (previous post)
String of Mega-Investments
The latest reports say this new investment would value the Indian firm at about $3.7 billion, meaning Alibaba will have pumped more than $1 billion into the company. This latest series of investments would follow another related development earlier this month, which saw Alibaba and Taiwanese partner Foxconn (HKEx: 2038) reportedly close to a deal to invest $500 million in Indian e-commerce company Snapdeal. (previous post)
Last but not least, Alibaba has been in and out of the news for the last few months with headlines saying it is in talks to buy a major stake in Micromax, one of India’s leading smartphone makers. The latest of those reports, which came out just last week, said Alibaba was on the cusp of a deal to pay about $700 million for a quarter of the Indian smartphone manufacturer. (English article; Chinese article)
Some quick math will show that these 3 investments alone are worth $2-$3 billion, showing Alibaba is quite serious about India. The rapid drive into the market contrasts with Alibaba’s announcement last week that it was selling its year-old US e-commerce site 11 Main to a local partner, after the venture failed to gain much traction. (previous post)
I’m not usually a big fan of Alibaba’s M&A strategy, as I think it often looks quite scattered across a wide range of industries in different markets, thereby lacking focus and potential for synergies. But in this case its India strategy looks quite smart, targeting major assets in the e-commerce, electronic payments and smartphone space.
These 3 pieces are all quite complementary, and could ultimately be assembled to create a formidable player in India similar to the empire that Alibaba has built in China. We’ll have to see if Alibaba ultimately closes all of these deals and whether it can leverage its minority stakes to get the various companies to work together. If it can do that, which could be tricky, it could well parlay its success in China to the fast-growing Indian market.
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