Salebhai Internet Pvt. Ltd. | Finception
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Salebhani
Review & Analysis by Pawan, IIM Ahmedabad
The Era of Online Retailing Begins

The year is 1992. A team of engineers are huddled together in a small office staring at a computer screen with rapt attention. Their first customer is about to make a purchase and there is nervous excitement in the room. A few days earlier Charles Stack, owner of Book Stacks Unlimited (Books.com) had posted ads about his online bookstore in magazines; explaining how users could dial a phone number that would let them log in to a bookstore and purchase books using a computer. This was at a time when internet was at its infancy and people still used a complicated device called the BBS (Bulletin Board Systems) to connect online. Charles and his team work tirelessly for an year programming this device for ease of use in the hope that once they go live, users will start pouring in.

However, when they do go live, nothing happens. Nobody calls. There is no traffic for the longest time. They wait and wait until finally, after a full week, their modem lights up for the first time. The company’s first customer has logged in. The user starts typing slowly and every time he completes a sentence, a loud cheer goes off in the building, but it’s taking too long. Minutes drag on; the staff still waiting for the visitor to make a purchase; Charles does not want to interfere, but a mix of excitement and frustration gets the better of him. He breaks in on the visitor’s session and tells him that he is their first customer. He wants to ask the user what’s taking him so long, but decides against it. Instead, he takes a moment and types, “Why do you like this service?” There is an abrupt pause and then after a moment, words start appearing on the screen.

A…s… … a… … b…l…i…n…d… … p…e…r…s…o…n…, the response begins and euphoria suddenly gives way to silence.

A few minutes later, the first transaction is complete and Charles Stack begins to realize what this service meant to his first customer. This one simple transaction was forever going to change the world. Charles Stack and his little company had become the world’s first online retailer.

Salebhai files for an IPO in 2018

Salebhai.com does not sell books. But they are an online retailer nonetheless and they enable people living away from home to order a range of specialties directly from their hometowns. Its a one-stop solution for those who want to discover regional products from across India; Salebhai serves you Petha from Agra, Chikki from Lonavala to Mahashivratri Prasad from Kashi Vishwanath … the possibilities are endless, or, at least so the company claims. It’s a young company that was incorporated in 2015 as a true marketplace.

Business Operations (The Marketplace Model)

1. They connect buyers to sellers

2. The sellers then ship the products to the buyer

3. Salebhai takes a commission on the sale

Is there a Growth Story here?

Salebhai tells us that with the current categories that they serve, the market size is estimated at 35,000 crores in the 8 cities they operate in. To this end, they sell about 8,500 products sourced from over 100 cities and 350 select vendors and now they want to take the company public. The only problem is, like most startups, they are losing money. As of January FY 2018, the company made losses worth 1.6 Crores over revenues of 1.1 Crores. Yes, their top line (revenue) is growing, but only about 90 Lakh comes from their core operations (Commission and Ad Revenue).


High trade receivables?

Then there is the matter of trade receivables. With revenues of 1.1 Crore we are not quite sure how the company has receivables as high as 65 lakhs, considering it’s a business where commission is charged on Sale of Goods/Services. The DRHP does not provide any further explanation on this matter.

Also, what’s slightly disconcerting is that that most of their revenue comes from new customers. Only 22% of its users are repeat buyers. If you can’t hold on to your customers you need to keep spending more to get people to visit your website. This means, you will have to continue spending on marketing and discounts to keep enticing people to make more purchases.

But Times Group (Bennett Coleman) has invested in the company?

Yes. Brand Capital, the investment arm of Times Group did invest about 6.5 Cr in Salebhai on January 15th, 2018. SaleBhai in turn has already advanced about 5 Cr. of these new funds as short term loans and advance. Bennett Coleman currently owns about 11% of the company and it paid on an average Rs. 95 per share.

So should you invest?

At a fixed price of Rs. 105 per share, the company wants to raise a whopping Rs. 23.73 crores from the public by diluting 26% of its stake. It wants to spend that money on tech, marketing and other corporate expenses. Out of the total amount the company wants to spend, about 12 Crores will go into Marketing and Tech. However we couldn’t find how much they’ve spent on marketing and tech in the past. In the last 2 years, 3.3 Crores, a significant chunk i.e. 60% of their total expense has been clubbed under the header “Other expense”; for which no further breakup is provided. So this is a big jump for the company in terms of spending.

But the promoters of Salebhai are confident and claim that they are the first movers in this space and so, a growth story is definitely in the realm of possibility and this brings us back to the story of books.com. Books.com were first movers as well but once Amazon entered the party, there was little scope for Books.com to survive and eventually, the first online retailer was acquired by Barnes & Noble.

Does that mean they are a possible acquisition target?
No, we don’t think Salebhai is an acquisition target for Amazon or a Flipkart because we don’t quite know what Salebhai brings to the table. As long as they continue to operate in their little niche space of selling chikki and petha, we don’t think an Amazon would be interested. However if Salebhai can prove to the world, through their financials that this is in fact a 35,000 crore market as they claim, the big boys (Amazon and Flipkart) will come and when they come, we are not quite sure how Salebhai will respond.
Conclusion
Salebhai lists Infibeam as its peer. Although not strictly comparable,, because Infibeam sells many products on its platforms and is not restricted to selling handicrafts and sweets, they too have realized that instead of spending millions competing with the likes of Amazon.com Inc. and Flipkart, it’s better to focus on its software business. Infibeam has since become profitable and we hope Salebhai does too, although we are not quite sure how they’ll manage to do it.
We wish Salebhai the best of luck in its future endeavor.

DISCLAIMER
No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments.

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