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<ul><li><keyword id="80487" type="COMPANY" weightage="20" keywordseo="walmart">Walmart</keyword> had acquired a 77% stake in <keyword id="6354742" type="COMPANY" weightage="20" keywordseo="Flipkart">Flipkart</keyword> for a whopping $16 billion in 2018.</li><li>Walmart had paid a withholding <keyword id="45031" type="PERSON" weightage="20" keywordseo="Tax">tax</keyword> of ₹7,439 crore for the 10 major shareholders of Flipkart who exited back then. </li><li>But now foreign investors have moved the Authority of Advance Rulings (AAR) to get more clarity on the taxability of the capital gains on the deal. </li></ul>Walmart bought Flipkart in May 2018. Now, 22 months later, the investors who sold their shares in Flipkart are seeking clarity on the tax deducted for the profit they made from the deal from Authority of Advance Rulings (AAR). Walmart had acquired a 77% stake in Flipkart for a whopping $16 billion in 2018, making it one of the biggest e-commerce deals in the world. The firms which had exited from Flipkart were <keyword id="163404" type="COMPANY" weightage="20" keywordseo="Softbank">SoftBank</keyword>, Nexus, Accel Partners, eBay among others. While the American retail giant paid a withholding tax of ₹7,439 crore to buy out the ten major shareholders of Flipkart, it had <a href="https://economictimes.indiatimes.com/industry/services/retail/walmart-paid-rs-7439-cr-tax-on-flipkart-deal-did-not-deduct-taxes-from-34-shareholders/articleshow/65827928.cms?from=mdr">reportedly</a> not paid taxes for the 34 other smaller investors. "The authority has taken up some of the cases this month itself and may take four to five months to get a final order on the matter," said a tax official told <a href="https://www.business-standard.com/article/companies/tax-thorns-haunt-walmart-flipkart-deal-foreign-shareholders-want-clarity-120022700036_1.html">Business Standard. </a> What is withholding tax? The buyer (in this case, Walmart) is supposed to set aside 20% (in case of long-term capital gains) of the money to be paid to the seller as withholding and transfer it to the government. The amount is deducted from the payment to the recipient (in this case, the major shareholders of Flipkart who exited from the deal). The tax rate could be lower in case the non-resident seller invokes the provision of the double tax avoidance agreement. Walmart has already deducted, and paid the government, ₹7,439 crore by way of withholding tax. What do the former investors of Flipkart want? Lower tax deduction certificates. It enables non-residents to ensure that tax is deducted not on the sale price but on their taxable capital gains arising from such sale. Essentially, the tax on the seller will be lower. What is the process to be followed now? Foreign firms have been asked to file tax returns so that they can claim refunds if there is merit in their argument. What is the issue? It’s been 22 months since the deal was struck but lack of clear policy has left foreign investors wondering. Making matters worse, as the official reportedly said, it may take another 4-5 months for the matter to settle. So much for boosting India's <a href="https://economictimes.indiatimes.com/news/economy/indicators/india-jumps-to-63rd-position-in-world-banks-doing-business-2020-report/articleshow/71731589.cms?from=mdr">ease of doing business</a>. See Also: <a href="https://www.businessinsider.in/business/ecommerce/news/amazon-flipkart-get-2-month-relief-from-karnataka-high-court-over-a-cci-investigation/articleshow/74136780.cms">Amazon, Flipkart get 2-month relief from Karnataka High Court over a CCI investigation</a>

Ease of doing business? 22 months after Walmart bought Flipkart the tax on the deal is still unclear

<ul><li><keyword id="18635" type="CITY" weightage="20" keywordseo="Amazon">Amazon</keyword>, <keyword id="6354742" type="COMPANY" weightage="20" keywordseo="Flipkart">Flipkart</keyword> have filed their respective pleas and the matter is likely to be heard this week.</li><li>Lobby groups and Indian traders have accused the e-commerce giants of business malpractices and policy violations.</li><li>A report published earlier this year had highlighted that only two sellers made about one-third sales on Amazon.</li></ul>Walmart-owned homegrown e-commerce giant Flipkart and rival Amazon have separately challenged Competition Commission of India’s (CCI) decision to launch an antitrust investigation into their business practices. Notably, the companies have denied any wrong doings in their respective appeals. The antitrust investigation would look into the alleged policy violations and anti-competitive behaviours by both Amazon and Flipkart. Flipkart filed its appeal on June 16 in the Karnataka High Court. Details of Amazon’s appeal are not out yet. The development was first <a href="https://www.reuters.com/world/india/walmarts-flipkart-challenges-india-court-order-antitrust-probe-sources-2021-06-17/?utm_source=Twitter&amp;utm_medium=Social">reported</a> by Reuters citing sources it did not name. The publication has further revealed that both the matters will be heard by a two-judge panel this week. "Irreparable injury will be caused to the appellant if the investigation was to continue pending the present appeal," Flipkart reportedly said in its appeal and urged the court to quash the initial CCI order for the investigation. Amazon, too, mounted similar challenges. Meanwhile, sources aware of the development told the publication that CCI planned to speed up the investigation on big tech players this week. The competition watchdog also plans, as per the report, to demand information from Flipkart and Amazon, based on the accusations raised on their business models. Several lobby groups like the Confederation of all India Traders (CAIT), All India Online Vendors Association (AIOVA) have accused these e-commerce giants of eating into their business with predatory policies, deep discounting and business malpractices. The associations have also called them out for violating Foreign Direct Investment (FDI) policy, Foreign Exchange Management Act (FEMA) and devoiding the government of taxes. Another <a href="https://www.reuters.com/investigates/special-report/amazon-india-operation/">report </a>published in February 2021 had highlighted similar violations on the part of Amazon. The report noted that two sellers — Cloudtail and Appario — in which Amazon had indirect stakes made up around 35% of the platform’s revenue through sales in 2019. Overall, just 35 sellers on Amazon accounted for roughly two-thirds of all sales. This indicated a violation of Press Note 2 of FDI policies that bars e-commerce companies from giving preferential treatments to certain sellers. India’s federal financial crime-fighting agency Enforcement Directorate (ED) was also considering taking a look into these allegations after the Reuters’ report was published in February. In January 2021, ED along with the Reserve Bank of India (RBI) and ED were directed by the Department of Promotions of Industry and Internal Trade (DPIIT) to take “necessary actions” against Amazon and Flipkart for flouting FDI and FEMA rules. The DPIIT’s direction of January 2021 was an aftermath of the protest and issues highlighted by CAIT. The association has also written to Piyush Goyal, the union minister of industry and commerce, seeking stricter actions against Amazon and Flipkart, “which are hell bent in monopolising e-commerce and retail trade with their unethical business practices”. SEE ALSO: <a href="https://www.businessinsider.in/business/startups/news/browserstack-has-become-the-most-valued-vc-backed-saas-company-to-enter-the-indian-unicorn-club/articleshow/83599403.cms">BrowserStack’s unicorn status further strengthens India’s SaaS club</a> <a href="https://www.businessinsider.in/education/news/cbse-evaluation-criteria-for-class-12-results-announced-results-to-be-declared-on-june-31/articleshow/83598782.cms">CBSE announces 30:30:40 formula as the evaluation criteria for class 12, results to be declared on July 31</a> <a href="https://www.businessinsider.in/tech/apps/news/battlegrounds-mobile-india-download-link-early-access-registration/articleshow/83597180.cms">Battlegrounds Mobile India beta now available, early access rolling out – download and registration links here</a>

As Flipkart and Amazon try to quash India's antitrust investigation, trader lobbies accuse them of 'monopolising e-commerce'

<ul><li><keyword id="3658" type="General" weightage="20" keywordseo="india" source="Orion">India</keyword> has agreed to back out of the 2% <keyword id="3267303" type="General" weightage="20" keywordseo="equalisation-levy" source="Orion">Equalisation Levy</keyword> it imposed on foreign companies providing digital services.</li><li>The US has also agreed to do away with the sanctions it imposed on India to challenge the tax levy.</li><li>A new global tax agreement has been made that will ensure that multinational companies pay at least 15% tax in the country they are operating in.</li></ul>While India has <a href="https://www.theregister.com/2021/11/26/india_equalisation_levy_windback/">agreed to back out</a> of 2% <keyword id="6998372" type="General" weightage="20" keywordseo="digital-service-tax" source="Orion">digital service tax</keyword>, which was levied on foreign companies for all the revenues generated from digital services offered in India, the US has also decided to do away with the sanctions it has imposed on India to challenge the tax levy. <cmsannotation type="cmsannotation" annotationid="What is the digital tax scheme?" comment="subhead" text="What is the digital tax scheme?">What is the digital tax scheme?</cmsannotation> The central government in its Finance Bill of 2020-21, imposed 2% digital service tax on trade and services of foreign e-commerce companies such as <keyword id="18635" type="General" weightage="20" keywordseo="amazon" source="Orion">Amazon</keyword> and Walmart-owned <keyword id="6354742" type="General" weightage="20" keywordseo="flipkart" source="Orion">Flipkart</keyword> and others having an annual turnover of ₹2 crore or more. The expanded equalisation levy became applicable from April last year to a range of digital services, including non-resident e-commerce operators who are involved in online sale of goods and provision of services. As most of these foreign companies are American, <keyword id="339316" type="General" weightage="20" keywordseo="us-trade" source="Orion">US Trade</keyword> Representative felt that this was a discrimination against American firms and violated the principles of international tax law. The US government imposed a tariff of 25% on goods imported from India in July this year, but it was rolled back soon after. India first imposed a 6% equalisation levy in 2016, but this was restricted to online advertisement services by foreign companies. <cmsannotation type="cmsannotation" annotationid="How will it benefit India?" comment="subhead" text="How will it benefit India?">How will it benefit India?</cmsannotation> In October, the G20 summit and the Organisation for Economic Co-operation and Development meeting saw an international agreement on new global taxation rules. This includes that multinational firms have to pay at least 15% of their total revenue in each country they are operating in. This would mean that companies like Microsoft, <keyword id="6355629" type="General" weightage="20" keywordseo="google" source="Orion">Google</keyword>, Amazon, etc, must pay taxes for its operation in India. <cmsannotation type="cmsannotation" annotationid="What does it mean to India?" comment="subhead" text="What does it mean to India?">What does it mean to India?</cmsannotation> While the US backed out of the tariff, India is yet to stop the levy as the global tax rules are yet to be implemented. However, India and the US have reached an agreement that will count the Equalisation Levy as a credit against future taxes. Those credits will be accounted for from April 1, 2022, until either March 31, 2024, or whenever the global taxes are sorted. Although the US Department of Treasury has hailed the deal with India, the Indian government has not expressed any opinions on the same. Even the tech-giants like Amazon, Google and others are mum on the latest tax rules that will impact them. SEE ALSO: <a href="https://www.businessinsider.in/tech/mobile/news/poco-x4-pro-poco-x4-poco-x4-gt-launch-timeline-revealed/articleshow/87923367.cms">Poco X4 series to feature four smartphones, launch planned from Q1 2022 onwards</a> <a href="https://www.businessinsider.in/tech/news/the-best-malware-removal-softwares-to-protect-your-computer/slidelist/87923931.cms">The best malware removal softwares to protect your computer</a>

Digital service tax explained: India backs out of equalisation levy after global tax agreement kicks in

<ul><li>Flipkart has announced a collaboration with ClearTax, an online tax and investing platform. </li><li>The Indian e-commerce platform plans to connect its sellers to chartered accountants (CAs) to help them be Good and Services Tax (GST) complaint.</li><li>This is the second announcement by the Walmart-owned enterprise for micro, small medium businesses on its platform.</li></ul>Flipkart, Amazon's primary competitor in the Indian e-commerce market, is all set to woo sellers. This time around, it is taking care of their most taxing problem — tax payments. The partnership between <a href="https://www.businessinsider.in/indian-unicorn-flipkarts-board-approves-15-billion-deal-with-walmart/articleshow/64027810.cms">Walmart-owned</a> <a href="https://www.businessinsider.in/amazon-vs-flipkart-house-of-flagships-for-new-smartphones-in-india/articleshow/69408528.cms">Flipkart</a> and Cleartax — an online tax and investing platform — will connect the platform's 100,000 plus sellers with chartered accountants (CAs), who will in turn, help sellers with their tax and accounting needs. "Our aim is to make selling on our platform as easy and hassle-free for sellers as possible," said Nishant Gupta, Head of Marketplace at Flipkart, adding, "With this ClearTax partnership, we are helping thousands of small sellers in non-metro markets overcome a significant hurdle, so they can so they can concentrate on scaling their businesses." Navigating the tax maze The will help Flipkart's sellers with the basics like registering their companies to pay the <a href="https://www.businessinsider.in/gst-to-be-rolled-out-by-july-1-this-is-how-it-will-be-different-from-uk-canada-other-countries/articleshow/57392589.cms">Goods and Services Tax (GST)</a>, understanding the GST software and filing returns. The CAs will also help <keyword id="2684425" type="PERSON" weightage="20" keywordseo="Flipkart-sellers">Flipkart sellers</keyword> maintain their accounts and avail services from the Registrar of Companies (ROC). Each seller will also have his own 'GST Health Check' report to ensure that their businesses are GST compliant. India's GST — '<a href="https://www.businessinsider.in/indias-finance-minister-moots-the-possibility-of-a-single-tax-rate-on-standard-items-amid-continued-criticism-of-the-governments-gst-regime/articleshow/67253716.cms">One Nation One Tax</a>' — came into effect two years ago on 1 July 2017. Since then, it has been an upward battle for traders to figure out how the tax is implemented. "Small businesses in the e-commerce space find it challenging to understand and implement GST changes and adapt to them quickly. Instead of letting that be a barrier to their business, we are coming together with Flipkart to help entrepreneurs comply with GST using our technology and advanced automation," shared Aprit Gupta, Founder and CEO of Cleartax. GST was aimed at making the taxation system simpler and more transparent but businesses that operator in multiple locations, like sellers on Amazon that ship all over India, have been <a href="https://www.businessinsider.in/low-india-gst-rates-will-not-help-evasion/articleshow/68281274.cms">finding it difficult</a> to navigate the waters. The frequent changes and 'updates' to the system hasn't helped the confusion either. Wooing sellers This move is only one of the many programmes it has, to woo sellers in an intensely competitive e-commerce market. Earlier this month Flipkart announced an initiative — 'Growth Capital' — tailored for its sellers that would allow traders on its platform to get loans from the market at competitive rates. The company partnered with 10 banks and non-banking financial institutions promising businesses loan approvals within 24 hours, and money in their bank accounts in another 48 hours. Both announcements to support sellers come within days of Flipkart announcing that it is reducing seller's commissions in order to attract new sellers. Growing competition Ever since <a href="https://www.businessinsider.in/companies-that-mukesh-ambani-owns-a-complete-list/articleshow/69870533.cms">Mukesh Ambani</a>'s <a href="https://www.businessinsider.in/e-commerce-wars-amazons-jeff-bezos-vs-mukesh-ambani-in-india/articleshow/67620116.cms">announced his plans</a> to launch Reliance Retail as an e-commerce platform in India, products from global brands under the Reliance umbrella have reportedly <a href="https://www.businessinsider.in/mukesh-ambani-versus-amazon-walmart-in-india/articleshow/68918092.cms">started disappearing</a> from Flipkart and Amazon. India's <a href="https://www.businessinsider.in/walmart-flipkart-acquisition-could-fall-through-report/articleshow/67849413.cms">new e-commerce rules</a> haven't helped local operations for foreign companies like Walmart either. Amazon keeps pumping more money into India, with the <a href="https://timesofindia.indiatimes.com/business/india-business/amazon-top-ups-payments-business-with-rs-450-crore-infusion/articleshow/69894102.cms">latest infusion</a> of ₹4.5 billion, and Flipkart is looking for ways to make more money from its operations in the country. See also: <a href="https://www.businessinsider.in/flipkart-deep-discounting-ban-on-goqii-products-from-new-e-commerce-rules/articleshow/69552174.cms">Flipkart's continued deep discounting could mean more trouble in the future</a> <a href="https://www.businessinsider.in/flipkart-announces-delivery-robots-automation/articleshow/68493938.cms">Flipkart is bringing in robots to help it sort through packages</a> <a href="https://www.businessinsider.in/amazon-walmart-seek-us-help-against-indias-new-draft-e-commerce-policy/articleshow/65228547.cms">Amazon, Walmart seek US help against India's new draft E-commerce Policy</a>

Flipkart is wooing sellers with a collaboration that will help them file their taxes online

<ul><li>The latest regulations are an amendment to the Consumer Protection (<keyword id="35621" type="PERSON" weightage="20" keywordseo="e-commerce">E-Commerce</keyword>) Rules of 2020.</li><li>All e-commerce entities will have to appoint a compliance officer, grievance officer and a nodal contact person.</li><li><keyword id="47183" type="ORGANIZATION" weightage="20" keywordseo="CCI">CCI</keyword> is also looking to launch an antitrust probe in the business practices of both <keyword id="18635" type="COMPANY" weightage="20" keywordseo="Amazon">Amazon</keyword> and <keyword id="6354742" type="COMPANY" weightage="20" keywordseo="Flipkart">Flipkart</keyword>.</li></ul> The government of <keyword id="3658" type="LOCATION" weightage="20" keywordseo="India">India</keyword> has decided to revise the e-commerce regulations, as offline retailers in the country continue to be dissatisfied with predatory practices of the e-commerce giants like Amazon and Flipkart. According to the new draft regulations by the Ministry of Consumer Affairs, Food and Public Distribution, e-commerce entities might be prohibited from hosting flash sales. The department of consumer affairs, in the amended policy, defines flash sales as “sale organised by an e-commerce entity at significantly reduced prices, high discounts or any other such promotions or attractive offers for a predetermined period of time on selective goods and services or otherwise with an intent to draw large number of consumers” Notably, organisations like Confederation of All India Traders (CAIT) have previously accused Amazon and Flipkart of giving deep discounts and eating into their businesses. The latest amendments to the Consumer Protection (E-Commerce) Rules of 2020 also bar e-commerce entities from displaying or promoting any misleading advertisements, whether in the course of business on its platform or otherwise. The ministry released the draft on Monday, June 21. Just like the Consumer Protection Act of 2019, which came into force in<a href="https://www.businessinsider.in/advertising/brands/news/the-new-consumer-protection-act-2019-provision-for-heavy-fines-and-even-jail-terms-for-misleadings-ads/articleshow/77065225.cms"> July last year</a>, the latest amendments aim to smoothen the grievance redressal process on e-marketplaces. Each e-commerce platform will have to establish an adequate grievance redressal mechanism. These platforms, including Amazon and Flipkart, will also have to appoint a Chief Compliance Officer, a Resident Grievance Officer and a nodal contact person in India. <table></colgroup><tbody><tr><td colspan="2" style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; background-color: rgb(207, 226, 243); padding: 2pt; overflow: hidden; overflow-wrap: break-word;">New draft e-commerce policy proposes new appointments </td></tr><tr><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Appointment </td><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Role </td></tr><tr><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Chief Compliance Officer </td><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Ensuring compliance with the Indian rules and Acts </td></tr><tr><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Resident Grievance Officer </td><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Ensuring redressal of grievances </td></tr><tr><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Nodal Contact Person </td><td style="border-width: 1.5pt; border-color: rgb(0, 0, 0); vertical-align: bottom; padding: 2pt; overflow: hidden; overflow-wrap: break-word;">Ensuring coordination with law enforcement agencies and officers </td></tr></tbody></table>The e-commerce rules are a combination of the Consumer Protection Act of 2019, Indian Exchange Control Laws (IEC Regulations) and the Information Technology Act of 2000. These guidelines have been set in place to ensure fair play in technology and a data-driven e-commerce environment. The latest amendment to the Consumer Protection (E-Commerce) Rules of 2020 also states: <ol><li>All e-commerce entities should be registered with the department for promotion of industry and internal trade (DPIIT).</li><li>E-commerce entities should provide information within 72 hours of receiving an order from a government agency.</li><li>E-commerce entities are barred from manipulating search results and cross selling of products.</li></ol>Cross-selling means sale of goods or services which are related or complimentary to a purchase made by a consumer. Usually e-commerce companies follow these practices to maximise their revenue. Praveen Khandelwal, CAIT’s secretary general, believes that the latest guidelines will purify the e-commerce landscape of the country, “which has been greatly vitiated by various e-commerce global companies to the extent that not only the domestic trade has been damaged, but even the consumers are also feeling the heat of their unethical business practices.” The lobby group has once again<a href="https://www.businessinsider.in/policy/news/amazon-and-flipkart-are-destroying-indias-retail-sector-says-cait-asks-government-to-revise-fdi-policy-in-e-commerce/articleshow/81567283.cms"> accused</a> the foreign funded e-commerce companies like Amazon and Walmart-owned Flipkart of violating India’s foreign direct investment (<keyword id="44528" type="COMPANY" weightage="20" keywordseo="FDI">FDI</keyword>) policy. Previously, CAIT and All India Online Vendors Association (AIOVA) have accused these e-commerce giants of flouting Foreign Exchange Management Act (FEMA) rules and devoiding the government of goods and services tax (<keyword id="6354679" type="DEFINITION" weightage="20" keywordseo="gst">GST</keyword>) with their deep discounting policy. The accusation made by lobby groups, along with a few media reports, have put e-commerce entities especially Amazon and Flipkart on a tough spot with the Indian government. Not only is the central government scrutinising their actions, but is also looking to amend India’s FDI policy to create a level playing field for local players. The <a href="https://indiacorplaw.in/2019/01/dipps-revised-fdi-policy-e-commerce-changing-rules-game.html">FDI policies</a> for e-commerce prohibit foreign funded e-commerce companies from selling products of the retailers they have a majority stake in, giving preferential treatment to certain sellers and having a control of their inventory. However, the deep discounting practices did raise questions about Amazon’s and Flipkart’s control over its inventory and pricing policies. In addition, India’s competition watchdog Competition Commission of India (CCI) is planning to launch an <a href="https://www.businessinsider.in/business/ecommerce/news/flipkart-and-amazon-have-challenged-cci-decision-to-launch-an-antitrust-investigation/articleshow/83601987.cms">antitrust probe</a> into Amazon’s and Flipkart’s business practices. The antitrust investigation would look into the alleged policy violations and anti-competitive behaviours of both the companies. SEE ALSO: <a target="_blank" class="c-link" href="https://www.businessinsider.in/cryptocurrency/news/portugals-central-bank-clears-two-crypto-exchanges-for-operations/articleshow/83705548.cms">Portugal’s central bank clears two crypto exchanges for operation</a> <a target="_blank" class="c-link" href="https://www.businessinsider.in/india/news/after-assam-up-law-commission-proposes-population-control/articleshow/83706798.cms">India’s most populous state is about to take some stringent measures to control population</a> <a target="_blank" class="c-link" href="https://www.businessinsider.in/business/startups/news/james-murdoch-plans-to-raise-150-million-from-ultra-rich-to-invest-in-indian-startups/articleshow/83709567.cms">James Murdoch plans to raise $150 million from ultra rich to invest in Indian startups</a>

Amazon, Flipkart and other e-commerce platforms may not be able to do flash sales any more, if Indian government has its way

While discount-hungry consumers might be rejoicing at news of the Walmart-<keyword id="6354742" type="LOCATION" weightage="20" keywordseo="Flipkart">Flipkart</keyword> deal, wherein the US retail giant plans to purchase a majority stake in Flipkart for $15 billion, it also has a major detractor for the very same reason. The Confederation of All-India Traders (CAIT), a national association of small businesses and traders, has said that the proposed deal will hurt competition and encourage further <a href="https://www.businessinsider.in/India-your-e-commerce-discounts-are-safe/articleshow/63928216.cms">loss leadership </a>and “predatory pricing” tactics in India’s e-commerce market. It also observed that <keyword id="80487" type="ORGANIZATION" weightage="100" keywordseo="walmart">Walmart</keyword> was choosing to enter India via the e-commerce route after being denied entry to the country’s multi-brand retail sector. The trade body called on the Indian government to form a national regulator exclusively for the e-commerce sector and to put the Walmart-Flipkart deal on ice until such a body had been formed. Flipkart’s board is said to have already approved a sale to Walmart, leaving competitor <keyword id="18635" type="ORGANIZATION" weightage="20" keywordseo="Amazon">Amazon</keyword> in the lurch. The deal, which is the largest in India’s retail sector, will have widespread implications for the country’s fast-growing online shopping market, which is shaping up to be a duopoly featuring Flipkart and Amazon. The Indian e-tailer will get access to Walmart’s products while the latter will be able to leverage Flipkart’s well-oiled logistics and supply chain network. However, the deal could harm India’s small businesses, especially given Walmart’s habit of driving down its suppliers margins in order to keep prices low. Earlier this week, another trade body, the All India Online Vendors' Association (AIOVA ) said that the 3,500 sellers registered with it were <a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/sellers-on-flipkart-jittery-ahead-of-deal-with-walmart-aiova/articleshow/64028643.cms">uncertain as to their future</a> in light of the deal. If Walmart were to introduce its own private labels in general merchandise to the online shopping platform, it could crowd out domestic suppliers, the AIOVA said. There are also concerns that Flipkart’s algorithm could give an unfair advantage to Walmart’s labels. The Indian government, which has been aware of these issues for a while, is set to launch a <a href="https://economictimes.indiatimes.com/small-biz/policy-trends/e-commerce-policy-framework-to-be-ready-in-6-months/articleshow/63902314.cms">regulatory framework for the e-commerce sector</a> in six months. The policy framework is expected to address the issues of discounts, foreign investments and a lack of competition. The protests from trade bodies are not the only hurdle that the Walmart-Flipkart deal is facing. Japan’s Softbank, which owns a 20% stake in Flipkart, is looking for ways to offload its holding to Walmart without <a href="https://www.livemint.com/Industry/AqFDQe7iRwScMK6Rn2bxAL/SoftBank-weighs-options-to-cut-tax-liability-in-Flipkart-sta.html">incurring a heavy tax bill</a>. It could even delay the stake sale until next year in order to reduce its tax liability.

India's small businesses are against Walmart’s acquisition of Flipkart

<ul><li><keyword id="163404" type="ORGANIZATION" weightage="100" keywordseo="Softbank">SoftBank</keyword> to sell its entire stake in Flipkart for a profit of $1.5 billion. </li><li>The company is also looking to invest about half a million dollars in Paytm Mall. </li><li>Tencent will be the largest minority stakeholder once SoftBank exits Flipkart.</li></ul>SoftBank, the Japan-based telecom and internet giant, has finally agreed to sell its 21% stake holdings in Flipkart, <a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/softbank-agrees-to-sell-flipkart-stake-to-walmart/articleshow/64266098.cms">a report in The Economic Times</a> said. The same report also said that the company is ready to work out the tax issues that were delaying the share sales. The company headed by <keyword id="6377749" type="PERSON" weightage="20" keywordseo="Masayoshi-San">Masayoshi San</keyword> earlier was uncertain on selling the stocks. The company that invested approximately $2.5 billion in Flipkart in FY16 through its Vision Fund, is expected to make $4 billion in stock sales. According to reports, SoftBank was considering not selling the Flipkart shares due to many options, mainly due to the tax issues related to short-term capital gains. Another reason could be that SoftBank saw a potential valuation increase in Flipkart. Currently, Flipkart has a valuation of close to $21 billion. Some <a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/softbank-in-talks-to-invest-big-money-in-paytm-mall/articleshow/64152935.cms">reports</a> said that the Japanese business giant is also looking for investments in other Indian startups. The company has also held early discussions to invest more than $500 million in Paytm Mall until 2020. After SoftBank exits Flipkart, the investments in Paytm and associates will collectively make it the company's largest gamble in the country. The company also holds shares in other Indian startups such as Ola and Oyo. Earlier this month, on May 10, Walmart announced that it will acquire 77% of the e-commerce site Flipkart, making it the biggest deal involving an e-commerce site. As of now, India is witnessing a battle on the e-commerce grounds between Amazon, Walmart and China’s Alibaba. Amazon India is now valued at $16 billion according to <a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/walmart-take-note-amazon-india-valued-at-16-billion/articleshow/64251173.cms">recent reports</a>. Tencent, a prominent competitor of Walmart backed JD.com and Alibaba in the China e-commerce market, will now be the largest minority shareholder in Flipkart once Softbank exits

SoftBank has agreed to sell its entire 21% stake in Flipkart to Walmart

Ten years ago, my mother severed her years-long allegiance with her local shopkeepers and started buying products online. It felt like a historical moment. All her friends and their friends gradually followed suit too. The material force driving this transformation in India's consumer landscape - that kicked off with <keyword id="6354742" type="COMPANY" weightage="20" keywordseo="Flipkart">Flipkart</keyword> in 2007 deciding to sell books - was <keyword id="112217" type="PERSON" weightage="20" keywordseo="Discounts">discounts</keyword>. Since then, this trail mix of coupons, deals and sales has generated its own feeding frenzy and has become a crucial component on every online retailer's entry strategy in India. Apart from being the major driver of sales, discounts have made annual bumper selloffs a staple Indian tradition. Flipkart’s Big Billion Days and <keyword id="18635" type="CITY" weightage="20" keywordseo="Amazon">Amazon</keyword>’s Great Indian Festival are important for customers, big businesses and small businesses. Millions of products are sold. After Flipkart’s festive sales last year, the gross merchandise value for the industry reached Rs. 9000 crore - approximately $1.3 billion. While a <a href="https://www.bcg.com/en-in/publications/2017/marketing-sales-globalization-new-indian-changing-consumer.aspx">BCG report released last year</a> proclaimed that the price-conscious Indian consumer now prefers convenience over discounts when buying products online, <keyword id="35621" type="PERSON" weightage="20" keywordseo="e-commerce">e-commerce</keyword> firms are still competing in a proverbial race to the bottom. Everyone wants to offer the lowest prices. And what's more, the government has now legitimised this discounting model. The <keyword id="6354751" type="UNKNOWN" weightage="20" keywordseo="income-tax">Income Tax</keyword> Appellate Tribunal, on April 25th, allowed Flipkart to continue recording discounts on its products as marketing and advertising expenses, thereby allowing the e-commerce firm to claim tax deductions on them. Flipkart was appealing a ruling from the Income Tax Department, which said it owed ₹1.1 billion in unpaid taxes for the year ended March 2016. The move will allow India’s e-commerce firms to a sigh of relief while encouraging their loss-leading impulses. On the other hand, it will also ensure that price-conscious consumers keep getting the benefits of heavy discounts on online shopping. The economics of discounts However, there is more to discount policies than meets the eye. The IT Dept, last year, had sought to make e-commerce firms classify these as a “capital expenditure”, which is taxed over a period of 4 to 10 years, as opposed to “revenue expenditure”, which refers to daily expenses that are deductible in the period they are incurred. When Flipkart offers customers discounts, the company absorbs these costs. Its sellers are usually paid in full or charged lower commissions, even though customers don’t pay full amounts for products. Under the IT Department’s proposed classification, Flipkart would not have been allowed to deduct the full value of these costs from its bottom line, which in turn would have increased its tax liability. The IT Dept’s rationale was that since discounts allowed companies to build their brands and retain customers for the long haul, they should be classified as a capital asset - essentially, an asset that provides returns over an extended period of time. However, brand value is largely an intangible cost and hence, it is a subject of confusion. Why it pays to report a loss Flipkart said that it needed to offer discounts on its products in order to achieve greater sales and increase its market share, making these discounts tax-deductible marketing expenses. Under the Income Tax Act, the government does not have the authority to levy taxes on such expenses, which fall under "revenue expenditure". This is precisely why e-commerce firms like Flipkart and Amazon India are reporting losses in the first place - to avoid taxes. These firms offer discounts to consumers in order achieve high sales, and write off these discounts as marketing expenses - leading to a net loss - so that they aren’t liable to pay tax on them. For the year ended March 2017, Flipkart’s net loss reportedly widened by<a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/flipkart-revenues-rise-29-losses-swell-68-in-fy17/articleshow/62761811.cms"> 68% to ₹87.71 billion</a> while sales rose 29% to nearly ₹200 billion. Despite reporting losses, the sales machine keeps on chugging because these firms draw up on the sizeable investments of backers like Softbank Corp, or in Amazon’s case - cash reserves, in order to finance these discounts. If discounts were to be classified as capital expenditure, e-commerce firms would have no reason to offer them and without the discounts, customer demand would plummet,. Under the scanner E-commerce firms have been under the IT Dept’s scanner for a while for availing tax deductions on discounts while reporting high sales. In order to set a precedent for the rest of the industry, India’s income tax authorities had asked Flipkart and Amazon to reclassify their discounts as capital expenses in August 2017. The following December, the IT Dept ordered Flipkart to pay up ₹1.1 billion. Flipkart<a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/income-tax-panel-refuses-to-stay-rs-110-crore-tax-demand-on-flipkart/articleshow/62876893.cms"> unsuccessfully appealed the decision</a> in February 2018, explaining that it couldn’t pay taxes on “fictional” assets, before lodging a renewed appeal with the Income Tax Appellate Tribunal. Flipkart, Amazon and their competitors in the online retail space aren’t only causing headaches for income tax authorities. Physical retailers like the Future Group, Shoppers Stop and members of the Indian Cellular Association (ICA) are finding it hard to navigate India’s retail industry as more and more consumers scour deals online. Earlier this month, the Retailers Association of India (RAI), an industry body that includes Future Group and Reliance Retail, wrote a letter to the Suresh Prabhu, the Union Minister for Commerce and Industry, alleging that online retailer were violating India’s FDI rules by<a href="https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/retailers-seek-action-against-flipkart-amazon-for-violating-fdi-rules/articleshow/63674973.cms"> by lowering prices of products on their websites and illegally funding “abnormal discounts.</a>” Under India’s foreign investment regulations, retailers can only be foreign-owned if they function as marketplaces to connect vendors and buyers, without actually influencing prices. A similar letter was sent by the ICA explaining that e-commerce firms were driving down prices for mobile handsets with direct and indirect discounts, resulting in the closure of mobile retail outlets. The commerce and industry responded by<a href="https://economictimes.indiatimes.com/industry/services/retail/rbi-ed-need-to-look-into-charges-against-e-tailers/articleshow/63839420.cms"> passing the buck on to</a> the Reserve Bank of India and the Enforcement Directorate. A decision is awaited. How long can the party continue? India’s e-commerce industry is relatively young, and growing fast (it is expected to touch<a href="https://www.ibef.org/industry/ecommerce.aspx"> US$188bn by 2025</a>) as more and more consumers get access to the internet and change their buying habits. As a result, e-commerce firms are not focussing on profitability for now. Their overarching purpose is to increase their market share by driving up sales and the number of active monthly customers. However, as opposed to selling everything for cheap, they’re focusing their discounting approach on popular segments like<a href="http://indianexpress.com/article/business/companies/e-commerce-sales-the-economics-of-discounts-amazon-flipkart-snapdeal-big-indian-sale-4651737/"> electronics and clothing</a>. Much like the telecoms industry, where Jio has sparked a price war wherein everyone is trying to undercut each other to hold onto the market, once a number of competitors are forced to leave after burning too much cash, the victor will be in a position to raise prices for everyone. Snapdeal has already become a casualty of the discount war. Now, with Walmart set to<a href="https://www.livemint.com/Industry/YuoY0Iim6xhlBdE7gdz7yL/FlipkartWalmart-deal-on-track-butAmazon-remains-a-contend.html"> purchase a majority stake in Flipkart</a> to take on Amazon, India’s consumers could benefit from lower prices for at least the medium term. Both these entities have a lot of money to spare and are comfortable playing the long game. However, in the event that the Walmart deal doesn’t go through and Amazon ends up joining forces with Flipkart, then the combined company will have<a href="https://www.bloombergquint.com/business/2018/04/08/flipkart-amazon-combine-may-face-close-scrutiny-for-competition-aspects"> a monopoly</a> over the online retail segment- spelling doom for price-conscious consumers. The Indian government is currently in the process of formulating<a href="https://www.livemint.com/Industry/EuTJ9j7Dn4VT5CyrpaZL2J/Framework-for-national-ecommerce-policy-to-be-finalized-soo.html"> a policy framework for the e-commerce sector</a>. It’s goals, however, are conflicting. On one hand, it will try to level the playing field between e-commerce firms and brick-and-mortar retailers and also increase the tax liabilities for online retailers. On the other, it does not want to disincentivise companies from entering the e-commerce space and reduce the industry’s overall competitiveness. It will be a tricky balancing act.

India, your e-commerce discounts are safe

<ul><li>E-commerce giants <keyword id="18635" type="CITY" weightage="20" keywordseo="Amazon">Amazon</keyword> and <keyword id="6354742" type="COMPANY" weightage="20" keywordseo="Flipkart">Flipkart</keyword> are working to end price distortions in the market. </li><li>They have reached out to various brands to set a negotiated and pre-determined price---this is technically called market operating price. </li><li>The price guarantee clause provides the seller with the liberty of matching the price if they are available at a lower price on another marketplace. </li></ul>Heavy discounts on big brands may go into a slump as e-commerce giants Amazon and Flipkart are working to end price distortions in the market. This is want to comply with the strict rules enforced on foreign owned online marketplaces by the government, reported <a href="https://economictimes.indiatimes.com/industry/services/retail/amazon-flipkart-put-discounts-in-brands-cart-to-stick-to-fdi-norms/articleshow/70151472.cms?from=mdr">the Economic Times</a>. This will signal price stability in the deeply competitive e-commerce marketplace. As per the report, Walmart-owned Flipkart and global giant Amazon have reached out to various brands to set a negotiated and pre-determined price---this is technically called market operating price they offer the sellers. The brands will have to certify that they themselves will bear any discounts beyond a limit. Marketplace and sellers will not be affected in any manner by this, an executive aware of the proceedings told ET. Matching the Price A price guarantee clause between the seller and brand provides the seller with the liberty of matching the price if products are available at a cheaper rate on another marketplace. And, the onus will be on brands to reimburse the difference in price by issuing a credit note. Earlier, sellers had to willfully drop prices to remain competitive. The process of maintenance of market operating price, discounts and credit notes have also been automated to be in line with the new <keyword id="44749" type="ORGANIZATION" weightage="20" keywordseo="Foreign-Direct-Investment">foreign direct investment</keyword> (FDI) norms introduced earlier this year. Though India allows 100% FDI in e-commerce marketplaces, they can operate only as platforms connecting buyers and sellers. They cannot influence the market price of products, which turned into a heavily debatable issue. Brick-and-mortar retailers alleged that heavy discounts are being used indirectly to influence the market price of online platforms. This new system has already been implemented in consumer electronics and smartphones, along with others. This latest move by multinational e-tailers suggest that they too are serious about the rules, after the government proved that they are serious about implementing them. In May, the government <a href="https://www.businessinsider.in/flipkart-deep-discounting-ban-on-goqii-products-from-new-e-commerce-rules/articleshow/69552174.cms">banned Flipkart </a>from selling products of the smartwear GOQii after the latter alleged deep discounting. The <keyword id="6360722" type="UNKNOWN" weightage="20" keywordseo="ratan-tata">Ratan Tata</keyword> backed company run by Vishal Gondal approached Department of Promotion of Internal Trade (DPIT) and Competition Commission of India with complaints, leading to the government taking prompt action. All in all, those looking to go online for ‘cheaper’ price points will be disappointed. SEE ALSO: <a href="https://www.businessinsider.in/flipkart-deep-discounting-ban-on-goqii-products-from-new-e-commerce-rules/articleshow/69552174.cms">Flipkart's continued deep discounting could mean more trouble in the future</a> <a href="https://www.businessinsider.in/flipkart-keeping-sellers-from-amazon-and-reliance-retail-by-helping-them-file-taxes-online/articleshow/70130147.cms">Flipkart is wooing sellers with a collaboration that will help them file their taxes online</a>

Amazon, Flipkart ask brands to take the lead on ‘discounting’

<div class="KonaFilter image-container display-table"><div><div class="image"></div></div></div><ul><li><a href="https://markets.businessinsider.com/stocks/wmt-stock">Walmart</a> posted strong fourth-quarter results Tuesday, beating on both the top and bottom lines and on same-store sales.</li><li>Online sales surged 40% for the 2019 fiscal year.</li><li>The retail giant reiterated its fiscal-year 2020 forecast.</li><li>Walmart shares were up 4.6% following the results.</li><li><a href="https://markets.businessinsider.com/stocks/wmt-stock">Watch Walmart trade live</a>.</li></ul><a href="https://markets.businessinsider.com/stocks/wmt-stock">Walmart</a> on Tuesday blew past fourth-quarter expectations, posting strong top- and bottom-line results and same-store sales.The retail giant earned an adjusted $1.41 a share on revenue of $138.8 billion, beating the $1.34 and $138.7 billion that analysts surveyed by Bloomberg were expecting. The results excluded a charge of $0.17 a share attributed to the new tax law and an unrealized gain of $0.03 a share on Walmart's equity investment in JD.com.Same-store sales excluding fuel were also strong, coming in at up 4.2% versus the 3.2% gain that was anticipated.For fiscal-year 2019, Walmart earned an adjusted $4.91 a share as revenue increased 2.8% year-over-year to $514.4 billion. Comparable sales excluding fuel were up 3.6%. The retailer said e-commerce sales surged by 40% in the fiscal year."Progress on initiatives to accelerate growth, along with a favorable economic environment, helped us deliver strong comp sales and gain market share," Walmart's president and CEO, Doug McMillon, said in the press release."We're excited about the work we're doing to reach customers in a more digitally connected way. Our commitment to the customer is clear - we'll be there when, where, and how they want to shop and deliver new, convenient experiences that are uniquely Walmart."Looking ahead, Walmart reiterated its 2020 full-year guidance. The retailer sees consolidated net sales growth of at least 3% on a constant-currency basis and adjusted earnings per share declining by a low-single-digit percentage range. Excluding Flipkart, Walmart anticipates EPS will grow by a low to mid single-digit percentage range compared with FY19. It expects e-commerce sales to grow by about 35% during the fiscal year.Walmart shares were up 4.6% following Tuesday's results. They were up 7.4% this year through Friday.<div class="KonaFilter image-container display-table"><div><div class="image"></div></div></div>

Walmart beats as online sales surge

<ul><li>American online retail firm <keyword id="6357395" type="UNKNOWN" weightage="20" keywordseo="eBay">eBay</keyword> has bought a 5.5% stake in <keyword id="4225623" type="PERSON" weightage="20" keywordseo="Paytm-Mall">Paytm Mall</keyword>. </li><li>Vijay Shekhar Sharma owned Paytm Mall hopes to turn profitable in the next two years. </li><li>However, this isn’t eBay first bet on Indian e-commerce, its previous two – <keyword id="541988" type="COMPANY" weightage="20" keywordseo="SnapDeal">Snapdeal</keyword> and <keyword id="6354742" type="COMPANY" weightage="20" keywordseo="Flipkart">Flipkart</keyword> – failed to work out for the company.</li></ul>American e-commerce giant eBay has <a href="https://www.livemint.com/companies/news/ebay-logs-into-paytm-mall-with-5-5-stake-eyes-pie-of-online-retail-1563420493902.html">bought</a> a 5.5% stake in Paytm Mall, Vijay Shekhar Sharma’s new e-commerce vertical. While the details of the transaction remain undisclosed, <a href="https://yourstory.com/2019/07/paytm-mall-funding-ebay-ecommerce-india-vijay-shekhar-sharma">reports</a> say that the American firm is pumping in about $170 million into Paytm Mall at a valuation of $3 billion. Paytm Mall, the e-commerce subsidiary of One97 communications which owns Paytm, aims to turn profitable in the next two years. The company said that it reduced its monthly spends by ₹400 million, is targeting an EBITDA breakeven by 2021-22. EBIDTA is earnings before interest, depreciation, tax and amortization. The company ended the last financial year with a Gross Merchandising Value (GMV) of ₹130 billion and is now aiming for ₹170 billion GMV by 2022. However, what’s interesting is eBay’s India growth trajectory. It had entered the Indian market in 2004, much before e-commerce really took off in the country. However, it has struggled to gain ground. eBay’s first invested in Indian e-commerce was in <a href="https://www.thenewsminute.com/article/ebay-takes-61-million-hit-snapdeal-writes-investment-76169">Snapdeal</a> which resulted in a $61 million loss. After the disappointment, eBay moved to the Indian e-commerce success story Flipkart, where eBay sold its India operations to Flipkart in 2017. However, within a year, Flipkart shut down the operations of eBay. When the Indian retail unicorn was acquired by global giant Walmart, eBay sold its stake in Flipkart for $1.1 billion.

eBay is trying to get third-time lucky with Paytm Mall after burning hands with Flipkart and Snapdeal

New Delhi, Mar 25 () Following are the top business stories at 1845 hours: DEL89 BIZ-VIRUS-LD FLIPKARTCOVID-19 lockdown: Flipkart, Amazon India's Pantry suspend operations temporarilyNew Delhi: Walmart-owned Flipkart and Amazon India's Pantry have been suspended temporarily as India entered a 21-day lockdown to contain the spread of the coronavirus pandemic.DEL79 BIZ-LD STOCKS-CLOSESensex, Nifty log best day in over 10 years; investors eye stimulus packageMumbai: Indian stock benchmarks Sensex and Nifty posted their best single-day rise in over a decade on Wednesday, mirroring buoyancy in global markets and anticipating a stimulus package by the government to tide over the financial turmoil caused by the coronavirus pandemic. DEL20 BIZ-VIRUS LD PASWANGovt monitoring availability of essential commodities in market: PaswanNew Delhi: Union Food Minister Ram Vilas Paswan on Wednesday said the government is monitoring the availability of essential commodities in the market amid nationwide lockdown for DEL22 BIZ-LD VIRUS-EXPORT BANGovt bans export of anti-malarial drug hydroxycloroquineNew Delhi: Amid coronavirus outbreak, the government on Wednesday banned export of anti-malarial drug hydroxycloroquine with immediate effect to ensure sufficient availability of the medicine in the domestic market. DEL23 BIZ-VIRUS-LOCKDOWN COSTExperts peg India's cost of COVID-19 lockdown at USD 120 bnMumbai: Pegging the cost of the COVID-19 lockdown at USD 120 billion (approximately Rs 9 lakh crore) or 4 per cent of the GDP, analysts on Wednesday sharply cut their growth estimates and stressed on the need to announce an economic package. DCM39 BIZ-CAB-LD EXPORTSCabinet approves extension of tax rebate scheme for export of garments, made-upsNew Delhi: The government on Wednesday approved the continuation of the scheme for Rebate of State and Central Taxes and Levies (RoSCTL) on export of garments and made-ups from beyond March 31 till it is merged with the Remission of Duties and Taxes on Exported Products scheme. DCM34 BIZ-ONGC-GASONGC gas output drops by one-tenth as shut factories refuse suppliesNew Delhi: With the unprecedented nationwide lockdown shutting down factories, ONGC has been forced to cut natural gas production by up to one-tenth as customers refused to take supplies because of business disruption. DCM24 BIZ-CCEA-RRBCCEA approves recapitalisation of RRBsNew Delhi: The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved a Rs 1,340-crore recapitalisation plan for regional rural banks (RRB).DCM13 BIZ-VIRUS-TELECOM-COAICOAI urges subscribers to use data networks responsibly to free up infra for critical servicesNew Delhi: With the government imposing 21-day lockdown to tackle coronavirus spread, industry body COAI on Wednesday urged mobile consumers to use data networks responsibly, so that critical services can run smoothly on communications infrastructure. DCM40 BIZ- MCAP- LD RILReliance Industries shares zoom nearly 15 pc; reclaims most valued firm tagNew Delhi: Shares of Reliance Industries Limited on Wednesday zoomed nearly 15 per cent, reclaiming the tag of the most valued domestic firm by market valuation surpassing TCS. SHWSHW

Business highlights

<ul><li>Nykaa's share prices have crossed the ₹2200 mark, whereas ITC is trying to cross the ₹300 mark, Twitteratis have highlighted.</li><li>The point of contention for this meme is one — ITC's net profit is much higher than Nykaa's profit.</li><li>Nykaa's profit fell significantly last quarter as Falguni Nayar decided that it was time to acquire new customers.</li></ul>Social media is buzzing with memes asking why Nykaa, a fashion retailer with an annual profit of ₹62 crore (in FY21), is valued more (i.e. at a greater multiple) than ITC, a 111-year old giant that sells cigarettes, consumer goods and hotel rooms, earning a profit of ₹12,934.49 crore in a year. <div type="image" title="Nykaa vs ITC memes are hilarious but it may not be the right comparison" msid="87755570" hostid="261"></div> The simple answer is, market prices in the future and not the past. But the market can be irrational before it gets the price right. Nykaa’s shares price doubled on the first day of trading, but have started to cool off today. <div type="image" title="Nykaa vs ITC memes are hilarious but it may not be the right comparison" msid="87757344" hostid="261"></div> So let’s look at what Nykaa is planning for its future and what the analysts expect the future to look like. Founder and chief executive (CEO) Falguni Nayar is doubling down on the high-margin fashion products, compared to an ITC that wants to move away from cigarettes but the other segments yield very little margin. <table style="border-width: initial; border-style: none;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Metric </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nykaa </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">ITC </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Market capitalisation as of Nov 17 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹1.03 lakh crore (around $14 billion) </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹2.94 lakh crore ($39 billion) </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">FY21 EBITDA margin </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.61% </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">8.9% </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Estimate for EBITDA margin </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">13% FY27 (Bernstein) </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">37.4% by FY24 (S&amp;P Global Market Intelligence) </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Estimated revenue growth for next 5 years </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">65% growth between FY22 to FY27 (Bernstein) </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹1,85,336 by FY24 (Emkay) </td></tr></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody></table>*EBITDA stands for earnings before interest, tax, depreciation and amortisation Nykaa Fashion was launched in 2018 as a curated and managed marketplace Nykaa’s profit was down in the three months ending September because Nayar decided now is the time to acquire customers and get them hooked to the brand. It meant spending more on promotions, which would also help sell <a href="https://www.businessinsider.in/business/startups/news/the-cost-of-selling-its-ipo-has-eroded-half-of-nykaas-profit/articleshow/87715261.cms">the IPO at a higher price</a>. <div type="image" title="Nykaa vs ITC memes are hilarious but it may not be the right comparison" msid="87755520" hostid="261"></div> Nykaa’s marketing expenses surged four-fold but it managed to get 23 million more new users to visit its platform (both fashion and beauty ecommerce verticals) between July and September 2022. The revenue grew nearly 38% compared to the same time last year. Here’s why Nykaa spending so much building the fashion vertical According to a report by Spark India Consumption, there are several reasons why Nykaa decided to venture into the fashion ecommerce space — including immense market opportunities and the limited competition, especially when it comes to premium clothing brands that sell online. Fast facts about the potential of fashion retail in India <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Metric </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Estimated growth rate </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Fashion retail: Market size </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">12% compounded annual growth to reach $79 billion till FY19. It declined 35% in 2020 due to the pandemic </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Online fashion retail </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">33% growth in the last 3 years, market size has doubled since 2017 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Fastest growing segment </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Footwear and accessories </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Total addressable market </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">$152 billion </td></tr></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody></table> Adwaita Nayar, the chief executive of Nykaa Fashion, believes that the trends in the fashion industry change rapidly and therefore an inventory-led model may not work in favour of Nykaa. The same does not stand true for the cosmetics industry. Apart from this, both these verticals cater to the same cohort of customers. Young Indians with “aspirations” and increasing disposable income, a report by Motilal Oswal added. The vertical is set to get a higher tailwind as more young population comes online and the spending capacity in tier-II cities increases, the financial services company added. Nykaa has also been fast to adapt and grab the social commerce opportunity. The company has roped in 1,300 influencers, aside from content marketing, to push its products to peeps on Facebook, Instagram, Twitter and other popular platforms. <div type="image" title="Nykaa vs ITC memes are hilarious but it may not be the right comparison" msid="87755491" hostid="261"></div> About 2% of Nykaa’s revenue comes from the fashion vertical, as per the company’s red herring prospectus filed last month before hitting the public market. There is a lot of headroom for growth both in terms of revenue and market share. Nayar has also promised that the growth will not be driven by discounts. About 17% of Nykaa’s gross merchandise value (GMV) are sold at full price or at a discount of 10% or lower. Nykaa’s fashion and beauty verticals will move further away from discounts, Adwaita Nayar added in the pre-IPO press conference. But it will be easier said than done. While Nykaa’s cosmetics business is facing competition from Walmart-owned Myntra, Purplle and few other players, its fashion vertical is pitted against e-commerce giants like Amazon, Flipkart, JioMart and more. Despite lower discounts, the company’s average order value was at ₹3,257 in the September quarter across 13 lakh orders. <div type="image" title="Nykaa vs ITC memes are hilarious but it may not be the right comparison" msid="87755503" hostid="261"></div> Is this growth exciting enough to pay more for every dollar profit from Nykaa, compared to legacy companies like ITC? It’s for the investors to decide. Even then, the comparison should not be done with an ITC or Tata Steel, like the memes have . It has to be compared with other players in similar business. Even on that count, Nykaa’s shares may be a bit expensive, according to analysts at Bernstein who shared the following data in a report dated August 2021. <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Global beauty and personal care brands </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Forward price to sales* (as of Aug 2021) </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nykaa** </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">8.5x </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">L’Oreal </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.8x </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">LVMH </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.1x </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Estee Lauder </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">6.5x </td></tr></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody></table>*Source: Bernstein **The Bernstein report was published before Nykaa’s IPO. The price-to-sales ratio is calculated by taking a company's market capitalisation ⁠— the number of outstanding shares multiplied by the share price ⁠— and divide it by the company's projected total sales for the next 12 months. The lower the ratio, the more attractive the investment. 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