Indian internet market will take time and money to mature, too early to think about exits: Naspers CEO
Naspers, one of the earliest and largest investors to tap India’s fledgling consumer internet sector, has made a strong comeback with back-to-back deals after a not-so-aggressive few years which were dominated by heavyweights like SoftBank and Tiger Global. In September, the group’s payments unit PayU acquired Citrus Pay for $130 million in cash and then came the $1.8-billion all-stock mega merger of MakeMyTrip with Ibibo last week, giving a 40% control of the new entity to the South African internet and media conglomerate along with China’s Tencent. Koos Bekker, the man who transformed a single-country print publisher into what’s now a $72-billion global internet and media major, handed over the CEO baton to Bob van Dijk , an e-commerce veteran, more than two years back. Dijk, 43, spoke to TOI in an exclusive telephonic interview, outlining the group’s long-term strategic view for India where it has deployed almost $1.5 billion across internet companies, and why he thinks it’s early days to clock exits from here. Excerpts:
Your moves in India are being watched intently after the two recent deals. What’s the message?
The timing is just coincidental but the bottom line is that both transactions are a sign of our commitment to India. This is driven by what we see as India’s fundamental potential to becoming the largest or the second largest online market in the world. What personally excites me is the pace at which people are coming online because of smartphone penetration going up. We have seen other countries become big for us but not like how India has come up, which is what makes us terribly excited. It’s a great reason for us to double down on India investments.
How are you positioning yourself in the Indian internet ecosystem — as a financial or strategic investor?
We are a largely strategic investor and also an active operator. Our main businesses in India are fully owned and operated by us, including PayU, classifieds site OLX, and the Ibibo group. There are cases like Flipkart where we are an investor but that’s with a long-term horizon. It’s the advantage of having us on board because we have a 100-year-old history and we can look further out than two or three years.
You’ve put around $1.5 billion in India. Are there any liquidity events expected or is it still too early? You sold Allegro in Poland and we’ve heard about a secondary sale of shares you’re planning in Flipkart…
India has been the biggest market as far as developmental spends go for us for a number of years. This is not only what we do as capital injection, but also when we fund our existing operations like PayU or Ibibo — before we did the merger. There is no current plan for exits in India as we are doubling down and are in an investment mode. India is a market where what we have realised today, versus the future potential, is in an early stage. I would be very surprised if we considered any exits in the near future.
Some of your early bets in India didn’t work out, like online marketplace Tradus and auto classifieds portal Gaadi. What happened?
An honest way to put it is that you win some and you lose many. I think the Tradus one was a brave attempt that did not pan out the way we thought it would. The car business (Gaadi.com) was sub scale and we thought somebody else (Cardekho) would be a better owner — that’s why we exited.
In the past year, there’s been a lot of talk about consolidation. You’ve led a few of them. Are we poised for more of it in India?
Looking at China can give us a feel of what the world will look like. That too has been a fiercely contested internet market for the last half a decade and you have seen a number of sensible consolidation moves there which has given businesses a better footing. I won’t be surprised if there are further opportunities to strengthen businesses through consolidation in India. Consolidation is not always the answer to strengthen an industry, but in some cases it is.
How about consolidation in online classifieds where your OLX competes with Quikr?
Quikr is taking a different path compared to OLX as it’s focusing on verticals and more on business-to-consumers. We have always been in the consumer-to-consumer trade. Our competitive lead has grown strongly, and they’re doing different things. Consolidation is not a likely outcome in the classifieds space at all because we’ve been gaining share rapidly as they’ve diversified in a different direction.
The PayU-Citrus and MakeMyTrip-Ibibo combined entities are being led by founders whose companies were acquired, which is usually not the case. Why?
One of the strongest parts of our philosophy is that we not only invest in the company but in the entrepreneur. Our biggest successes have been because we put our trust in local founders who turned out to be fantastic. I think being an entrepreneur takes something special: You have to be determined, push hard and overcome many troubles. That mindset makes for very strong leaders. Now in our combined businesses we have eight founders who are leading our Indian investments and I believe that sets us up strongly. We really believe in local management, as I think people from outside cannot be as effective in understanding the culture and the market.
Naspers came close to striking a few early-stage investments in the past two years but they didn’t close. Was it a concerted effort to keep away?
We did look at many things and in some cases we were quite excited. The reality is we look at 30-40 companies at least before investing in one. We didn’t find anything that combined a great business opportunity with an outstanding founder at a reasonable price. These are three things we look at. In the past two years, there was a lot of froth in the market around valuations and too much capital was chasing a limited number of opportunities. We are not a short-term investor but we do want to make a return.
Has it stabilized now? Would you look at doing more investments?
It is hard to say what we will do with M&As in the future. We do look at early-stage and we have a dedicated investment team in India. If we see things we like with the right entrepreneur, we will back it. We are funding a lot of growth in Flipkart, PayU, OLX and combined travel business where we are spending money, which is not visible to the outside world. They are not restricted or required to spend a certain amount of capital as we invest off the balance sheet.
You have a very strong background in e-commerce. What do you make of the sluggish growth in the last year? Also, there’s a big battle between Flipkart and Amazon…
The pace of growth before that was explosive. In fact, the way Flipkart was growing a year and a half ago, I’ve not seen anything like that. How I look at it is that growth will come in waves — there’s no doubt about the potential of e-commerce in India, it will be massive. The growth will also be a result of what the players do, what kind of products people are comfortable buying and can afford. Given that structured retail is not so well developed in India in the offline world, the potential for e-commerce is very large. We will get there, it will take some time and it will be very competitive because we are not the only ones who can see that potential.
Is it important for Flipkart to get a strategic investor to take on Amazon from here on?
I think it is difficult to speculate around that. The reality is that the Indian market will take time and money to mature and any player who is serious about India needs to be ready to have a long-term view. We do, am sure others do as well. Financial investors can have certain amount of patience as well, strategic investors have more of that. I think that will sort itself out for Flipkart.
What about the two other sectors which are also very competitive — travel and payments, where you’re invested in India?
In payments, we don’t compete head-on with Paytm — they are concentrating their efforts on the consumer side with the push around the wallet, while our efforts are directed largely towards merchants selling online. The two can live pretty well together. In the merchants space, together with Citrus Pay, we have a very healthy position across all segments that matter. I feel comfortable with what we have as a combined entity. It’s early stages, we will see a lot of migration from offline to online than direct competition being that relevant in the online space. There’s enough space for Paytm and us to develop a great business. For the travel space, if we look at hotels for our merged entity, only 10% of hotels are booked online — that will be a much larger percentage over time. Within online, our combined business is really strong.
This article was originally published on TimesOfIndia
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