India’s e-commerce industry shows signs of streamlining

Two news items in the last 24 hours are positive indicators that India’s e-commerce sector may be going rational.

The first is the announcement that MakeMyTrip will buy Ibibo from Naspers in an all-stock deal to combine the two travel companies. In a rare show of applause for an acquirer, shares of MakeMyTrip soared 44% in US trading, giving the company a market value of more than $1.2 billion.

The second slice of happiness comes from a report from Jefferies that summarizes the results of the Diwali festive shopping season that ended about 10 days ago. Bits of the week-long frenzy have been reported since the first week of October, analysts Arya Sen and Ranjeet Jaiswal summed it up in a brief note overnight.

“Our channel audits suggest that Flipkart and Myntra exceeded their respective internal targets and grew 50%-100% year-over-year despite lower discounts than last year.”

The focus is on me, and it deserves to be highlighted. It’s unclear how reasonable internal targets were for e-commerce businesses this season, but a decrease in discounts is important if the industry is to defend itself and slow cash burn.

A Mint report citing multiple unnamed sources indicates that Flipkart is tightening its belt with minimal to no impact on sales. Its marketing budget was half that of rivals Amazon India and Snapdeal, but it still shipped 15 million units during the Big Billion Days sale from October 2-6, nearly double the 8 million estimated by Jefferies that the company shipped last year. Mint also reported positive sentiment from Amazon India, with the overseas entrant happy with its results meeting expectations.

Flipkart’s Festive Deliveries

15 million units

I have no doubt there is a lot of spin going on, with all the players trying to present themselves as winners during the crucial annual sales season. But the fact that they even report restrained marketing budgets and lower discounts is in itself an acknowledgment of the issues that need to be addressed.

© 2016 Bloomberg L.P.