Amazon has been on a mission to be at the pole position in the Indian eCommerce market. Given the current pace of expansion for Amazon India, a report by Bank of America Merrill Lynch says that India will be the largest market for Amazon, outside the US.
As per the report, Amazon’s India unit will account for over a fifth of the total international sales of Amazon by 2025, hitting over $81 billion in gross merchandise value (GMV) and $2.2 billion in operating profits.
While the report estimated Amazon’s growth, it also said that Flipkart, the homegrown eCommerce platform, will continue to be the market leader even though Amazon India is closing the gap.
The report said that Amazon’s GMV market share will improve to 37% by 2019 from 21% in 2015, just behind Flipkart’s 44% market share. The report further says that the market share of Snapdeal will fall from 14% in 2015 to 9% by 2019.
Currently, Amazon is losing around $1 billion in India annually right now, claims the report. It estimates India GMV in 2015 at $3.7 billion which has been claimed to increase to around $5.5 billion in 2016.
The report by analysts Justin Post, Sachin Salgaonkar and Akshay Bhatia, said:
India revenue is small today, but the investment is financially relevant as the Amazon could be losing $0.5-$1Bn a year. Longer-term, by 2025 estimate Amazon India could generate $81Bn in GMV (~20% of total International GMV) and $2.2Bn in operating profit.
It estimates that Amazon India could reach around $23.7 billion in gross merchandise value (GMV) and $2.6 billion in revenue by the year 2020.
In order to be the market leader, Jeff Bezos had invested around $2 billion in the Indian unit. Later, he committed additional $3 billion for the Indian unit, making $5 billion in total investment for the Amazon India. Since 2015, Amazon Seller Services has already received Rs. 8,618 crore, and over Rs 9,600 crore since it was set up.
Estimating about the company’s margin, the report says that:
India profitability will depend on Amazon’s investment posture, which is somewhat unpredictable. However, longer term, assuming Amazon continues to operate a marketplace only model in India, it is possible that Amazon India could realize a margin profile similar to eBay’s operating margin in mid-30’s.
For now, we believe India could see lower margins due to competition, lower take rates relative to what Amazon receives in the US and Europe, and logistics challenges, so we assume 20% long-term.
Along with introducing Amazon Prime in India, and partnering with prominent film makers for Prime Video, the company has also expanded its infrastructure to ensure smoother deliveries. By the end of this year, the company aims to have 27 FCs across states covering a total area of close to 2.5 million square feet and a storage capacity of 7.5 million cubic feet.
This infrastructure development is aimed to support Amazon Prime deliveries and to enable faster order fulfilment in the upcoming festive season. It currently has 12,500 IHS centres across 50 cities for facilitated last mile delivery through small stores.