SoftBank set to top its $10 bln India investment target

Bengaluru: In late 2014, when telecom giant SoftBank pledged an investment of $10 billion over the next 10 years in the Indian information technology (IT) sector, it was one of the largest commitments by a Japanese firm. Obviously, there were naysayers, who believed the Indian market was not mature enough to absorb such large cheques or that finding suitable opportunities would be hard.

SoftBank has since then proved wrong. Over the past four years, SoftBank has invested over $7 billion in India in high-growth startups in e-commerce, ride-hailing apps, budget hotel aggregation and asset managing, grocery delivery services, and payment platforms, among others. In the last one year alone, it invested an eye-popping $4.3 billion in diverse companies here. SoftBank has placed major bets on Ola, Flipkart, and Paytm, among others. (Read Fortune India story on SoftBank here)

Now SoftBank, the biggest backer of Indian consumer internet firms, is set to top its investment target and could invest $10 billion in less than its 10 years investment target period.

“We would definitely overachieve … on our commitment much ahead of time and at a much bigger scale,” SoftBank CEO Masayoshi Son said in an interaction with The Economic Times, in a report published on Monday.

This is a significant announcement, particularly for Indian consumer Internet firms as they need large pools of capital to grow and scale. To put this in context, take the example of Flipkart, which is also a SoftBank portfolio firm. While it may be a huge competitor to global giant Amazon in India, the Bengaluru-headquartered e-commerce firm has raised over $6 billion since its inception in 2007.

Without the capital fire-power, it may not have become this formidable. The company is now in talks with Walmart to sell a controlling stake, in a deal that could value the homegrown e-tailer at a whopping $18 billion to $20 billion.

Also, the announcement indicates a deeper commitment for an industry, which continues to grapple with losses and has typically not been on the investment radar of traditional private equity investors, who seek defined cash flows and profitability. Flipkart, for example, saw its losses rise by 68% to Rs 8,771 crore in fiscal year 2017, though its revenues increased by 29% to Rs 19,854 crore in the same period.

Meanwhile, Son believes that though the ease of doing business in India has improved over the past four years, there are still several challenges in the way of full-scale growth of firms here.
“The network could be better, the logistics for ecommerce could be better, the average GDP per capita and consumption should grow for the bigger business opportunities which I think is coming very soon. Those are the issues but those are the opportunities,” Son told ET.

What does SoftBank look for when it invests in a company? While several will say it’s an enigma, from the investments made so far, it seems that SoftBank looks for disruptive, asset-light business models targeting huge addressable markets.

Alok Sama, chief strategy officer, SoftBank Group, helped us understand it better.

“The notion of ‘leapfrogging’ is an essential part our Indian investment thesis. For example, SoftBank’s bet is that India never approaches car ownership thresholds experienced in the West, but rather migrates straight to a shared transportation model. Similarly, India will never likely have scaled organised retail in the form of physical department stores, but will gravitate directly toward mobile e-commerce. In finance, credit card penetration rates will likely never approach those seen in the West, but we will move straight to a tech-enabled digital finance model,” Sama told Fortune India in December end.