Investment in Ola and Snapdeal caused a loss to SoftBank

Posted on February 9, 2017

The Japanese telecom and internet giant, Softbank, has been one of the major investors of Ola and Snapdeal. It has been funding the two companies since 2015. But so far it has not received the expected returns on investments and has recorded a financial loss. SoftBank has recorded a loss of US $350 million or Japanese ¥39,281 in the third quarter (Q3), which ended on December 31^st, 2016. The same bank had recorded a profit of US $968 million Japanese ¥108,426 million during the same quarter (Q3) in the year 2015. ANI Technologies and Jasper Infotech Private Limited are operating under the trade names Ola and Snapdeal respectively. Read more on Ola

In a filing following its quarterly results, SoftBank said: “Gain or loss arising from financial instruments at FVTPL comprises mainly of changes in fair value of preferred stock investment including embedded derivatives, such as ANI Technologies and Jasper Infotech Private Limited in India, designated as financial assets at FVTPL.”

Prior to this quarter, SoftBank had also recorded a loss of US $ 550 million for the six months from April to September, 2016, which consists of Q1 and Q2. These loses could also be due to currency fluctuations and accounting norms and may not reflect the actual performances of the companies.

Both the companies are doing quite well but are facing stiff competition and heavy discounting from competitors. Both the companies are looking to raise additional funds to take on competitors (Uber for Ola and Olx and Quikr for Snapdeal). SoftBank became the majority shareholder in Snapdeal when it had invested US $627 million in August, 2014. However, Snapdeal had also raised US $500 million through other investors like Alibaba Group and Foxconn Technology Group in August, 2016. Snapdeal has also raised an investment of US $200 million from Ontario Teachers’ Pension Plan of Canada, during this month.

The Government of India must be proactive and fund and incubate Indian startups like Ola and Snapdeal. Indian firms should not be brought to the level where they “beg” foreign firms and banks for investments. The Government of India must impose limits on the amount of discounting companies are allowed to give in a particular sector. This will ensure fair competition and level playing field for Indian firms and startups. Otherwise foreign firms like Uber and Amazon will dump their vast capital in India and offer heavy discounts for their products and services. While this strategy may cause minor loses to them initially, it will help them acquire customers and in the long run, eliminate local competitors like Ola, Flipkart, Snapdeal etcetera. Unlike China, we musn’t totally eradicate or restrict FDIs and unlike USA, we mustn’t be totally overrun by FDIs. There has to be a balance and there have to be restrictions to ensure fair competition for both domestic and foreign firms in India. Read more on Startup News