How Alibaba Is Expanding Its Footprint In India ?

On December 7 th , Alibaba ( BABA ) launched the "SMILE" platform in India through which the company plans to offer financing, logistics and technology solutions to 10 million SMEs (small and medium enterprises) in the country. Alibaba stated that currently 4.5 million SMEs in India are registered on the platform.. Alibaba is looking to replicate its China experience in the Indian market and build a B2B platform while developing the e-commerce ecosystem. A report by Goldman Sachs suggests that India's e-commerce market will breach the $100 billion mark by FY20, driven primarily by higher Internet and smartphone penetration. And Alibaba appears well poised to capture a share in this growing market.

See our complete analysis for Alibaba

International Expansion Can Be Key Growth Driver

International commerce (wholesale and retail) accounts for only 6% of Alibaba's valuation according to our estimates, while China business comprises nearly 80%. Though Alibaba currently enjoys dominance in the Chinese market, iResearch estimates that its C2C (consumer to consumer) market share could decline from 60% to 40%. (Read Here Are The Key Triggers For Alibaba's Stock ). Given the slowdown in the Chinese economy and increasing competition in e-commerce in China, Alibaba's international expansion can be a key growth driver in future. We expect Alibaba's international e-commerce revenues (wholesale and retail) to increase from around $1 billion in 2015 to around $3 billion by the end of our forecast period.

If Alibaba is able to capture a significant share in the Indian e-commerce market, given its SME push, and increase these revenues significantly to reach $ 5 billion by the end of our forecast period, it could lead to a 4% upside in our price estimate.

Chinese Experience Can Be Leveraged In India

In August 2015 Alibaba took a stake in an Indian e-commerce company Snapdeal and in September 2015, the company increased its investment in Paytm. This company is a mobile payments and e-commerce business in India that boasts of more than 100 million users of its wallet service, which allows online purchases without a using a debit/credit card. While Snapdeal currently has around 250,000 sellers, Alibaba plans to reach nearly 10 million sellers through its recently launched SMILE platform there who will be able to trade globally using Alibaba's platform. Currently Alibaba has around 40 million sellers and, after China, India supplies Alibaba with the largest number of SME's. With India's growing population and increasing Internet penetration, Alibaba can replicate its Chinese experience in this economy, given it started in China when Internet penetration in the country was very low. Similar to rural China, mobile phones are the main Internet access point in rural areas in India and by June 2016 it is expected that there will be 371 million mobile internet users in the country. Indian e-commerce market is developing and Alibaba's expansion into this market appears to be timed correctly. As Alibaba taps into the mobile revolution in China, it can leverage that experience to capture the growing mobile commerce in India.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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