Russian e-retailer Ulmart seeks funds ahead of planned IPO in the West

March 8, 2016 10:43 AM

Ulmart, a leading Russian e-commerce player, saw its revenues almost stagnate last year, with sales reaching just 62.7 billion rubles, up from approximately 60 billion rubles in 2014, including VAT ($1 billion and $1.3 billion, respectively). The company showed a “slightly positive” EBITDA, Ulmart’s chairman and key shareholder Dmitry Kostygin told Kommersant, a leading business daily, earlier this week.

In an email exchange with East-West Digital News, the company’s press service did not provide an explanation for last year’s stagnation. The fall in dollar terms is due to the sharp depreciation of the Russian currency between 2014 and 2015.

Thus Ulmart, which had outperformed the market in 2014 with a 50% growth year-on-year, did not do so well in 2015. As far as physical goods were concerned, Russia’s domestic e-commerce market reached 650 billion rubles ($10.5 billion) in 2015, up 16% in rubles and 3% in real terms from the previous year, according to Data Insight analysts cited in EWDN’s latest report.

The company hopes to resume stronger growth in 2016 – at least in rubles. Kostygin said that he expects the company’s sales to exceed 70 billion rubles in 2016. This would amount to some $950 million at the current rate.

Ulmart initially focused on consumer electronics, but it began aggressive expansion in new categories like DIY, auto, kid’s stuff and home items two years ago. This did not prove sufficient to fully resist the economic crisis, which has hit hardly the consumer electronics segment. Ulmart is No. 24 in the Internet Retailer Europe 500, which ranks retailers by their European online sales.

Private equity transactions and IPO plans

In spite of the recent slowdown, Ulmart is preparing itself to go public on a Western stock exchange, as announced last year. The IPO may take place either later this year or in the spring of 2017, Kostygin told Kommersant.

Ulmart is seeking to deal with private equity investors for a possible capital injection prior to the IPO, Kommersant’s sources also confirmed. However, the company’s intentions regarding the size of the stake to be sold and the final shareholder structure remain unclear.

Kostygin said that talks have been held with such potential investors as Rocket Internet, the famous German incubator, as well as Alibaba and, the two Chinese e-commerce giants whose sales in Russia have been skyrocketing recently. JD is said to have considered investing jointly with the Russian Direct Investment Fund (RDIF), but the latter finally declined the offer.

Kostygin also confirmed last year’s discussions with Baring Vostok, a major PE fund operating in Eastern Europe and an early-stage investor in Yandex and Ozon.

Baring considered acquiring an up to 15% stake in Ulmart, while Da Vinci Capital also showed interest in the company, according to Kommersant’s sources.

Right now co-founder Alexey Nikitin is selling his stake in the company — around 20% — to Mikhail Vasinkevich, another early investor in the company. The transaction, still under completion, was revealed by Kommersant based on exchanges with Kostygin and other unnamed sources.

Mikhail Burmistrov of Infoline Analitika has estimated that Nikitin’s stake could be valued at 8-9 billon rubles (from around $110 million to $122 million at the current exchange rate), “taking into account intracorporate discounts.”

In case of an IPO, the company will target a much higher valuation. Last year, Ulmart announced that the valuation would amount to no less than $5 billion to $6 billion should be considered, based on a preliminary estimate by JPMorgan and Morgan Stanley.

Giant fulfilment centers for ambitious targets

Launched in 2008, Ulmart has developed a specific model with its own offline logistics and delivery directly integrated to the online storefront. Based in St. Petersburg, the company operates 400 pickup points in more than 200 Russian cities.

Ulmart also operates “cybermarkets”, where customers make their purchases via computer screens in a super modern environment.

In November 2015, Ulmart opened a 25,500 sq. m. fulfilment center in St. Petersburg. The company plans to open two additional logistics centers in the near future in Mytishchi and Domodedovo on the outskirts of Moscow.

No less than 30 logistics centers will be required to reach the company’s turnover target of 300 to 500 billion rubles (from $4 billion to $6.8 billion at the current exchange rate), Kostygin told Kommersant.

This story first appeared in East-West Digital News, the English-language e-commerce news service based in Moscow. It is reprinted with permission.




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