Is Alibaba Eyeing BigBasket To Tap India's Grocery Market?

Alibaba Group Holding Limited (NYSE:BABA) is reportedly expanding its presence in India. The Chinese e-commerce giant is in talks to buy 25% stake in India’s largest grocery site BigBasket.

However, Alibaba and BigBasket refused to divulge any information on the possible sale amount or time frames.

Alibaba plans to invest around $200 million in India’s largest online supermarket. If reports are to be believed, plans of buying out BigBasket will help Alibaba in gaining a strong foothold in India and competing with Amazon.com (NASDAQ:AMZN) .

Grocery Segment Expansion Continues

India, with a population of approximately of 1.3 billion, has encouraging demographics and the economy is also witnessing strong growth in e-commerce. Per a Morgan Stanley (NYSE:MS) research report, the Indian e-commerce market touched approximately $16 billion in 2016 and the market has potential to grow more than seven times in the long run.

However, the grocery segment in India remained largely untapped with ample room for growth. The online food and grocery (F&G) delivery market alone is estimated to be around $600 million in India and is expected to touch $5 billion by 2020 at a CAGR of 72%.Growth in this segment will be driven by high order volumes and repeat purchases of groceries.

Therefore, Alibaba is gearing up to make the most of the ongoing grocery boom in India and expand its brand visibility there.

Moreover, the Chinese internet giant is also focusing on the groceries segment in its own country. Last month, the company entered into a strategic alliance with Ruentex Group and Auchan Retail S.A. to buy 36.2% stake in China’s leading hypermarket operator, Sun Art Retail Group, from Ruentex for $2.9 billion (HK$22.4 billion) in order to cement its position in the grocery market.

Stock Performance

Shares of Alibaba have steadily treaded higher on a year-to-date basis. While the industry gained 59.2%, the stock returned 104.2%.

The robust performance of the stock can be attributed to solid growth in its core e-commerce business, strong mobile strength, international expansion as well as growing cloud-computing services.

Bottom Line

Alibaba, which carries a Zacks Rank #2 (Buy), is rapidly gaining foothold in the country through aggressive investment strategy, its execution strength and technological prowess.

In this regard, Alibaba in March had invested cash in India’s Paytm E-Commerce, the e-commerce wing of Paytm group. Alibaba and its associates also hold the largest chunk of One97 Communications’ share, which in turn has a stake in Paytm E-commerce.

The BigBasket deal could prove to be a huge competitive advantage over locals as well as bigwigs like Amazon, which recently acquired a leading natural and organic foods supermarket, Whole Foods Market (NASDAQ:WFM), Inc. for $13.7 billion. As reported in May this year, the online retail major Amazon India saw 150% growth in 2016 in its grocery segment, on the back of repeat customers and Prime membership.

We feel if Alibaba successfully acquires a stake in BigBasket, it will be a big win for the Chinese conglomerate and heat up competition, making online groceries the next battleground for e-commerce firms.

Alibaba Group Holding Limited Price and Consensus

Alibaba Group Holding Limited Price and Consensus | Alibaba Group Holding Limited Quote

Zacks Rank and Stocks to Consider

Alibaba currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Groupon Inc. (NASDAQ:GRPN) and SMART Global Holdings, Inc. (NASDAQ:SGH) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for Groupon and SMART Global is projected at 10% and 15%, respectively.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>