Japanese communications services firm SoftBank has picked up stakes in two Indian companies — Snapdeal and Ola — in a bid to ride the wave in the Internet services segment.

SoftBank has picked a majority stake in e-commerce site Snapdeal for $627 million, making it the largest investment by a single investor in an e-commerce company in India. Ola received $210 million from a clutch of investors led by the Japanese company.

The exact size of the stake bought by SoftBank and the other investors in the two companies was not disclosed. The fresh round of funding will enable both Indian companies to play a bigger role in the burgeoning but highly competitive online services space.

The additional investment, along with SoftBank’s technological expertise, will help Snapdeal compete with market leaders Amazon and Flipkart. Snapdeal has so far lagged behind the two but the SoftBank investment means that the New Delhi-based online firm has now raised closed to $1 billion this calendar year.

Ramping up tech

Kunal Bahl, Co-founder and CEO of Snapdeal, said the money will be used to ramp up its technology and supply chain management for faster delivery of services. For example, it will have 100 fulfilment centres across 30 cities compared to 40 centres in 15 cities now. Fulfilment centres are large warehouses from where products are shipped to consumers.

In addition, the company will open innovation centres across the country, including Hyderabad and Pune, where 1,000 engineers will be hired to develop efficient processes.

Eye on buys

The company will seek to make 3-4 strategic acquisitions in the coming months, specifically in the area of mobile technology. Also in the works is an incubation centre to hone and harness start-up businesses in the mobile technology space.

For Ola, the partnership with Softbank will help provide some response to Uber’s growing popularity in the online car-for-hire market.

Speaking to BusinessLine, Ola founder Bhavish Agarwal said: “We are investing in getting into more and more cities. We are present in six cities at the moment and by the end of December 2015, we are targeting to launch our services in about 100 Indian cities.”

With these investments, SoftBank gets a stronger foothold in India. It had earlier picked up a stake in instant messaging firm Hike and mobile advertising platform InMobi.

“India has the third-largest Internet user base in the world, but a relatively small online market. This situation means India has — with better, faster and cheaper Internet access — big growth potential. SoftBank is contributing to the development of the infrastructure for the digital future of India,” said Nikesh Arora, Vice-Chairman of SoftBankCorp and CEO of SoftBank Internet and Media.

Arora, who recently moved from Google to SoftBank, will be on the boards of Snapdeal and Ola. On Monday, SoftBank announced that it would invest $10 billion in India over the next few years.

Analysts said that the transactions reaffirm the confidence of global Investors in the Indian e-commerce space. Siddhartha Nigam, Partner, Mergers & Acquisitions, Grant Thornton India LLP, said: “ Given the pedigree of SoftBank as an investor, their contribution to the success of Alibaba and their experience of building digital businesses, this is the most “strategic” investment in the sector to date.”

The article appeared in Hindu Business Line. The article can be found here.