Big three Russian e-commerce company Ozon Holdings says it will IPO either at the end of this year or the start of next, depending on market conditions, Sova Capital reports.

E-commerce is booming in Russia, with online sales growth twice as fast as traditional channels. And the four biggest companies – Ozon, Wildberries, Sber and Yandex – in the space are growing even faster at up to 80% a year, Ozon CEO Alexander Shulgin told bne IntelliNews in an exclusive interview in September 2019

Ozon is owned and has been funded by conglomerate AFK Sistema but has reached a stage in its development where it intends to scale up by reaching out to institutional investors.Sistema is dual listed in London and Moscow, and Russia’s leading private equity fund Baring Vostok are Ozon’s main shareholders. Sistema controls 43% of Ozon: 31% direct ownership and 13% via Sistema VC in which it holds 80%.

“We think Ozon’s IPO could provide a powerful catalyst for Sistema in the short term. According to The Wall Street Journal, OZON could be valued at $3-5bn, which we think could be higher than what the market is currently pricing. On our estimates, this potential range implies 2020E EV/GMV multiples of 1.5x-2.4x if we assume that OZON’s GMV grows 100% year on year this year,” Sova Capital said in a note.

Sistema currently holds a 43% stake in Ozon and the IPO plans were reported by the Wall Street Journal. They were then confirmed by Reuters the next day, which reported that Ozon is intending to go public later this year, although the decision has yet to be finalised.

BCS Global Markets reminds on October 2 that Sberbank was reportedly negotiating to invest in Ozon, but, according to its sources, the talks have since stalled and the plan has shifted to IPO.

"We believe IPO would make sense – e-commerce is now a hot topic, which makes it easier to get an attractive valuation for the asset. This could bring upside to our estimate on Sistema’s NAV [net asset value], especially if done around the targeted range," BCS GM commented seeing the news as positive.

According to sources quoted by The Wall Street Journal, OZON could be valued at $3-5bn. The e-retailer has already confidentially filed paperwork with the SEC for an IPO, according to The Wall Street Journal. Reuters reported that talks with Sberbank over the bank receiving a minority stake in Ozon have apparently stalled, and the online retailer is now planning an IPO instead.

Ozon is likely to spend the proceeds from the potential placement on its further development. The company aims to spend over $300mn on logistics, add c. 2.7mn square feet of distribution space and open five fulfilment hubs, according to The Wall Street Journal, citing company data.

“We see the news as highly positive for Sistema. We think OZON’s IPO would help Sistema to crystallise the value of this asset. We also feel that OZON’s potential valuation range of $3-5bn could be higher than what the market is currently pricing,” Sova Capital said. “It is not yet known how the IPO would be structured, but we wouldn’t be surprised to see that in addition to raising equity for OZON’s further development, Sistema may try to monetise some of its stake in the company as well.”

The potential valuation range indicated in the article implies a 2019 EV/gross merchandise value (GMV) of 2.9-4.9x and 2020E EV/GMV multiples of 1.5x-2.4x if one assumes that Ozon’s GMV grows 100% y/y this year, Sova estimates.

OZON’s GMV was up 115% y/y in 1Q20 and 188% y/y in 2Q20, and it kept growing by more than 100% y/y in July and August, according to Sistema.

Russian online retailers received an additional boost from the lockdown environment on the back of the coronavirus (COVID-19) outbreak this year.

According to Data Insight, the Russian e-commerce market will expand 44% y/y in 2020 to RUB2.5 trillion ($31.8bn), RUB300bn of which is due to incremental gains associated with COVID-19. This effect is likely to be a long-lasting one due to the inflow of new customers into online retail, the bulk of which will likely keep shopping online, increasing the frequency of orders and the rapid development of e-grocery services.

“The Russian e-commerce market could grow by a 2020-24E compound average growth rate (CAGR) of 33% to over RUB7 trillion in 2024E,” says Sova Capital. “We think that OZON, being the second largest multi-category e-retailer in Russia, is well positioned to benefit from these trends due to its rapid marketplace development (already over 50% in GMV reached in June) and the expansion of its logistics and fulfilment capabilities.”