Nikhil Subramaniam, Author at Inc42 Media https://inc42.com/author/nikhil-subramaniam/ India’s #1 Startup Media & Intelligence Platform Sat, 27 Jul 2024 18:48:34 +0000 en hourly 1 https://wordpress.org/?v=6.4.1 https://inc42.com/cdn-cgi/image/quality=75/https://asset.inc42.com/2021/09/cropped-inc42-favicon-1-32x32.png Nikhil Subramaniam, Author at Inc42 Media https://inc42.com/author/nikhil-subramaniam/ 32 32 Zerodha, Groww In Revenue Storm  https://inc42.com/features/zerodha-groww-revenue-sebi-rules/ Sun, 28 Jul 2024 00:00:04 +0000 https://inc42.com/?p=470257 The likes of Groww, Zerodha, Angel One and others have seen unprecedented growth in the past couple of years, adding…]]>

The likes of Groww, Zerodha, Angel One and others have seen unprecedented growth in the past couple of years, adding millions of active investors to their platforms. But this good run has seen two separate setbacks this month.

On July 1, SEBI decided to halt the zero-brokerage facility on discount broking platforms such as Zerodha, Groww, Upstox, among others, a move that was largely seen as tackling the massive surge in futures and options trading.

The second setback came via this week’s Union Budget (see highlights from our coverage below.) A hike has been proposed in capital gains tax and securities transaction tax. We’ll delve into why these taxes were hiked, but common sense dictates that retail investors are more likely to think twice about how much they now want to invest.

Together, these two developments threaten to disrupt the investment tech gravy train, and the risk of Jio Financial Services coming in and grabbing the market cannot be underestimated. So what happens to the top two players — Groww and Zerodha?

Let’s find out, after we go through the top stories from our newsroom this week:

  • Josh Fizzles Out: VerSe Innovation’s Josh is faltering after failed monetisation models, 80% YoY dip in monthly downloads and 50% decline in monthly active users. Will it drop off like other short video apps?
  • The Soothe Story: What’s surprising about women’s hygiene startup Soothe Healthcare entry into the INR 100 Cr revenue club is how it got there despite not playing by the rules of the D2C game. Here’s why

Budget Blues For Groww, Zerodha

Before we get to the impact from SEBI’s changes, let’s see what changes for Groww, Zerodha and others after the Union Budget.

The finance minister proposed increasing the rates of STT from 0.0625% to 0.1% on options and from 0.0125% to 0.02% for futures. Short term gains on certain financial assets will attract a tax of 20%, whereas the long term capital gains on all financial and non-financial assets, on the other hand, will attract a tax rate of 12.5%.

Many have called the budget a deathblow to the rapidly growing investment tech space as retail investors reassess their exposure to taxes.

Industry experts believe that this will largely impact F&O trading, which has seen exponential growth in the past year. As per the latest SEBI’s monthly bulletin, the equity derivatives volumes of the two bourses saw a whopping 71% YoY growth to INR 9,504 Lakh Cr in May 2024.

This growth has coincided with investors flocking to discount broking platforms. Groww now boasts over 10 Mn active investors as of May 2024, with Zerodha trailing at 7.5 Mn and Angel One not far behind at 6.5 Mn.

F&O and intra-day traders contributed to the revenue and user growth (more than 80%) for discount broking platforms such as Zerodha, Groww and Angel One, as per industry sources.

  • Zerodha’s operating revenue grew 37% to INR 6,832 Cr in FY23 — fees and commission charges accounted for 84% of this total.
  • Groww’s operating revenue more than tripled to INR 1,277.8 Cr in FY23, with the company breaking into profits. A whopping 95.9% of its revenue came from subscriptions and commissions fees in FY23.
  • For publicly-listed Angel One, broking fees constituted 65% of the overall revenue in Q1 FY25.

The tax shock is likely to pull back the growth in FY25 to some extent, when combined with the hike in STT.

Zerodha cofounder and CEO Nikhil Kamath tweeted on budget day that the STT increase could increase tax collections by up to 66%, if trading volumes don’t drop. Kamath expects this to go up to INR 2,500 Cr annually from October, based on 2023 volumes.

Though he did not elaborate on how or whether this will affect trading activity, others say the budget has all but ended the frenzy around F&O, intra-day trading.

“Zerodha contributes 20% to the retail trading volumes of stock exchanges in India. Groww’s active user base was more than 11 Mn in June. Broking companies which have the highest market shares will get hit the hardest by these changes,” a Bengaluru-based wealth management app’s founder told Inc42 this week.

SEBI’s Slap

Now let’s step back to early July when SEBI asked MIIs such as broking platforms to levy a uniform exchange fee, irrespective of volume or turnover. They can no longer offer any rebate to traders for bringing in more volume through their platforms.

The regulator pressed ahead with the change as many platforms were nudging retail traders towards F&O trading. This is expected to push up the brokerage costs especially for investors who have become habituated to zero or near-zero fee structures.

Here’s how it used to work: Stock exchanges impose a transaction fee on trades executed on their platform, which they charge to brokers on a monthly basis. This fee constitutes the main revenue stream for any stock exchange such as NSE or BSE. In Q4 FY24, for instance, 74% of NSE’s revenue came from income from transaction fees.

While the exchange applies these transaction fees on a monthly basis, broking platforms charge their clients fees on a daily basis. The difference between the collected fees and the actual fees paid to the exchange is the net margin for the broking platform. Suffice to say, driving traffic on a daily basis is important for these platforms from the point of view of overall profitability.

“A majority of new investors in India prefer discount broking platforms such as Zerodha or Groww or Upstox or Paytm Money because of the zero-brokerage model. But now we have to let go of the zero-brokerage structure and increase brokerage for F&O trades from October 1,” said the cofounder of a Bengaluru-based discount broking platform.

In fact, zero brokerage was a USP, but now it’s gone. In the case of Zerodha, the change is expected to have a 10% impact on revenue, according to CEO Kamath.

The founder quoted above said platforms have lost the incentive to generate huge turnovers as this directly impacts margins at scale. The market making activity will be adversely impacted in the long term. Brokerage fees will also rise in the long run because intermediaries such as depositories and advisories will attempt to recover revenue losses.

Jio Waiting To Pounce

What will be really interesting to see is where the three largest platforms ended up in FY24 after flying high in FY23. If anything, we expect revenue to be at record levels for all the players due to the boom in F&O trading.

The financial performance is going to be even more under the spotlight when Jio Financial Services enters the market. Competition in this space is only growing, and existing players were all extremely bullish about growth — at least before July 2024.

Paytm is redoubling its efforts on this front as it looks to diversify revenue reliance on payments.

Walmart-owned PhonePe continues to press the accelerator on its investment platform Share.Market, which is a key part of its super app plan. CRED acquired investment tech startup Kuvera in January to enter the fast-growing wealth management space and expand its platform play.

As we wrote a few weeks ago, Zerodha, in particular, has lost pace to rivals such as Groww and Angel One. With IPO season in full swing (at least for the new-age tech companies) and likely to continue well into 2025, investor activity was expected to surge as these platforms competed for every trade.

What happens now after the double blow of SEBI changes and the changes from the budget? A stormy July has left Zerodha, Groww and every other player at a disadvantage after the boom of the past two years.

Best Of The Union Budget 2024-25

  • Nirmala Sitharaman’s budget signalled that the government is looking at startups not as a separate class of businesses but as a key component of the business landscape at large. Here are the key takeaways
  • Angel tax was an albatross across the neck of all Indian entrepreneurs for 12 years, and now the battle has been won, writes 3one4 Capital founding partner Siddarth Pai
  • The INR 1,000 Cr VC fund for space tech shows the government’s faith in the space economy, and is a strong validation for the innovation in the sector, according to Vishesh Rajaram, managing partner at Speciale Invest
  • While the abolition of angel tax has come as a big relief, now the government needs to dismiss pending cases, urges Mohandas Pai, the former CFO of Infosys and partner at Aarin Capital

Sunday Roundup: Tech Stocks, Startup Funding & More 

  • Weekly investment activity fell to a new low for 2024, as just $43 Mn was invested into Indian startups this week. Effect of the Union Budget?
  • The blame game continues in the WazirX crypto heist as the company pointed at digital asset management platform Liminal as being the weak link, which in turn laid the fault at WazirX’s doors

  • Electric vehicle maker Ola Electricis is set to open its IPO on August 2 and has filed its red herring prospectus in preparation for the public listing
  • Apple is set to begin manufacturing high-end iPhone Pro and Pro Max models in India, starting with iPhone 16 series, as it looks to further move production away from China

The post Zerodha, Groww In Revenue Storm  appeared first on Inc42 Media.

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[Key Takeaways] Decoding The Budget For Startups: Mixed Bag For Taxes; Big Boost For Manufacturing https://inc42.com/features/union-budget-2024-startups-taxes-manufacturing/ Tue, 23 Jul 2024 14:19:02 +0000 https://inc42.com/?p=469480 Finance minister Nirmala Sitharaman only mentioned the word ‘startup’ twice in her entire Union Budget 2024-25 address, but the budget…]]>

Finance minister Nirmala Sitharaman only mentioned the word ‘startup’ twice in her entire Union Budget 2024-25 address, but the budget itself had plenty in it for the evolving startup ecosystem, including companies in the manufacturing and MSME spaces.

Indeed, this year’s budget address signalled that the government is looking at startups as part of the corporate world at large, given many of the broader measures and the budgetary allocation for large sectors and industries.

The biggest announcement for startups was related to the abolishment of the contentious Angel Tax for investors in all classes, which would be a big relief for startups, but pending Angel Tax investigations are still a sore point for many startups.

In terms of sector-specific allocation, India’s spacetech startups are under the spotlight once again in the Union Budget 2024, but besides this, the biggest push has come for the manufacturing industry.

Additionally, the Union Budget 2024-25 showed that the government is looking at uplifting the MSME sector and startups in a big way by expanding the various credit access platforms available to this class of businesses.

For individuals, though, not much relief was found from the current tax regime in the Union Budget 2024. While some adjustments were made to the income tax structure, the bigger focus has been on increasing the tax collection by targetting the growth seen in securities and derivatives trading.

Sitharaman also spoke about the government’s focus on digital public infrastructure (DPI) for modernising agriculture, healthcare, finance, ecommerce, education, law and justice, logistics and other key areas. These are undoubtedly areas that Indian startups can target.

For instance, land records in urban areas are set to be digitised with geo information systems (GIS) mapping, while sector-specific databases will be created under the Digital India mission to improve data governance, collection and processing.

Here are the five key areas that were under the spotlight during Sitharaman’s 90-minute Union Budget 2024-25 address:

Huge Focus On Skilling, Employment 

  • One-month wage to all persons newly entering the workforce in all formal sectors
  • Incentive boosts for employers and new employees in the manufacturing and other sectors
  • 1,000 Industrial Training Institutes will be upgraded around skill-focussed outcomes
  • Loans for upskilling and higher education in domestic institutions

As expected in the run-up to the Union Budget 2024, Sitharaman focussed heavily on encouraging new employment and job creation in key sectors.

Job-creation measures included the new internship scheme, EPFO-based benefits for employees and employers as well as a focus on skill development through the Industrial Training Institutes.

In addition to the PLI schemes that have catapulted India in the global supply chain market, the government is looking to encourage investments in large-scale manufacturing and formal sectors by rewarding employers for hiring new workers.

Those in the manufacturing sector, in particular, stand to benefit as the pace of new job creation is higher in this sector as compared to the services industry. We can see these incentives driving investments in new manufacturing units for semiconductors, automotive and EV industry, while the already booming electronics manufacturing industry is likely to expand its base in India — especially when you read these changes along with the lower customs duty on many critical raw materials and inputs (more on this later).

Interestingly, the budget speech did not announce any particular government investments in the semiconductor manufacturing space, preferring to focus on incentives that cover the entire gamut of manufacturing. In the past year, the government set aside INR 1K Cr to fund semiconductor design startups, along with a $10 Bn allocation for semiconductor manufacturing research and design.

Budget 2024 Brings Mixed Bag For Taxes

When it comes to tax-related changes, Sitharaman’s budget dished out the good news with an equal measure of the bad.

Firstly, most startups will welcome the abolishment of Angel Tax, which has been a thorn in the side of early-stage startups for the past six years when the IT department began looking at potential violations and sending notices to companies and their investors.

Ever since it was introduced in 2012, the Angel Tax clause was used to harass startups whichraised capital from investors, often at a premium based on valuation reports. The tax was levied on the difference between issue price of unlisted shares and their fair market value.

The government has now abolished the contentious Section 56(2)(viib) from April 1, 2024, but several cases are still pending with authorities as we reported a few days ago. These are unlikely to be cast away without a resolution, so startups could still see some residual pain from angel tax for the time being.

In conversations with Inc42, many investors have suggested that the government needs to wipe the slate clean when it comes to these pending probes.

Equalisation Levy Removed, TDS On Ecommerce Slashed

Next, Sitharaman threw a surprise when she abolished the 2% equalisation levy often called the digital tax on foreign tech and ecommerce companies operating from India. This tax was meant to offset the loss of revenue for India from foreign companies selling services or products in India.

The change in the equalisation levy is expected to provide a lot of cheer for US-based companies, which have long asked for this tax to be removed. The change will reduce the cost of some online and digital services, such as global companies advertising in India through digital ad networks, which have to pay a 2% premium to the service provider in many cases.

For ecommerce operators in India, the government has proposed a lower tax deducted at source (TDS) rate, slashing it significantly from 1% to 0.1%. This is likely to spur on digital commerce adoption as it reduces the cost of online selling in a big way. The TDS was introduced as a way to monitor ecommerce transactions for round-tripping of funds and to prevent money laundering. Lowering this will allow the government to continue monitoring transactions for those red flags, while operators will have to incur lower upfront costs to facilitate transactions.

Concerns Over Capital Gains Tax Hikes

Finally, in what is expected to raise a lot of concerns among individual and institutional investors, the finance minister hiked the tax rate on short term and long term capital gains, as well as the securities transaction tax (STT) applied for derivatives (futures and options). From October 1, 2024 — subject to the passing of the Finance Bill — the STT on options up from 0.062% to 0.1%. STT on futures goes up from 0.0125% to 0.02%.

According to Zerodha CEO and cofounder Nithin Kamath, this would result in 66% higher STT collection from users based on 2023 volumes. The volumes themselves have grown significantly —  monthly futures and options turnover reached a record $1.1 Tn in March 2024 from approximately $27 Bn in March 2019.

These higher taxes, coupled with higher STCG and LTCG taxes, are likely to cool down some of the F&O frenzy in the derivatives market, particularly for traders with low volumes.  If the idea was to cool down the activity in the markets, this might just do the trick,” Zerodha’s Kamath said in a post on X.

Budget 2024 Boost For Spacetech Startups

Following the privatisation of the space sector in 2020, and after introducing 100% foreign direct investments (FDI) for spacetech in February this year, Sitharaman brought in more good news for the space economy.

While the contours of the dedicated space economy fund will become clearer in the next few months, we know that the focus has been on indigenous manufacturing and creating application testbeds for spacetech startups.

While the FDI route is essential for scaled-up startups and for growth funding, the government-backed fund is likely to be a big boost for startups in seed and pre-seed stage.

Besides this, exempting and lowering customs duty on minerals such as lithium, copper, cobalt and rare earth elements is seen as a critical boost for sectors such as nuclear and renewable energy as well as space, defence and telecommunications, which have overlaps in terms of the component value chain.

Fuelling Manufacturing Growth

As expected, Sitharaman’s Union Budget 2024-25 ushered in the next phase of the central government’s major focus on manufacturing.

A host of raw materials and inputs have seen a reduction in basic customs duty (BCD), which is expected to drive domestic manufacturing and is seen as a hope of reducing the cost of finished goods. These savings are likely to be passed on to consumers in key areas such as smartphones and mobile devices, EV and smartphone batteries, and finished goods that are dependent on refining minerals and chemicals.

“A comprehensive review of the customs duty rate structure will also be carried out over the next six months to rationalise and simplify it for ease of trade, removal of duty inversion and reduction of disputes,” Sitharaman said in her budget speech.

While manufacturing costs are expected to go down, the changes are also likely to reduce disputes with the customs and imports authorities over raw materials. The customs duty exemptions are for 25 critical minerals, including cobalt, lithium, copper, germanium, and silicon, many of which are vital for electronics and battery manufacturing.

In addition, the relief through reduced customs duties on gold and silver (6% vs 15% previously) and platinum (6.4% from 15.5 %) will give a fillip to gems and jewellery industry as well as other sectors that leverage precious metals for manufacturing components, such as semiconductors and electronics manufacturing.

Credit Push For MSMEs

  • Credit guarantee scheme for purchase of machinery and equipment without collateral
  • Public sector banks will build their in-house capability to assess MSMEs for credit
  • The limit of Mudra loans doubled to INR 20 Lakh for entrepreneurs
  • Expanding TReDS trade invoicing platform to boost MSME working capital
  • New SIDBI branches to serve major MSME clusters

The lower BCD on input and raw material will be critical to fuel large-scale manufacturing in electronics, space, clean energy, and other emerging industries. What did the Budget 2024-25 have in store for smaller businesses that are also looking to build India’s manufacturing capacity.

Firstly, the government plans to establish ecommerce export hubs in a public-private partnership (PPP) model to empower MSMEs and traditional artisans to sell their products in international markets.

These hubs will operate under a seamless regulatory and logistic framework, offering a comprehensive range of trade and export-related services under one roof, significantly enhancing the ease of doing business for small and medium enterprises (SMEs).

The ecommerce export hubs will be backed by over 100 food quality and safety testing labs certified by the National Accreditation Board for Testing and Calibration Laboratories (NABL), which are likely a measure to boost MSME food exports.

Further, the limit of loans provided under the Pradhan Mantri MUDRA Yojana (PMMY) will be increased to INR 20 Lakh from the existing INR 10 Lakh. The loan limit will be increased for entrepreneurs who had applied, availed and repaid MUDRA loans under the TARUN category previously.

Expanding MSME Credit Guarantees

Sitharaman also announced a credit guarantee scheme for MSMEs in the manufacturing sector. The government has provided MSMEs in the manufacturing sector with a guarantee cover of up to INR 100 Cr. “The scheme will operate on pooling of credit risks of such MSMEs, a separately constituted self-financing guarantee fund will provide to each applicant guarantee cover up to INR 100 Cr, while the loan amount may be larger,” the finance minister said.

The FM added that national banks will be tasked with creating credit assessment models for MSMEs based on a digital footprint score, instead of relying on external assessment, which rely on asset and turnover criteria.

The credit guarantee programmes should ideally allow MSMEs to secure loans from registered entities without providing collateral or a third-party guarantee. Additionally, term loans will be made available to facilitate the purchase of machinery, further supporting the growth and operational efficiency of micro, small and medium enterprises.

The post [Key Takeaways] Decoding The Budget For Startups: Mixed Bag For Taxes; Big Boost For Manufacturing appeared first on Inc42 Media.

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Union Budget 2024: How Will FM Nirmala Sitharaman Revive India’s FDI Fortunes? https://inc42.com/features/union-budget-2024-fdi-india-fm-nirmala-sitharaman/ Mon, 22 Jul 2024 17:16:44 +0000 https://inc42.com/?p=469181 In the build-up to the Union Budget 2024-25, we have noted a lot of optimism among startup ecosystem stakeholders. For…]]>

In the build-up to the Union Budget 2024-25, we have noted a lot of optimism among startup ecosystem stakeholders. For one, there’s a feeling that this budget will see heightened government spending for key areas such as foreign direct investments or FDI to drive economic growth.

We have already reported about how those catering to the consumer class have called for a focus on job creation through higher allocation for infrastructure creation and the manufacturing industry. These two areas are seen as pivotal for the Indian economic growth story, particularly as the focus has been on improving per capita income metrics by expanding the so-called middle class.

While on paper, focussing on infrastructure and manufacturing may seem obvious, it is not necessary for the Indian government to cater to this through government revenue and collections alone. The record $25 Bn (INR 2.1 Lakh Cr) surplus transfer from the Reserve Bank of India to the central government is certainly a great way to fund infrastructure spending. This gives finance minister Nirmala Sitharaman and her ministry more room to spend without expanding the national fiscal deficit.

Recent statistics from the RBI also highlight the pressing need to alleviate issues in the way of FDI in India. The country saw a significant 62% drop in FDI inflows in FY24, with the total FDI figure falling to $10.58 Bn.

India’s position fell from 8th in 2022 to 15th in 2023 in global FDI inflow rankings. Even though FDI inflow declined in 2022 as well by 10% compared to 2021, the total investment was still close to $49 Bn. In light of this, analysts have called for a sharper focus on policies and measures that will drive foreign direct investment in line with global investing themes such as ‘China+1’, cleantech and green energy, AI development as well as digital banking and financial inclusion.

Besides this, it is expected that the upcoming budget may relax FDI regulations for growth sectors such as defence, and agriculture, thereby attracting more investments and fuelling job creation.

Will Budget 2024 Fix FDI Blues?

In February’s interim budget, the finance ministry increased allocation by 33% for the PLI schemes related to manufacturing. But as per those in the manufacturing industry, sharper focus is needed across 14 key sectors that are linked to manufacturing.

So far, the government’s push has primarily been on electronics manufacturing, which has seen consumer tech giants such as Apple, Samsung and Google increase their manufacturing footprint in India through local partners.

As per the India Cellular and Electronics Association (ICEA) data, India’s electronics manufacturing output reached a record-breaking $115 Bn market in FY24, with $29.1 Bn in electronics exports, making electronics the fifth-largest export category from India.

With PLI schemes restricted to certain sectors of manufacturing, foreign investments — whether it is in capacity building or capex — are restricted to those sectors alone.

Besides smartphones and mobile devices, analysts have called for a big push on pharmaceuticals, automobiles, semiconductors, toys, textiles, apparel, and commercial aircraft. According to Kaushik Mudda, cofounder and CEO of deeptech startup Ethereal Machines, the PLI schemes need to be tailored such that the benefits can trickle down the manufacturing value chain, with component makers and those creating manufacturing tech also garnering foreign investments.

“While the budget announcements are awaited, I think the government’s preliminary steps are on the right track as it has covered the first layer to start with. But if it wants to achieve the scale it is looking at in a very short span of time, the government should start thinking a bit broader,” the CEO of Ethereal Machines added.

Fuelling China+One Movement

A day ahead of the Union Budget, the Economic Survey suggested that increased FDI inflows from investors looking to diversify away from China can be a big boost for India.

“China is India’s top import partner, and the trade deficit with China has been growing. As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them,” the survey stated.

Will FDI Chase Green Manufacturing? 

Besides these expectations, those working in the green energy and cleantech space pointed at the disparity in the PLI schemes in the energy manufacturing sector.

For instance, a majority portion of the INR 19,744 Cr PLI budget for green hydrogen goes for the production of green hydrogen molecules and manufacturing of electrolysers at scale, and those who miss out are companies working in capacity building such as manufacturing efficiency, supply chain platforms and intellectual property-related models.

The current structure of PLIs in green energy manufacturing is in favour of importing existing technologies, rather than building up India’s capabilities in areas that are imports-reliant.

In this regard, one key expectation of those in the climate tech sector is introduction of green FDI through international carbon market mechanisms. This would not only attract capital for decarbonisation efforts but also put India among the leading nations for climate-related innovation.

The climate tech industry feels that the budget allocations over the years have failed to support the scaling up of renewable energy infrastructure. Reducing customs duties on imports for the solar energy industry, expanding green and climate finance through registered entities, and revising GST on renewable energy production and sources could be some signals to international investors to back Indian businesses.

A January 2024 report by the World Economic Forum and Bain & Company ranked India as the world’s third-largest economy in terms of energy requirements, with energy demand projected to increase by 35% by 2030. In 2022, India’s energy import bill totalled $185 Bn, which underscores the need to build green capacity to support domestic energy demand.

A Game Of Taxes, Subsidies And Exemptions

Ease of doing business has always been a hot topic in India. The policy measures over the past 10 years have certainly improved India’s position in this regard, but taxation remains the single biggest sore point for foreign investors in India.

As ever, the industry is eyeing proposals from the finance minister that will reduce the tax burden on companies and individuals, as well as more simplified compliance procedures to resolve tax-related issues.

These are considered to be vital to fuel private equity inflow into Indian startups as well as companies in hot sectors. The wide expectation is a reduction in corporate tax rates to align with global standards, making India a more attractive destination for foreign investors. An economist at Kotak Mahindra Bank said that while industry-wide tax cuts are unlikely, key sectors that desperately need FDI for growth and capacity building need to be given a longer rope.

For instance, the manufacturing industry believes that an extension of the sunset date for the 15% tax regime for new manufacturing entities by another fiscal year will prove to be a major factor pulling in FDI.

The current scheme allows for a 15% tax rate for manufacturing companies set up on or before March 31, 2024. Many believe that in addition to production-linked incentives in manufacturing (PLI), the favourable tax positions for new manufacturing companies will drive FDI in this space, which is interlinked with several other sectors.

Despite the relatively cushy position of the central government given high tax collections and the RBI dividend, economists and analysts caution against overenthusiasm on issues such as changes in the long-term capital gains exemption thresholds, or significant tax breaks for sectors such as healthcare, education and others.

On the other hand, tax rebates could be seen in investments in climate tech and green energy, but as expected there is no certainty on how this might be implemented by the government. “If tax incentives in climate tech necessitate fresh investments, this could make large-scale investments in conglomerates attractive, but it won’t exactly be a boon for MSMEs or startups. We’ll have to wait and see how the government looks to enable smaller businesses in this space as the focus is always on large-scale energy production,” said the Kotak economist quoted above.

As reported by Inc42 last week, Indian startup investors are looking forward to clarity on tax liabilities, prevent double taxation, and offer favourable tax treatment to entities redomiciling to India. The experiences of PhonePe, Groww and other startups has shown that reverse flipping isn’t without its pitfalls.

Archit Gupta, cofounder and CEO of fintech unicorn Clear, told Inc42 that advance rulings or certifications from tax authorities regarding the tax implications of redomiciling will provide certainty to startups and foreign investors.

The industry experts said that tax exemptions or reductions for strategic relocations, especially for startups in priority sectors could be a massive boost for FDI. The “Onshoring Indian Innovation to GIFT IFSC” report suggested a comprehensive scheme to help startups relocate to India in a tax-free manner, implementing parts of which could be the way forward.

Indian founders are hopeful that the upcoming budget will endorse the report, allowing flipped startups to redomicile with the lowest possible tax burden, reducing the tax burden for investors in India in the short and long run.

The post Union Budget 2024: How Will FM Nirmala Sitharaman Revive India’s FDI Fortunes? appeared first on Inc42 Media.

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Can Paytm Bounce Back After ‘Hopeful’ Q1? https://inc42.com/features/paytm-q1-vijay-shekhar-sharma-optimistic/ Sun, 21 Jul 2024 00:30:44 +0000 https://inc42.com/?p=468816 There’s optimism within Paytm again. In fact, founder and CEO Vijay Shekhar Sharma said the Q1 FY25 results mark the…]]>

There’s optimism within Paytm again. In fact, founder and CEO Vijay Shekhar Sharma said the Q1 FY25 results mark the end of tough times for the Indian fintech giant.

Sharma lauded the company’s resilience and the capability of Paytm’s products, and said now the target is to head towards profitability in this fiscal year. This bullishness is not unwarranted, but there is still a long way to go before Paytm is back to where it was even three quarters ago.

One year ago, we said Paytm was knocking on profitability’s doors, and the momentum definitely seemed to be carrying the company towards this milestone after the bloodbath on the stock market post listing. However, since then, it has been a season of adjustments, reassessment, scaling back and preparing the Paytm machinery for leaner times.

After the Q1 results, it’s clear that Paytm has taken some steps forward, but there is a lot more of the mountain left to climb for Sharma and Co. This Sunday, we are looking to bring more context to Paytm’s Q1 results, in light of what’s happening in the market.

But as usual, a look at the top stories from our newsroom this week:

  • Shein’s Second Innings: Shein is back in India with a little help from Reliance Retail, but can the fast fashion behemoth recreate the magic that worked for it in India before the ban in 2020?
  • BYJU’S Vs Bankruptcy: After months of speculation, BYJU’S was finally hit with insolvency proceedings this week, and the company is precariously close to being auctioned for its parts as creditors look to settle matters
  • Looking Ahead To The Budget: While most Indians would welcome tax rate cuts with open arms, the Union Budget 2024 need to look at long-term measures to boost consumer spending and the Indian startup story

Where Paytm Stands After Q1

Much of Paytm’s optimism at the end of Q1 stems from the fact that new merchant signups are reaching January 2024 levels and there has been an increase in payments GMV — both are critical indicators of the health of the company. Merchant stickiness is more important than consumer stickiness for Paytm, given the better unit economics on the merchant side and the ability to continually cross-sell products.

There was only a marginal increase in the merchant subscriber base to 1.09 Cr, but daily merchant payment GMV (excluding discontinued products) went back to January 2024 levels, much before the downturn began.

CEO Sharma claimed that this is the beginning of the end of the tough times. “This quarter reflects the full impact of the challenges we faced. As a team, we are committed to navigating through these times with a focus on compliance. My team and I are committed to ensuring we return to profitable quarters,” Sharma said.

But this optimism hides just how much more climbing Paytm has to do.

— Paytm reported a net loss of INR 840.1 Cr, more than double quarter-on-quarter

— Operating revenue fell by 36% QoQ to INR 1,502 Cr

— Plus, revenue from financial services (loans primarily) was down by 8% to INR 280 Cr

On personal loans, Paytm’s focus is on the distribution side and the company is looking to add more bank and non-bank partners to diversify its revenue streams. This particular change and the retreat from lower ticket size loans has nearly halved the revenue from financial services.

In other words, Paytm is not completely out of the weeds.

The Uphill Climb Continues

For one, Paytm has not exactly cut down on all expenses. While employee costs have lowered as a result of layoffs, there’s a lot more that needs to be done.

The scale of the potential layoffs and restructuring can be understood by the fact that Paytm reported just over 31K employees in the sales team as of Q1 FY25, which is down from 35K employees in Q4 FY24. In three months, the company has let go of nearly 5K employees from the sales team, but this is a drop in the bucket when considering Paytm’s target of saving INR 500 Cr in employee costs in FY25.

In Q1 FY25, indirect expenses (excluding ESOP costs) rose to INR 1,301 Cr from INR 1,186 Cr in the previous quarter and INR 1,220 Cr last June.

Even though employee cost has come down by 9% QoQ, it is still higher on a YoY basis. “Given the focus on merchant acquisition, we will continue to invest in the sales team while having a higher focus on productivity of sales employees,” Paytm said.

Further, marketing costs were also higher during the quarter since the company had to spend heavily to communicate the changes to its platforms after the RBI action. “Cost-optimisation across the board will continue to be our key focus area and we will continue to be disciplined about our overall cost structure.”

During the analyst call on Saturday (July 20), Paytm CFO Madhur Deora said that employee costs will go down 5%-7% quarter-on-quarter. He added that the marketing expenses were higher during the June quarter because of new ad campaigns but should go down in the coming quarters as marketing activities are scaled back.

Another big challenge for Paytm is that it still cannot bring on new users for UPI payments. Given that Sharma said the next few quarters will see a bigger push on the payments front to become a cross-selling channel, changing this will be crucial for Paytm’s future growth.

“In the process of completing technology and consumer migration. The merchant migration is completed, but on the consumer side, it is a multi-bank system, so all banks have to participate and our primary partner YES Bank has to also expand on certain technologies. We’re at the tail end of the migration on the consumer side and we can go back to the NPCI to request to add new users,” Sharma said.

Jio-Sized Threat For Paytm & Co

Of course, the competition is watching Paytm and many rival payments platforms are grabbing users and retaining them with new loyalty programmes and other cross-selling. Even Flipkart has jumped into the payments game and is investing heavily to grab and retain users.

And let’s not forget Jio Financial Services (JFS), which is expected to go from beta to full launch in the next quarter. JFS is essentially doing everything that Paytm was doing before the RBI action disrupted the momentum.

More entrenched players like PhonePe and Google Pay have cashed in on the vacuum left behind by Paytm, migrating its users to other banks and nodal accounts. Now, Paytm not only has to spend to get these merchants back and retain them but also compete in the cross-selling of financial services to these merchants.

But, as we said in the beginning, Sharma is optimistic and confident of beating the odds. Earlier this month, the company’s CEO said that RBI action and the fallout did take a heavy toll on his emotional and personal wellbeing, though it wasn’t the worst moment in Paytm’s 14-year journey.

“At a professional level, I would say we should have done better, there is no secret about it. We should have understood the situation better. We had responsibilities which we should have fulfilled in a better way. I think we have learnt our lesson from the issue and are making a better comeback,” Sharma said at an event in Delhi.

Despite that setback, Sharma said his vision continues to make Paytm a $100 Bn company. At the moment, that seems like a pipe dream; for now Paytm has to get back to the growth seen till January. And that will take a lot more from Sharma and the fintech giant.

Sunday Roundup: Tech Stocks, Startup Funding & More

 

  • Reliance Retail’s digital and new commerce businesses contributed 18% to the total revenue of the retail giant in Q1 FY25, while ecommerce platform JioMart saw average bill value grow 16% YoY
  • Several states, including New Delhi, Karnataka, Tamil Nadu, Goa, and Kerala, are said to be exploring allowing alcohol delivery through Swiggy, BigBasket, Zomato, and other platforms
  • Ola Electric is likely to be valued at around $4.5 Bn for its upcoming IPO, a decline of roughly 20% from its last private valuation, according to reports this week

The post Can Paytm Bounce Back After ‘Hopeful’ Q1? appeared first on Inc42 Media.

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Union Budget 2024: Bigger Focus On Consumer Spending Will Drive India Startup Story https://inc42.com/features/union-budget-driving-consumer-spending-india-startups-growth/ Sat, 20 Jul 2024 07:49:07 +0000 https://inc42.com/?p=468687 Finance Minister Nirmala Sitharaman should be more than familiar with all the pre-budget expectations for the startup ecosystem by now.…]]>

Finance Minister Nirmala Sitharaman should be more than familiar with all the pre-budget expectations for the startup ecosystem by now. The Union Budget presented in 2023 and the interim Budget of February 2024 were not exactly geared towards Indian startups. In terms of the primary expectations from the Union Budget 2024, there’s not much that has changed for Indian startups.

Having said that, there’s a feeling that this will be Union Budget focussing on the Indian startup story, at least for one major reason — the expected boost for consumer spending through infrastructure and job-creation schemes, and perhaps, even some rationalisation in the income tax slabs or rates as per the new regime.

As per media reports, speculation is that Sitharaman and the Finance Ministry have seriously considered friendlier tax measures such as cutting the rates of income tax or adding a new slab to push consumption, with a specific focus on the lower-income strata.

Reuters claimed that FinMin officials discussed making changes to the new tax regime which was introduced in 2020. Individuals reporting annual salaries of over 15 Lakh are likely to see some relief according to the agency. Besides this, the FM could announce lower personal tax rates for annual income of INR 10 Lakh as well.

The hope is that loss of government revenue through tax cuts could be partially offset by increased consumption. However, there are several economists who believe that tax rate cuts or adjustments would only be a short-term measure for boosting consumer spending.

While consumers and salaried workers would welcome tax rate cuts with open arms, boosting consumer spending and growth for Indian startups would need more long-term measures and capital allocation to areas that will propel consumption indirectly.

For instance, an economist at a national Indian bank told us that the lower taxes may not necessarily spur consumption. “The drop in consumption demand in India is largely led by the rural sector. This has corrected to some extent, but providing tax incentives which will majorly accrue to the urban organised sector workers, is unlikely to have the desired outcome on rural consumption. We need to look beyond taxes as a way to drive spending,” she added.

Looking Beyond Tax Rates

Analysts also believe that rural demand is slowly rebounding after remaining subdued throughout FY24, due to persistent inflation, slow growth in wages and other spending constraints.

Nielsen IQ reported in May 2024, India’s FMCG and consumer brands sector witnessed rural consumption growth in volume terms in the January to March quarter, and outpaced urban consumption for the first time in five quarters.

Rural consumption grew at 7.6% year on year (YoY) in the quarter, while urban consumption stood at 5.7%. In contrast, YoY rural volume growth was at 5.8% in the previous quarter, while urban consumption was at 6.9%.

Interestingly, the rural-urban consumption equation has flipped on the back of growth for non-food consumption, with a growth rate of 12.8% in the January-March quarter, led by beauty, personal care & home care categories. It is vital to continue fuelling this trend with non-tax measures as well as tax rebates.

So Indian startups with B2C models are also advocating for more spending in rural areas, particularly in infrastructure, manufacturing and agriculture, which will fuel job creation and revitalise the economy outside the large cities and metros.

Instead of tax sops and rebates, infrastructure-related measures such as improving last-mile connectivity in the logistics sector would be more beneficial for D2C brands and Indian startups. “The 2024 budget needs to focus on infra and manufacturing as this would improve demand fulfilment and reduce cost of doing business for brands in the long run. These savings can be passed on to consumers eventually,” the economist quoted above added.

These measures are critical as net household savings in India have declined from 22.7% of GDP in FY21 to 18.4% in FY23, as per the National Account Statistics 2024 data, released by the Ministry of Statistics and Programme Implementation (MoSPI).

Manufacturing Is Key For India’s Future

For many of the stakeholders in the consumer tech and products space, the government’s larger push on the manufacturing front is encouraging, since it creates jobs and drives consumption organically.  But more needs to be done in this regard.

In the past we have seen companies keep capital expenditure for new machinery and plants low when they are uncertain of demand. While the government has looked to increase capacity by incentivising exports and through production-linked incentives, these are still early days for these schemes.

Driving corporate investment in manufacturing calls for better visibility of consumer demand, which is where short-term tax rebates might provide a helpful hint. Tax cuts need to be applied along with long-term measures as this will allow for consistent growth.

“Job creation translates into more money in the hands of consumers and helps to kick-start the economy in places that need most help. Additionally, investments in agriculture bolster the rural economy and stimulate consumption across stratas,” said the founder of a Delhi NCR-based healthy food brand.

Many expect that the government will indeed look to spend more on infrastructure and manufacturing because of the record $25 Bn (INR 21 Lakh Cr) surplus transfer from the Reserve Bank of India to the central government. This gives the finance ministry more room to spend without expanding the fiscal deficit. Besides this, the higher tax revenue in the previous fiscal can also contribute to higher government spending on infrastructure, agriculture and job creation.

Any boost to the disposable income of individuals is a boon for sales and revenue generation. This includes a raft of the largest and most scaled up startups in India — ecommerce marketplaces Meesho, Amazon and Flipkart, delivery giants such as Zomato, Swiggy, Zepto and others, as well as the many new mobility platforms and thousands of D2C brands.

A Budget For Startups: Breaking The Pattern

Many economists expect that the government will not provide too much relief in income tax, because direct tax collection is an important priority for the government. Tax collections are critical for infrastructure schemes, and the government needs to have a strong and stable tax base to implement these schemes.

Over the past two terms, the Narendra Modi government’s biggest focus has been to reduce tax leakages, which has resulted in many tax-related litigation involving startups — reflected in the state of gaming startups — and large enterprises such as Airtel and Vodafone. The government is unlikely to break this pattern now and look at a short-term measure.

Indeed, it would be hard for the Sitharaman and the Finance Ministry to veer too far off from this because of fiscal deficit reduction targets. Instead, consumer spending boost is likely to come from a focus on capital expenditure, which is expected to benefit India’s middle-class in the long term. A tax rate cut, many experts reckon, will be anything but long-term and could only bring a short-term boost to consumer spending.

The RBI dividend boost and the positives from higher tax collections in the previous fiscals certainly solidifies the idea that the government will look to spend more in the hope of driving consumption for the long run.

The post Union Budget 2024: Bigger Focus On Consumer Spending Will Drive India Startup Story appeared first on Inc42 Media.

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BYJU’S Vs Bankruptcy: Will The Edtech Giant Survive The Existential Insolvency Crisis? https://inc42.com/features/byjus-vs-bankruptcy-will-the-edtech-giant-survive-the-existential-insolvency-crisis/ Thu, 18 Jul 2024 11:58:24 +0000 https://inc42.com/?p=468396 There’s no end to the bad times at BYJU’S. Three new developments threaten to kill the edtech giant, once the…]]>

There’s no end to the bad times at BYJU’S. Three new developments threaten to kill the edtech giant, once the highest-valued startup in India and considered the crown jewel of the Indian startup ecosystem till just three years ago.

  • Firstly, the National Company Law Tribunal (NCLT) has admitted a plea by the Board for Control of Cricket in India (BCCI) to initiate a corporate insolvency resolution process (CIRP) against BYJU’S. Another insolvency plea by US-based lenders has also been tacked on to this resolution process.
  • Secondly, the company has had to walk away from 100s of its offline coaching centres, as Inc42 reported exclusively this week.
  • And third, there are reports that BYJU’S has allegedly not remitted the tax deducted at source (TDS) to the Income Tax department since July last year

Either one of these can lead to an existential crisis for a company, but all three together — and the dozens of other problems at BYJU’S — threaten to bring the Byju Raveendran-led company to its knees. For instance, BYJU’S is also caught in a crisis where investors are looking to step in and wrest control of the company which is said to be out of funds. In a bid to survive for as long as possible, BYJU’S has cut more than 5,000 jobs since 2022.

The company’s many troubles have dented investor confidence considerably, with shareholders taking the company to court over a contentious rights issue, where the company is seeking fresh funds at a post-money valuation of $225 Mn. That’s a 99% drop from its valuation of $22 Bn in 2022.

But in particular, it is the NCLT order that can change the entire course of the company, which claims it is in discussions with the cricketing body for a settlement.

“As we have always maintained, we wish to reach an amicable settlement with the BCCI and we are confident that, despite this order, a settlement can be reached. In the meantime, our lawyers are reviewing the order and will take necessary steps to protect the Company’s interests,” a spokesperson for the company said.

As per a Reuters report, BYJU’S plans to challenge the NCLT order and will file an appeal in Delhi to block the insolvency proceedings.

In the meantime, the NCLT has appointed insolvency professional Pankaj Srivastava as the interim resolution professional in the BCCI matter. In addition to the plea by the BCCI, Srivastava will also hear the insolvency pleas of US-based lenders of BYJU’S Term Loan B, as ordered by the NCLT earlier this week.

For now, the company has moved the NCLAT to appeal against the insolvency process. There’s no certainty that the appeal will be successful. So what does it mean for BYJU’S and its future, if the CIRP is allowed to go on.

BYJU’S Existential Crisis

As per India’s Insolvency and Bankruptcy Code, 2016 (amended in 2021), the corporate insolvency resolution process or CIRP will commence from the admission date of the application by NCLT. Here’s a snapshot of what the CIRP entails:

What Next In The BYJU'S Insolvency Process?

While the insolvency resolution process will take several months to be settled, BYJU’S will also face headwinds in its business operations.

As Inc42 reported, the company has had to scale back its offline coaching vertical due to unpaid rent and other utility bills. This is said to have impacted more than 100 outlets out of a total of 260+ such centres that the company operates. Given the halving of this business, BYJU’S is left in a limbo.

It doesn’t help matters that the online learning business cannot make up for the slowdown on the offline front. BYJU’S inside sales efforts have not paid off and the company is running without many of the resources it relied on in the past — such as SaaS tools for CRM and sales monitoring.

Online-first is no longer the edtech DNA. It’s not just BYJU’S that is grappling with challenges in selling online learning. The industry as a whole is seeing some headwinds.

As a CEO of a rival edtech company, which also has a significant presence in the offline space, told Inc42 in May this year, the troubles for BYJU’S have hurt the Indian edtech sector. “We were only able to achieve 40% of the targets set for online courses, while offline coaching has seen more students each year.”

Earlier, upGrad’s Ronnie Screwvala also said, during an address at February’s ASU+GSV & Emeritus Summit, that due to ‘one rotten apple’, the industry is seeing reputational damage.

But the ground reality is that from Physicswallah to Unacademy to Vedantu and other edtech platforms,the focus is on offline and hybrid online-offline models where there is a more clear revenue opportunity. Many of these companies have their own share of problems — Unacademy’s attrition in leadership ranks and PhysicsWallah’s gamble on multiple products — but none of them are in a similar precarious financial position as BYJU’S.

So far, BYJU’S was paying salaries from the revenue it generated from monthly sales, as was seen in May 2024. But given that offline business has now shut down in many locations, can the company actually stay afloat on this monthly revenue collection alone?

Surviving The Insolvency Storm

What makes matters worse for BYJU’S is that any revenue that it books at this point in the year can only be recognised in the next year. “Edtech courses being sold right now are for FY26 now. For FY25, the sales cycle concluded around May 2024, which means that most companies are now targeting the next batch of students. This means revenue can only be recognised for the next year, even if sales are completed at this point in time,” according to the founder of an edtech startup that has offline presence.

Besides this, BYJU’S and edtech in general has suffered a reputation damage in the past two years. As a result, students and parents are preferring traditional offline coaching giants over edtech startups with hybrid operations.

Reports claimed the monthly salary burn for BYJU’S in April 2024 was between INR 40 Cr ($5 Mn) to INR 50 Cr ($6 Mn). Besides this, the company is saddled with a backlog of salary and the dues owed to the various vendors, which we have covered in detail here.

It’s unclear how BYJU’S can be revived, if indeed such a thing is possible. One thing is for certain, the company’s brand image has taken a beating and for the sake of business continuity, this needs to be addressed on priority basis.

Even if there is a settlement reached with the BCCI and the company staves off insolvency proceedings for now, there’s no guarantee that BYJU’S will see a similar positive result with its Term Loan B lenders. There’s also the matter of the rights issue — two separate instances — that is being heard by the Karnataka High Court and the NCLT.

Like we said at the start, this is an existential crisis for BYJU’S. From being heralded as the poster child of the Indian startup ecosystem to a cautionary tale on what not to do, the edtech giant has crashed and this is not just a matter of raising funds to extend the runway and keeping the business going.

As we have seen over the past year — ever since three directors and an auditor resigned prematurely — the current crisis is about a series of bad decisions by Byju Raveendran and the management over the years. Besides Raveendran and cofounder Divya Gokulnath, the large number of global investors and VC funds who invested in the edtech giant also need to introspect about what went wrong.

We will be looking at the investor side of things next as the BYJU’S saga plays out. What exactly will the shareholders be left with if the company goes under the auction hammer? And is there a sense that they could have arrested BYJU’S slide much before the company entered this crisis?

The post BYJU’S Vs Bankruptcy: Will The Edtech Giant Survive The Existential Insolvency Crisis? appeared first on Inc42 Media.

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Reliance Jio Turns Its Revenue Machine On https://inc42.com/features/reliance-jio-turns-its-revenue-machine-on/ Sun, 14 Jul 2024 00:06:47 +0000 https://inc42.com/?p=467531 It’s hard to miss the Ambani family and Reliance this week. The unabashed opulence and the sheer scale of the…]]>

It’s hard to miss the Ambani family and Reliance this week. The unabashed opulence and the sheer scale of the Anant Ambani and Radhika Merchant wedding ceremony has become the talk of all the world.

But there’s another Reliance-related development that has managed to grab more than its fair share of attention in the last month or so. We can’t imagine many out of the 470 Mn-plus Jio 4G subscribers were happy about the tariff hike announced by Reliance Jio and then by other telcos earlier this month.

And the news was soon followed by a report from brokerage Jefferies about a Reliance Jio IPO by 2025, thanks to the growing focus on monetisation amid market share gains. In other words, consumers can forget about free internet with Jio or indeed for most other Jio internet services as we have seen already with JioCinema in the past year.

How will this change the India internet story? For so long, Reliance Jio’s volume-driven low-pricing strategy has been credited with driving the Indian internet ecosystem as well as digital consumption. Will the price bump cut this narrative short or is India ready to pay a lot more for 4G and 5G services?

That’s after these top stories from our newsroom:

  • Prosus’ New Strokes: The investment giant is testing waters with early stage bets in India after its late stage portfolio — comprising unicorns such as BYJU’S, PharmEasy, Meesho and others — is caught on the slow road to profitability
  • Caught In Growpital’s Net: More than 5,000 Indians put in their hard earned money into agri investment platform Growpital, and now are unlikely to see a dime back as the company faces allegations of running a fraudulent platform from SEBI and others. Here’s our investigation
  • InDrive’s India Push: With over 240 Mn users worldwide, US-based InDrive is making a serious bid for market share in India with a driver-centric fare negotiation and low-commission model. Can it catch up to Ola and Uber even as it competes with other platforms looking to do the same?

Reliance Jio Drives The Market

It’s important to understand that Jio’s dominance has created a situation where the company is India’s telecom market to some extent.

It’s not just Reliance Jio, even Airtel and Vodafone Idea (Vi) raised tariffs with industry wide hikes ranging between 10% and 27% depending on the plan.

While Airtel and Vi increased the tariff for monthly prepaid recharges from INR 179 to INR 199, Jio raised it from INR 155 to INR 189. Airtel and Vi increased prices for annual plans from INR 1,799 to INR 1,999, while Jio surged it from INR 1,559 to INR 1,899.

Even though Jio still has the cheapest plans in the market, it has a sizable majority in terms of market share.

India’s telecom subscriber base crossed the 1.2 Bn users in April 2024, with Reliance Jio commanding 472.4 Mn of this or nearly 40% of the market. Airtel is the next largest with 267.5 Mn subscribers in April 2024, while Vi has 233 Mn and BSNL has 93 Mn subscribers. The lopsided nature of the market is clear from the fact that Jio is just shy of having more users than both Airtel and Vi.

However, the rivalry between Airtel and Jio is considered to be most relevant for the Indian market.

Jio’s lower pricing means that it has the lower average revenue per user or ARPU compared to Airtel despite its high market share. Reliance Jio’s ARPU grew to INR 181.7 in Q4 FY24 from INR 178.8 in the previous quarter. Airtel boasts of ARPU of INR 209 in Q4, compared to INR 193 in Q3.

The direct impact of the tariff hike will be seen in the ARPU for Q2 FY25, results for which are expected around October or November this year. But we expect a major bump for both telcos because the fact that the hikes are industry wide will limit attrition rates to a large extent.

Jio’s Revenue Push

While in isolation the price hikes might be seen as a market-dictated development and a run-of-the-mill action, the other penny drops when you read it along with the Jefferies report on the IPO. Jefferies specifically cited Jio’s focus on monetisation as a shift in business strategy.

According to the brokerage’s report, Jio could list at a $112 Bn valuation which would certainly make it one of the largest companies even within the Reliance empire.

Jio posted a 12% YoY increase in its consolidated net profit to INR 5,583 Cr in the March quarter of FY24. Its operating revenue increased 13.4% YoY to INR 28,871 Cr in the quarter.

The higher revenue inflow from the price hikes are also likely to help the company compensate for the expensive pan-India 5G rollout and deployment of new technologies such as AI.

In June, the company also launched two new apps – JioSafe for communications and file sharing as well as AI-powered translation app JioTranslate. Both have been launched as paid products, clearly underlining the fact that Jio is no longer interested in free products.

In an age when most startups are looking to maximise their revenue efficiency, Jio has no option but to do the same, but its impact is deeper than other examples on this front, such as the platform fees seen on delivery platforms.

Where Is the Regulator?

On reflection, this was long on the cards. For years, many have spoken about how Jio needs to turn on the monetisation engines for its telecom services. But since launch in 2015, Jio has largely focussed on building a captive user base that would ensure that any monetisation-driven attrition will not impact profitability in the long term.

Consumers have been up in arms about the price hikes, as it does impact their livelihoods and disrupts lifestyle aspects such as entertainment, education and more. It cannot be denied that lakhs of Indians depend on mobile internet to earn a living.

Zomato, Swiggy, Ola, Zepto, Blinkit, Uber, Rapido, as well as hundreds of thousands of gig workers on the road for other companies all rely on mobile internet for daily wages. Indeed, plenty of JioMart gig workers would also be impacted by these changes.

While most Jio employees get free data plans, this is not the case for gig workers associated with Reliance or Reliance-backed companies. While gig worker wages have not increased in the past year or have been reduced, as seen in the case of Blinkit last year, they now have to fork up more money just to get out there and be able to work.

One trade union tried to get the Prime Minister to enable BSNL to launch 4G and 5G services with more affordable tariffs, and there was a social media call for BSNL to play the role of market vanguard as a state-run company, but it’s unlikely that the government will intervene in this matter.

“There is enough competition in the telecom sector, and the situation is not critical…. Consumers may feel some pinch of the price rise, but the hike has happened after three years,” a government official was quoted by ET.

But in the past, we have seen telecom regulator TRAI step in to investigate price fixing and cartelisation in the telecom sector, even when the battle was about SMS pricing. In May 2023, TRAI said it would be looking at predatory pricing by Airtel and Jio after a complaint by Vi, but there has been no word on this probe since then.

Incidentally, TRAI said its investigation will go back to telecom pricing in the 2G era since it needs to investigate the origin of predatory pricing. By all indications, this is not going to be a quick exercise. So for now, consumers and those using 4G internet to earn a living have to foot the higher bill.

What Happens To The Indian Internet Ecosystem?

There could be ramifications from this on the business side as well as for growth of tech products and services. The risk of a digital divide based on propensity to spend is real.

And it is also becoming increasingly clear that Reliance’s companies such as Reliance Retail and Jio Financial Services have become key competitors to the major startups and tech companies in the country.

Jio has turned into a competitor from an enabler of startups in the early days when it gave Indians almost free internet connectivity to use startup services and products

One investor told Inc42 last year that Jio gave Reliance the pipeline through which it can feed all these services in the future.

A lot of the investment thesis driving capital inflow to India is built on the idea that internet usage and consumption in India has unstoppable momentum. Will this thesis change?

With AI services growing and their use directly linked to lower personal income, limited access to the internet will only increase the economic divide rather than closing it. These are of course questions that cannot be answered in isolation or without the right data.

Will India’s consumption pattern for video streaming and gaming change with more expensive plans? And will that consequently make India a less attractive investment destination?

Sunday Roundup: Startup Funding, Tech Stocks & More

 

  • Indian startups raised just over $138 Mn across 15 deals this week, which is roughly around the weekly average for the year, but surprisingly, there were five separate M&As announced. How many of these will actually go through?
  • In a major blow for big tech giant Apple, competition watchdog Competition Commission of India has found the iPhone maker guilty of abusing its dominant position in the app store market, as per reports

  • Shares of Zomato touched a new all-time high of INR 223.40 this week, before settling down at INR 222.45 at close on Friday, with the stock showing a marked improvement in the last month
  • Ecommerce major Flipkart has added mobile recharge and bill payment options to its fintech super app, which was launched with UPI payments and personal loans through Super.Money
  • Yet another tech startup is going for an IPO — Jaipur-based D2C men’s grooming brand Menhood is all set to go public with an NSE Emerge listing and bidding will open on July 16
  • Flipkart-backed logistics unicorn BlackBuck has filed its DRHP with markets regulator SEBI for its INR 550 Cr-plus IPO with the three founders and most investors offloading shares

The post Reliance Jio Turns Its Revenue Machine On appeared first on Inc42 Media.

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Purplle Patch For Beauty Commerce https://inc42.com/features/purplle-patch-for-beauty-commerce/ Sun, 07 Jul 2024 00:30:09 +0000 https://inc42.com/?p=466355 There’s a battle brewing in India’s beauty ecommerce market. And the latest to arm themselves is Mumbai-based Purplle. The beauty…]]>

There’s a battle brewing in India’s beauty ecommerce market. And the latest to arm themselves is Mumbai-based Purplle.

The beauty marketplace’s INR 1,000 Cr ($120 Mn) funding round has put it right against the likes of Nykaa, Reliance Retail’s Tira, The Good Glamm Group, Myntra, Tata Cliq, Meesho and others. Not to mention, the quick commerce platforms building up their inventories and luring beauty and personal care brands.

If anyone thought the days of marketplaces are over, the beauty segment is proving them wrong. The depth of the competition has made it harder to retain consumers, spurring private label launches and exclusive deals, bringing global brands to India.

Where does Purplle fit in this landscape and will the Mumbai-based unicorn be able to grab market share from more established players? That’s the question we are looking to answer this Sunday, but after a look at the top stories from our newsroom this week:

  • The Awfis Way: Coworking company Awfis’ public listing was followed by its first profitable quarter in March 2024. Founder and MD Amit Ramani opens up on the Awfis playbook thus far and how it plans to cross INR 1,000 Cr in revenue next year
  • 30 Startups For June: The 48th batch of ‘30 Startups To Watch’ proves that you don’t always need VC funds to get market traction with nine bootstrapped startups making the cut
  • Koo Winds Down: Despite raising more than $50 Mn, Indian Twitter rival Koo has shut down after failing to establish a stable revenue model and losing millions of active users in the past two years. Here’s how Koo lost its mojo

What Worked For Purplle?

Remember the funding winter? Well, the inclement weather did not get to Purplle. It raised $34 Mn from Peak XV at a valuation of $700 Mn in January 2022, and five months later turned unicorn with another $33 Mn infusion led by South Korean investor Paramark Ventures.

Then in 2023, there were two secondary rounds before the INR 1,000 Cr round the company announced this week. Even as startups — particularly in the consumer internet space — struggled to raise funds, Purplle seems to have cracked the code.

Even as it raised these rounds, the company seems to have spent considerably to scale up in the past two years. It spent INR 738.3 Cr in FY23, for instance, 71% higher than the total expenditure of INR 431.2 Cr in the previous year.

The startup saw its operating revenue rise 116% to INR 474.9 Cr in FY23 from INR 219.8 Cr in FY22. However, net loss grew 13% to INR 230 Cr during the year from INR 203.6 Cr in FY22. Without knowing the FY24 numbers, it’s hard to say how much of the losses have been pulled back in the past fiscal year.

Measurable improvements in profitability is the primary criteria for investments in consumer services in 2024. So, does this large round mean Purplle has passed this test?

The company claimed it has quadrupled its gross merchandise value (GMV) in the last three years, but declined to respond to Inc42’s questions about how it has grown in the past year. “Purplle is operationally profitable and expects to grow its online platform faster than the industry while scaling offline stores and improving profitability,” a statement from the company added.

So what has worked for Purplle? According to analysts that watch the beauty space, it’s the ‘Meesho effect’.

Founded in 2012 by Manish Taneja and Rahul Dash, Purplle sells a wide range of beauty, personal care, skincare and cosmetics products, typically catering to households in Tier-II & III towns. Most of its GMV comes from smaller cities such as Mysore, Coimbatore, Kochi, Ernakulam, Kozhikode and Siliguri.

“While the likes of Nykaa and even Tira have looked to build up a premium-focussed portfolio through partnerships with coveted brands, Purplle has gone the other way. It is focussing on the owned brands, which are more in the affordable category,” according to a Mumbai-based retail and ecommerce analyst.

This has allowed it to target the customers that are new to online shopping and see Nykaa and Tira, or even Myntra, as more premium options. The closest in terms of the positioning is SUGAR and Honasa, but the latter is not a marketplace and indeed both are key sellers on Purplle’s marketplace.

Reaping Rewards From Private Labels 

According to sources in the company, Purplle’s private label play  — built around the acquisitions of Faces Canada, Carmesi and Good Vibes — make up more than half of the GMV for Purplle.

Faces Canada remains the largest in the portfolio, commanding 60% of the sales, we were told. The private label play is being used as a competitive moat by the likes of Nykaa and Tira as well.

The primary reason a marketplace launches private labels is higher margins, according to Ashish Dhir, EVP (consumer and retail), 1Lattice. The funding raised by Purplle leaves it well positioned to add one or two more brands.

By introducing a company-owned brand, businesses can secure improved profit margins since they don’t have to part with the revenue as is typically the case with third-party brands.

For a marketplace, data from sales volumes, customer demographics, preferences, and buying behaviour from third-party brands is essential in developing private labels, which is an advantage that Purplle has over Honasa.

“Essentially, once you discern what customers desire in terms of product features and attributes, you can source those products from any manufacturer. Thus, what remains critical is the supply chain and sourcing capabilities, alongside offering competitive pricing,” Dhir added.

Moreover, beauty is becoming a big category on quick commerce platforms. For instance, many well-known new-age beauty products are now available nearly instantly on Swiggy Instamart, Zepto and Blinkit, as these platforms diversify beyond groceries.

Private labels could help Purplle, Nykaa and Tira differentiate themselves from quick commerce platforms and target the consumer who is more willing to experiment with new brands and therefore willing to pay more. Earlier, Nykaa said its owned brands in the beauty segment grew 39% in FY24, while Tira has also invested heavily in this space.

Tira rolled out private label brand Akind, marking its foray into the skincare space. This came after it launched two other private label brands in April and May.

Plugging Omnichannel Gaps

Purplle may be playing on the more affordable end of the market but eventually it will have to add more premium products to its mix for profitability. This is especially crucial for the company if it is indeed serious about an IPO in late 2025 or 2026, as reports this year claimed.

This is why Purplle’s latest round seems like a big moment for the company. It may be the final infusion before the IPO that would be expected to deliver big returns to investors such as Peak XV, ADIA, Premji Invest and others.

Purplle cofounder Taneja believes that data will be a key component in the company’s offline or omnichannel strategy. This is the clearest gap in Purplle’s business thus far, but in the past, the company claimed it is taking a measured approach to omnichannel since this is very different from ecommerce in terms of profitability.

“We will constantly innovate and leverage our technology and data capabilities to provide our customers with the best omnichannel experience,” Taneja was quoted as saying.

Every major marketplace has turned its focus to the offline channel and bridging online-offline gaps. Omnichannel operations are critical to tapping the large opportunity in the beauty market, which is the fifth largest category for ecommerce, as per Inc42 analysis.

 

The Indian beauty and personal care (BPC) market is projected to reach a size of $30 Bn by 2027, growing at an annual rate of 10%, making it the fastest-growing among large economies.

According to a McKinsey report, the per capita annual spend on beauty in India will grow to $15 by 2027, up from about $10 in 2023. The growing per capita spend in beauty is essential to support the private label thesis, as well as expansion on the omnichannel front.

Nykaa is currently in the lead when it comes to offline presence, with 187 stores. Meanwhile, Reliance’s Tira has opened 10 stores in less than a year. Currently, Purplle just has two offline stores, but the company plans to open 5-10 more in the next few months, leveraging the fresh funds.

Given Purplle’s scale, it’s rather surprising that it has been so slow to join the omnichannel rush. But as we have written above, the beauty segment has tremendous depth and untapped potential. So in Purplle’s case, it’s better late than never.

Sunday Roundup: Tech Stocks, Startup Funding & More

  • Indian startups collectively mopped up around $176 Mn in funding across 16 deals, but most of this came from Purplle’s $120 Mn round
  • Reliance is all set to bring Chinese fast-fashion label Shein back to India, after the latter received the government nod to relaunch in the country
  • Recently-listed online travel aggregator Ixigo posted a 212% jump in its net profit to INR 73.1 Cr in FY24 with train ticketing driving revenue growth

  • Paytm’s founder and CEO Vijay Shekhar Sharma said that the RBI action on the payments bank wasn’t the worst setback faced by the startup in its 14-year journey
  • Zepto cofounder and CEO Aadit Palicha believes that the startup valued at $3.6 Bn has the potential to surpass the valuation of retail chain DMart ($37 Bn) by focusing on India’s top 40 cities
  • The Karnataka High Court has restricted BYJU’S from allotting shares in its rights issue and await the final decision from NCLT

The post Purplle Patch For Beauty Commerce appeared first on Inc42 Media.

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Flipkart On The Chase Again https://inc42.com/features/flipkart-fintech-quick-commerce-disruption/ Sun, 30 Jun 2024 00:30:04 +0000 https://inc42.com/?p=465068 Seventeen years is a long time in any era — for Flipkart most of this time was spent creating ecommerce…]]>

Seventeen years is a long time in any era — for Flipkart most of this time was spent creating ecommerce in India. But now in 2024, ecommerce is more than just about marketplaces.

Flipkart and Amazon India created what was believed to be ecommerce for so long, but now things are changing and quick commerce is the belle of the ball. At the same time, ecommerce is also broadening and turning into digital commerce, that pretty much means selling anything and everything online — from electronics to fashion to unbranded products to insurance to travel and even personal loans.

The past year for Flipkart has been about seeing this market in transition. It tried some things to stay relevant, it reportedly looked to acquire startups that could fill the gap, but now Flipkart is going at it alone, launching its fintech product Super.Money in beta and is gunning for the quick commerce vertical next.

So this Sunday, we wanted to see how Flipkart is getting ready for the brave new digital commerce world. But first, here’s a look at the top stories from our newsroom this week:

The New Flipkart 

When Flipkart started out in 2007, India’s internet economy was a newborn. It’s only come of age in the past eight to nine years after the 4G revolution made internet access ubiquitous for Indians. So it’s worth noting that for the first half of its existence, Flipkart was pretty much reliant on the consumers from metro cities.

And the truth is that Flipkart has always been chasing the ‘eight ball’ ever since this inflection point. That’s because even the internet revolution has not been as equal as many claim it to be.

Consumers could access Flipkart, but logistics problems needed to be solved. Cash on delivery suffered a disruption with demonetisation. UPI solved this issue to a large extent after 2016, but then marketplaces suffered setbacks in terms of policy decisions and ecommerce rules in 2017 and 2018.

When Walmart acquired Flipkart in 2018, it was seen as a major validation for the business, but things were changing on the ground.

By 2019, D2C brands were rising, and many bemoaned the over-reliance on marketplaces such as Flipkart, leading to alternative channels, native stores and more. This was of course as true for Amazon India as it was for Flipkart.

Covid was the next big disruption to Flipkart and in some ways, it changed ecommerce for good. As all commerce moved online, Flipkart found itself part of this growing and evolving ecommerce ecosystem. As the pandemic ripped through the economy, access to credit was a major gap to be solved. The digital lending boom is a testament to how large this gap was.

From 2021 onwards and increasingly in the past year, the game has moved to quick commerce, and cross-selling, which has once again sparked off a super app race. This is the moment that Flipkart finds itself right now, and it is arguable that it’s definitely moving towards becoming a super app itself.

Flipkart’s Fintech Dreams

The newest piece in the Flipkart universe is Super.Money, which has launched with UPI payments but will see other financial services soon.

The cross-selling strategy is obvious when you see the introductory offers on Super.Money, which include cashback rewards of up to 10% on Flipkart, Myntra and Shopsy.

The other financial products include a credit card offering in partnership with Utkarsh Small Finance Bank, a pre-approved personal loan service called “superCash”, and a fixed deposit offering “superDeposit”, which would also require banking partnerships.

As Inc42 reported earlier this year, Flipkart initiated the fintech app’s development in July 2023 and earmarked an investment of $20 Mn for the project. Back in January, the company rolled out personal loans on the Flipkart app, which will soon be offered through Super.Money.

This after the company launched UPI services to select users in March. In its first month, Flipkart recorded 5 Mn UPI transactions worth INR 197.24 Cr.

Flipkart’s full-fledged fintech entry comes a year after its demerger with PhonePe, and interestingly, PhonePe will be one of the biggest competitions for Flipkart, along with the likes of Paytm, CRED, Jio Financial Services (JFS) and others.

The launch is one thing, scaling it up will be critical. PhonePe invested billions of dollars in scaling it up, just like Paytm or Google Pay, Amazon Pay or others. While the market is undoubtedly large, competition makes it hard to acquire and retain users.

Quick Commerce Rebuffs

We’ve written about it before — Flipkart is looking to get third time lucky with grocery deliveries and quick commerce, after two relatively unsuccessful attempts over the past few years. But before venturing out on its own, the company looked at its options, as per reports.

First there were talks with IPO-bound Swiggy some time late last year, as reported this week. The talks fizzled out as the two giants failed to come to consensus over a valuation. Besides this, Flipkart is also said to have demanded a majority stake in Swiggy, which proved to be a roadblock to the deal.

Separately, Flipkart reportedly held talks with Reliance-backed Dunzo which was in a severe cash crunch throughout last year, and has scaled back to B2B deliveries only.

Flipkart also held talks with Zepto, which is currently in the quick commerce spotlight thanks to its massive fundraise and high valuations. These talks also failed due to a lack of valuation consensus.

The biggest factor behind Flipkart’s most recent push into quick commerce is the revenue outcome. Ten-minute deliveries are no longer just a fancy proposition, as they were in 2020 and 2021. Cumulatively, Swiggy Instamart, Zepto, Blinkit — the three biggest quick commerce platforms — are on track to report combined revenue north of $1 Bn in FY24, as we had reported earlier.

Flipkart’s next-day grocery delivery business clocked 1.6X year-on-year (YoY) growth in FY24, but the company did not share the revenue numbers for this vertical, which is said to be present in over 200 cities already.

Over the past two years, Flipkart has watched as quick commerce platforms demonstrated massive growth, and indeed even encroached on ecommerce territory in recent months with larger warehouses and plans to deliver large products and electronics, which have been the forte of marketplaces for so long.

Instead of relinquishing the opportunity, Flipkart wants to build it anew. It’s not alone, Reliance Retail and JioMart also have plans to extend their reach into quick commerce, so here again, Flipkart is faced with a massive revenue opportunity but strong competition with a foothold on a segment that will be new for Flipkart.

On The Prowl For Profits

For Flipkart, these two new verticals come at a critical moment. Some might call it a defining moment for the company, which seems strange given that it has been around for nearly two decades. But Flipkart cannot afford to wait too long.

Earlier this month, Flipkart majority owner Walmart said that the company (along with PhonePe) is heading towards profitability. Interestingly, Flipkart brought Google on board as a minority investor as part of the funding round led by the US-based retail giant.

In a statement, Flipkart said, “Google’s proposed investment and its Cloud collaboration will help Flipkart expand its business and advance the modernisation of its digital infrastructure to serve customers across the country.”

This points to Flipkart looking to scale up its various digital commerce verticals across categories. It needs to do a lot to get back into the black after years of losses.

Flipkart’s B2C arm saw a 42% YoY jump in revenue to INR 14,845.8 Cr in FY23, while its loss reduced 9% to INR 4,026.5 Cr. On the other hand, the B2B arm of the company saw its standalone net loss widen to INR 4,845.7 Cr in FY23.

Last year, the company went through a reorganisation and also laid off employees to cut costs. But the new fintech and quick commerce play will be critical for Flipkart in turning the ship around and heading in the direction of profits.

Neither fintech services nor quick commerce are saturated by any means — opportunities exist to disrupt the incumbents and gain a foothold. But execution will be key and both these segments require diligent focus and operational efficiency.

Flipkart has watched Indian ecommerce and digital commerce evolve for the past few years, and now it’s ready to jump in from the sidelines. Can the ecommerce giant find new wings 17 years after it took off?

Sunday Roundup: Tech Stocks, Startup Funding & More

 

  • Adding to its product portfolio, Zomato has rolled out a restaurant services hub to plug in operational requirements such as hiring, regulatory requirements, taxation and trademarking
  • Bhavish Aggarwal-led Ola is all set to roll out grocery delivery through ONDC on its app after seeing success with the food delivery pilot

The post Flipkart On The Chase Again appeared first on Inc42 Media.

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Zerodha’s Downtime Blues https://inc42.com/features/zerodha-outages-downtime-competition-user-growth/ Sat, 22 Jun 2024 23:30:35 +0000 https://inc42.com/?p=463989 Zerodha was down again this week, as the platform was struck by an outage just before 10 AM on Friday,…]]>

Zerodha was down again this week, as the platform was struck by an outage just before 10 AM on Friday, June 21, rendering users unable to place new stock trade orders or modify existing ones.

This was the second such outage just this month, after a similar one took down Zerodha, Groww and others on June 3, a day before the results of the 2024 General Elections.

And over the past two years, there have been over a dozen such outages on Zerodha’s platform alone, with others such as AngelOne, Groww and Upstox also facing some challenges on occasion. It’s no coincidence that these outages have come as the overall base of Indian retail investors has grown exponentially.

But given this spurt of new users, any doubts about platform stability can also see users jump ship. Zerodha, which lost out to Groww in terms of active investors last year, is especially under the heat. Other platforms are catching up and the entry of Jio Financial Services has also made it more difficult to compete in this space.

So is Zerodha’s lead under threat — that’s what we are looking to answer this Sunday, but after a look at these top stories from our newsroom this week:

  • Upheaval At Reshamandi: After burning through $40 Mn of VC money and more in venture debt, ReshaMandi is looking to respawn through another company. Here’s the full story of the B2B marketplace
  • Zomato’s Next Target: After grabbing a lion’s share of the quick commerce segment with Blinkit, Zomato has now set its sights on the events and movie ticketing business. Will the potential deal with Paytm have the same fairytale ending?
  • Edtech Consolidation: Edtech unicorn Unacademy and K-12 Techno Services have been in discussions for a potential acquisition of the former, according to Inc42 sources, but the deal hinges on Unacademy’s path to profitability

Rivals Feast, Zerodha Watches

Just a couple of years ago, Zerodha’s lead in the active investor base seemingly looked untouchable, and this gave it an aura of being the de facto platform for online trading. But Groww had other ideas, and it used VC funds to acquire users by the millions.

The pandemic-fuelled boom in online trading had seemingly worked more in favour of Groww and others of its ilk than Zerodha. While Zerodha had already reached 6.5 Mn active investors by June 2022. In comparison, Groww was second at 4.4 Mn active investors.

But nearly one year later, by March 2023, Zerodha was still at 6.4 Mn investors, while Groww’s base had increased to 5.4 Mn users. The momentum was in Groww’s favour as it finally surpassed Zerodha in September 2023, and reached 6.63 Mn as against Zerodha’s 6.48 Mn.

Launched in 2017 — seven years after Zerodha — Groww raised a staggering $360 Mn in 2020 and 2021 to smash its way through the investment tech market.

In fact, Groww only launched stock trading in 2020 and primarily focussed on mutual fund investments till then. After it raised its first major round of $30 Mn in September 2020, the Bengaluru-based fintech super app has rapidly added many other asset classes and trading platforms.

It would seem that most of the user boom of the past four years has been seen by platforms other than Zerodha. Groww now boasts over 1.03 Cr (10 Mn) active investors on its trading platform as of May 2024, with closest rival Zerodha coming in second with 75 Lakh (7.5 Mn) active investors.

Among other investment platforms, Angel One gained 1.84 Lakh users in May, taking its total count to 64.86 Lakh, while Upstox has an active user base of 25.91 lakh, and Paytm Money had 7.86 Lakh active users as of May 2024.

Outages Galore For Zerodha

Incidentally, as Groww was catching up, Zerodha was mired in issues such as outages. Between 2021 and 2023, the bootstrapped startup faced as many as 15 technical glitches during trading, leading to customer complaints.

As we saw in our year-end survey on customer sentiment in 2023, customers preferred rival platforms to Zerodha due to the outages and tech glitches. Groww, Upstox, Angel One scored higher on this front.

In 2024, we have seen three outages that have been widely reported — including one in January and two in June. To be fair, two of these outages affected other platforms as well, such as the disruption to mutual fund transactions and orders on June 3, 2024, which also affected Groww users. But as the largest investment tech platform in India by revenue, Zerodha definitely gets a lot more attention.

Last year, the BSE’s Grievance Redressal Committee asked Zerodha to compensate a trader for losses due to a technical outage. The order said that Zerodha failed to take corrective action despite being alerted by the exchange. However, Zerodha called parts of the order a “blatant mistake”.

And in many cases, the outages are short lived. The most recent one on June 21, 2024 lasted just 30 minutes from what Inc42 could understand, but since this happened just after the markets opened, users were understandably frustrated.

What Explains The Glitches?

Our conversations with industry players revealed that Zerodha alone is not impacted by outages, but there is a bigger glare on the platform. However, a lot of the older investors still use Zerodha and they seem to have a louder voice on social media and generally have more influence on other investors.

This puts Zerodha immediately under the spotlight whenever there are issues. Plus, Zerodha founders Nithin Kamath and Nikhil Kamath are always in the public glare and responding to issues and user challenges on social media, which makes it easier for others to talk about these problems openly.

From a technical standpoint, Zerodha or Groww or any other platform have not explained why these outages happen, except for the disruption on June 3 a day before the Lok Sabha Election results. Coin, Zerodha’s mutual fund platform went down and a similar disruption was seen on Groww.

It must be noted that the record gains seen on June 3 in the stock market were followed by the biggest crash in four years. This volatility resulted in crores of losses for investors, but many also blamed the outages for their losses on June 3.

Neelesh Verma, product head for Coin by Zerodha, said at the time, “We work with multiple payment aggregators, and one of them faced issues on Tuesday. Even after pointing out the problem on time, it could not be fixed. As we work with multiple payment aggregators, only a small percentage of the transactions were affected.

Groww also said it was a problem with payment aggregators and gateways that impacted users. “In MF investments, money flows directly from customer accounts to the banks (managed by payment aggregators or through direct integrations, not touching intermediaries like brokers or MF distributors), where it is aggregated and sent to the clearing corporations. The delay in receiving money by clearing corporation resulted in delayed NAV,” the company’s statement said.

While there is ire among users, they also acknowledge that the benefits of Groww or Zerodha outweigh the odd disruption. Yes, it can be a big problem on key days like June 3, but overall, investors say that these platforms have made it easier for everyone to invest, which has brought investments into mainstream conversation.

“If you look at the past month, Groww has faced just as many issues, but mostly everyone talks about Zerodha. As Groww’s user base has grown, there have been just as many complaints about Groww,” said one Bengaluru-based investment advisor, who added that many investors have moved to Groww when Zerodha had issues and they also move to Zerodha when Groww has problems.

As such, neither platform wins or loses from one isolated incident. It’s just about long-term stability and Zerodha has definitely had issues in this regard over the past two years. It doesn’t help that it has also lost users during this period, or at least has not capitalised enough as the market has boomed.

Zerodha Up Against It 

Given the rising competition, its tech issues and the slow user growth, perhaps Zerodha should be worried. The company has never spoken about competition except to explain the rationale for its annual maintenance charge (AMC) of INR 300 which investors don’t have to pay on other platforms.

The Kamath brothers have always claimed that the AMC allows Zerodha to offer investors the best features and new products. But in light of the disruption, there are many questions that users have raised about the fee.

What Zerodha’s fee model means is that it has the operating revenue among investment platforms as of FY23. Even retaining a portion of its 75 Lakh active investors automatically brings in hundreds of crores in revenue for Zerodha based on the AMC alone.

The platform’s revenue grew 37% to INR 6,832.8 Cr in FY23 from INR 4,977.3 Cr, while profit grew to INR 2,908.9 Cr. The profit itself is higher than the revenue earned by both Groww and Upstox.

In contrast, Groww recorded INR 1,277 Cr in operating revenue last fiscal and turned profitable for the first time since inception. Upstox also claimed it turned profitable in FY23 with a consolidated profit of over INR 25 Cr, on a revenue base of over INR 1,000 Cr. However, the company has not filed audited financials yet.

Angel One, the third largest platform after Groww and Zerodha, reached INR 3,000 Cr in revenue in FY23, with INR 889 in net profits. This is the closest rival to Zerodha in terms of revenue from online stock broking.

Angel One is the only platform to release its FY24 numbers, which show a revenue YoY jump of over 35% to INR 4,520 Cr, while profits grew to INR 1,125 Cr. What will be really interesting to see is where Zerodha ended up in FY24, even as the likes of Jio Financial Services and PhonePe continue to press the accelerator on their respective investment platforms.

The company has lost its pace of user acquisition, while rivals such as Angel One have caught up and Groww has surpassed it. With IPO season in full swing (at least for new-age tech companies) and likely to continue well into 2025, investor activity is expected to surge in the next few years.

Historically, new high-profile IPOs draw a lot of casual and new investors to the market and we saw this happen with nearly a dozen listings in 2021. Now that Go Digit, Awfis, TBO Tek, ixigo and others have listed, and the likes of Mobikwik, Ola Electric, Swiggy, PhonePe and Flipkart expected to come to the IPO table next, India is on the cusp of a major inflection point in stock market investing.

Can Zerodha capitalise on this new gold rush with its 15-year-long experience of catering to the Indian investor? Or will its baggage of tech glitches hold it back against competition that is on the rise?

Sunday Roundup: Tech Stocks, Startup Funding & More

The post Zerodha’s Downtime Blues appeared first on Inc42 Media.

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Merger Or Acquisition? Unacademy, K-12 Techno Services And Edtech’s Trust Deficit https://inc42.com/features/unacademy-k-12-techno-merger-acquisition-edtech-losses/ Thu, 20 Jun 2024 12:18:13 +0000 https://inc42.com/?p=463575 Till two years ago, India’s edtech startups had all the leverage. They also had the funding, unbridled optimism and amassed…]]>

Till two years ago, India’s edtech startups had all the leverage. They also had the funding, unbridled optimism and amassed talent by the thousands to scale up. But as we all know this story has come undone since 2022.

The past two years have shown the weak foundations on which this optimism stood — the edtech sector has led in terms of notable shutdowns and layoffs in the startup ecosystem. It’s quite clear now that edtech has lost its shine and a lot of the leverage.

But what it has also lost is the trust that is inherent in education businesses, and that’s not just from the consumer standpoint but also from the point of view of other more traditional education businesses. Given BYJU’S high-profile corporate governance meltdown, questions about multi-year revenue recognition, buried costs and a severe cash crunch, there’s definitely a pall over the edtech market in India.

Which is why the report this week about edtech unicorn Unacademy looking at a merger with K-12 Techno Services Private Limited (K-12 Techno) piqued our interest. What caught our eye specifically was the reported 50:50 partnership between the two companies, because it would be the first such deal in edtech history in India.

While Unacademy did not respond to our queries seeking a clarification on the development, a K-12 spokesperson declined to comment on the speculation.

Inc42 has learnt from two separate sources that while talks between the two companies are ongoing, but we are quite a away from even entering advanced discussions. More importantly, both sources claimed that if a deal materialises, it would not be a merger, instead, K-12 Techno would acquire Unacademy. However, the deal is nowhere close to done, as currently the companies only met to initiate talks.

Founded in 2010 by Jai Decosta and Maguluri Srikanth, K-12 Techno operates the chain of Orchids International Schools across India. Besides, the company offers full-stack solutions to educational institutions from curriculum and academic design to technology services, solutions for administrators and teachers as well as for education marketing. Decosta is currently the CEO and managing director at the company.

K-12 Techno would potentially leverage Unacademy to add a B2C test prep to its chain of Orchids International Schools and other B2B edtech services.

The first source, close to Unacademy’s leadership, said that the companies have held talks for the past few weeks, but these discussions have cooled down to some extent in recent days. At the moment, things are moving slowly on this front.

The second source, privy to developments at K-12 Techno, corroborated this claim, and added that K-12 Techno is far from convinced about the value that a potential Unacademy acquisition would add to the business. The source close to K-12 Techno Services claimed the company is yet to identify the profitable verticals and products in Unacademy.

“The first thing you need to know about K-12 is that it is a very profit-driven company. So the first step for K-12 is to understand the economic engine of Unacademy, and the company is yet to arrive at a clear conclusion on this front,” the source close to K-12 Techno Services said.

As per both sources, K-12 Techno is a profitable company on an EBITDA level (INR 100 Cr as of FY24), whereas Unacademy is yet to solve the unit economic challenges that have kept it mired in losses. Despite having higher revenue than K-12 Techno (as of FY23), Gaurav Munjal-led Unacademy is far from profitable (more on this later).

Unacademy K-12 Services

Currently, K-12 Techno runs Orchids International Schools in 19 locations in India for day schooling and five boarding schools. Our source in the company told us that last year, nearly 3,000 students graduated from class X across Orchids’ 20+ facilities in India.

On the other hand, 2015-founded Unacademy is primarily a test prep platform, which has recently expanded to offline or hybrid learning and also operates verticals such as Relevel (job assessment tests), NextLevel (gamified job search), and Graphy (course creation and management).

In June 2022, Unacademy launched Cohesive as a developer-focussed SaaS product, which then pivoted to generative AI content creation in 2023. Most recently, it has launched Unacademy Stars, a 12-week course designed for those looking to become Unacademy teachers, and expanded its language learning app Unacademy Languages for more foreign and Indian languages. Incidentally, Unacademy Languages is operated by Unacademy, Inc, the company’s US-based entity.

Unacademy’s vast product universe is one of the challenges that K-12 is looking to solve, according to sources. There’s a lot that K-12 Techno is less than convinced about. One of the sources added, “Unacademy needs a turnaround because it has huge losses, though the test prep business is said to be making money. K-12 wants to know whether it is making money on online courses or in offline learning, and which courses or verticals in test prep is Unacademy getting the most money from.”

Other hurdles in the way are Unacademy’s negative gross margins, which would not be accretive to K-12 Techno’s EBITDA-positive business. Every company has different verticals and each of these verticals may have varying accounting cycles and revenue recognition processes. “There are other questions too, such as what is the revenue recognition process or how does the company recognise multi-year revenue or revenue collected for future courses where there could be refunds,” according to the first source.

Has Unacademy Fixed Losses?

Over the years, K-12 Techno has raised more than $175 Mn from investors such as Peak XV Partners, Sofina, Navneet Education and others. Incidentally, Unacademy is also backed by Peak XV, but it has raised more than $440 Mn since inception, at a valuation of $3.5 Bn (as of 2021).

From the financial performance (FY23) standpoint, K-12 Techno seems to have utilised the funding raised in a more efficient way.

In FY23, K12 Techno registered INR 382 Cr in revenue with a loss of INR 39 Cr. According to sources, the company almost touched the INR 500 Cr mark in FY24 and a positive EBITDA of INR 100 Cr.

In comparison, Unacademy reported revenue of INR 907 Cr in FY23, with a staggering INR 1,678.1 Cr in net loss. Sources claimed that Unacademy has nearly doubled its revenue in FY24 which is now close to INR 2,000 Cr.

Inc42 could not verify the FY24 numbers as neither company has disclosed its performance.

Late last year, Munjal took to Twitter to announce that Unacademy had slashed its cash burn by 60% in the calendar year 2023. While the online business saw a degrowth of 30%, EBITDA was claimed to have improved by 87%. Munjal also claimed that the Unacademy Centres offline business had 32,000 students in 2023 from 6,000 in 2022.

He also said that the startup’s Graphy vertical was on the verge of achieving profitability, but did not reveal more details about this. But the improved EBITDA performance is certainly linked to the layoffs of over 2,000 employees since the beginning of 2022.

Besides, Unacademy also cut pay for higher management, and many senior-level employees have walked out of the company since late 2023, including:

  • Arnab Dutta – Senior Vice President Strategy
  • Vivek Sinha – Chief Operating Officer
  • Abhyudaya Singh Rana – Chief of Staff, Chief Compliance Officer
  • Subramanian Ramachandran – Chief Financial Officer
  • Siddharth Manchanda – General Counsel
  • Tina Balachandran – Senior Vice President, Talent and Culture
  • Sachin Aggarwal – Head Franchisee Business (Offline Centres)
  • Karan Shroff – Partner & Chief Operating Officer
  • Ashish Arora – Senior Vice President & National Head Academics

Most recently, cofounder Hemesh Singh stepped away from the CTO role and day to day operations to take on an advisory capacity position.

The departures of these key leaders has undoubtedly stymied some of the momentum that Unacademy had achieved during the Covid years, and left the company bereft of the talent that had the institutional knowledge to turn things around.

Edtech’s Trust Deficit

Even so, the work put in over the past decade has created ‘Brand Unacademy’, which still has quite a pull in the market. In the case of Unacademy and K-12 Techno, the strategic match is plain to see.

As our second source added, “Synergistically, Unacademy is a great fit for K-12 Techno. Gaurav Munjal has built a massive brand for test prep, and from it would be a good way for K-12 to extend the revenue pipeline, as the next big step after the tenth or 12th grade is test prep.”

Given the lack of diverse employment opportunities in India, the test prep market continues to be in demand. The recent controversy around NEET results has also shown that there are a lot more problems to be solved in this space.

But then, there are deeper trust issues related to the high-profile meltdown of BYJU’S. And the erosion of trust is very real for those looking to raise funds or find exits. This is now perceived to be an industry-wide problem, especially in matters of revenue recognition.

According to a Bengaluru-based entrepreneur in the test prep space, “Investors want to plug all corporate governance holes after what happened at BYJU’S, which is why everything is delayed from fundraising to other strategic deals. Every disclosure and claim is being minutely examined.”

Besides revenue recognition, cost recognition is another aspect where founders are being pressed for answers. The founder quoted above added, “Two years ago, investors had little reason to suspect that companies are not removing the refund costs from revenue, or whether they are accounting for financing costs properly when offering courses on EMI through lending partners. But now these have become hygiene.”

In many cases, these problems are not just limited to edtech startups. It has become increasingly common to see corporate governance trouble stemming from revenue inflation or GMV inflation, so the trust erosion is pan industry.

Traditional educational institutions and schools — even those offering tech-first solutions — know that trust is paramount and have invested in building that for the long term. Orchids and K-12 have a track record of running schools for nearly 15 years, and while K-12 also relied on VC funding to grow and scale up to some extent, the profit-driven approach has paid off results.

Past M&As in the edtech space such as the $1 Bn BYJU’S-Aakash deal or Vedantu’s $40 Mn acquisition of Deeksha have shown mixed results for acquisitive edtech startups.

A long-drawn ownership battle in Aakash after the acquisition and the fact that loss-making BYJU’S depended heavily on its profits have had a negative impact on the offline coaching giant. Aakash was supposed to be margin accretive for BYJU’S, but the company’s situation has gone from bad to worse and BYJU’S has been accused of mismanaging the business to save its ship.

It’s less clear how Vedantu has leveraged Deeksha, since the edtech startup has remained under the radar relatively speaking, but like others in its space, Vedantu had a massive task of clawing back its way after reporting losses of INR 358 Cr in FY23.

The success — or lack thereof — of such deals often comes down to the entrepreneurial mindset and how it varies between new-age companies and so-called traditional businesses. Bringing these forces together is not an easy task and several acquisitions have failed to have the right impact as a result.

In Unacademy’s case too, we have written about how its acquisitions have not yielded the right outcomes and many of these were culled from the company in the past.

With ten years of operations, investors have shown patience with Unacademy too, now close to its 10th anniversary, but given the improving market for IPOs, this patience is wearing thin. If not in the case of Unacademy then certainly in the case of Swiggy, Ola, OYO and other startups that are of a similar age as the edtech unicorn.

An exit through an acquisition may not have been the vision that Gaurav Munjal harboured when starting the Unacademy journey, but it could well come to that.

From what we were told, it’s not even clear whether a potential deal will cover Unacademy’s entire business or whether it would just be the test prep vertical that would change hands. Sources claimed Unacademy has close to INR 1,600 Cr or $200 Mn in the bank, which offers it a long runway, but having nearly 30 shareholders on the cap table complicates the structuring and the contours of the deal.

After arriving at a decision on the viability of the acquisition deal, there is still the matter of ironing out these final nuances, which could take a few more months. All said, any potential deal is only likely to materialise towards the end of the year.

The post Merger Or Acquisition? Unacademy, K-12 Techno Services And Edtech’s Trust Deficit appeared first on Inc42 Media.

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Zepto’s Turn In The Spotlight https://inc42.com/features/zepto-turn-in-the-spotlight/ Sun, 16 Jun 2024 00:16:23 +0000 https://inc42.com/?p=462791 The quick commerce game in India right now is a game of stealing the spotlight. If Blinkit grabbed the attention…]]>

The quick commerce game in India right now is a game of stealing the spotlight. If Blinkit grabbed the attention with its FY24 performance last month, it’s time for Zepto now.

This past week, Zepto was in the spotlight for two very different reasons, which underline the present state of the quick commerce business.

First, the Mumbai-based unicorn grabbed attention with a head-turning $650 Mn round, talks for which are said to be in the final stages. That’s a massive infusion for a three-year-old company, but also speaks volumes about what it takes to grow a quick commerce business, and it’s not just for Zepto, mind you.

Second, an ice cream delivered by Zepto to a Mumbai customer was found to be contaminated with a human finger. The social media meme fest aside — and there were plenty of them — the issue highlighted that scaling up rapidly comes with some serious challenges that also have to be addressed by Zepto, Blinkit, Swiggy and other players.

So this Sunday, let’s take a look at the other side of the quick commerce boom. After a brief detour into these top stories from our newsroom this week:

  • Kenko In Catch-22: The Peak XV-backed startup is staring at an uncertain future and a potential shut down over an investor deadlock and has even laid off more employees in 2024
  • The Sherpa’s View: The former NITI Aayog CEO and current G20 Sherpa for India, Amitabh Kant is bullish about the future of Indian tech particularly given the focus on semiconductor industry, EVs and green energy
  • Introducing The D2C Retreat: Inc42 is launching The D2C Retreat, an exclusive 3-day ‘unconference’ bringing together India’s top D2C and retail leaders to drive innovation in Indian retail

Quick Commerce Fuel Guzzlers

By now, there can be no argument that creating and sustaining a large consumer business in India takes plenty of capital. If and when its latest round materialises, Zepto would have raised nearly $1.2 Bn since inception in 2021.

The latest round, which brings in CRED-backer DST Global and Lightspeed, would see the company valued at close to $3.5 Bn, thrusting it into the upper echelons of India’s unicorn club. This is after three full years of operations, one of the most unique journeys in the Indian startup ecosystem for sure.

The fact that Zepto reached a revenue base of INR 2000 Cr+ in its second full year in FY23, which is well higher than many other unicorns shows the massive momentum behind the company and quick commerce. For context, Blinkit only reached that mark in FY24, one year later, despite being around since 2013 as Grofers before pivoting to quick commerce in December 2021.

But what Zepto’s story also shows is how expensive it is to run a quick commerce business. The company has only got here after raising more than $580 Mn thus far, and the next leg of the journey will take more than that.

It’s not just Zepto of course. Zomato is investing INR 300 Cr ($38 Mn) in Blinkit over the next few weeks. The company has invested INR 2,300 Cr ($290 Mn) in Blinkit since the acquisition in August 2022.

Swiggy is looking at an IPO in the next year or so, and is said to be in talks to raise fresh funding before the potential public listing. Swiggy was the first to enter the quick commerce space with Instamart and is expected to close FY24 with revenue of over INR 5K Cr.

Zomato’s infusion comes as ecommerce giant Flipkart and JioMart are set to foray into the quick commerce space. Moreover, Blinkit plans to double its store count in 2024, which would require plenty of capital as well.

Similarly, Zepto is likely to make a major push in terms of adding more locations and expanding the delivery network. The quick commerce platform has added multiple additional revenue streams in addition to commissions from orders to improve its bottom line.

Where’s Zepto Heading?

As cofounder and CEO Aadit Palicha has said several times since last year, Zepto’s advantage is its singular focus on executing the quick commerce model. In terms of revenue, it has worked well at least as far as FY23 is concerned.

Plus, in FY24, Zepto shored up its bottom line further with the introduction of platform fees, handling charges, surge fee and a separate “cart fee” for orders below INR 100. It also unveiled a new membership programme Zepto Pass, starting at INR 99 a month, for select users.

For FY24, the numbers are likely to be significantly higher. Reports in the past said the company claims to be on track to turn EBITDA positive by end of Q2 FY25 with over INR 10,000 Cr in gross order value or GOV.

Even as Zepto pushes for growth, a portion of the new funds are also likely to go towards fulfilling tax obligations for a potential reverse flip from Singapore to India. The startup is said to be close to redomiciling to India and also has eyes on a public listing by 2026.

In Zepto’s corner is the fact that none of its major rivals currently have focussed on building up private labels, whereas the Mumbai-based company launched meat brand Relish in late 2023. Relish is reportedly clocking INR 150 Cr in annual recurring revenue and can be INR 1,000 Cr standalone business by the time Zepto plans its IPO in 2026.

Dark Store Hurdles

Growing competitive intensity is also likely to push Zepto, Blinkit and Swiggy to spend more to acquire users, and it would also complicate expansion plans as more platforms fight for dark store and warehousing space.

And it’s looking increasingly like authorities and consumer protection bodies are looking to take a fine-tooth comb to quick commerce operations.

In this light, the Zepto ice cream incident from this past week makes for bad reading. The company has not officially responded to the incident, but there have been questions about whether quick commerce platforms have their eye on quality of products, expiry dates and hygiene of perishable goods.

While grocery was the primary focus for a long time, platforms are rapidly updating their warehouse and dark store layouts to accommodate new product categories, larger appliances and other products.

At the same time, they are pushing hard to bring D2C brands on board. Quick commerce has given a new meaning to the fast moving consumer goods segment, where products tend to get sold out every day.

In fact, many of these D2C brands themselves are pushing to scale up and quality control issues trickle down to quick commerce quickly. Brands — particularly food and beauty brands — realise that quick commerce is a major channel for them and as a result, they are accelerating manufacturing to meet the demands of these channels.

Besides Zepto, in early June, the Telangana food safety department raided a Blinkit warehouse and found the premises to be “disorganised, unhygienic and dusty”. The department also seized edible items worth INR 82,000 from the premises, which either did not comply with food safety norms or had expired licence.

The Central Consumer Protection Authority (CCPA) had reportedly asked quick commerce players Blinkit, Swiggy Instamart, Zepto and Big Basket (BB Now) to prove their ‘10 minute’ delivery claims. Many of these platforms don’t actually deliver in 10 minutes, though the advertising hinges around this promise.

In the past, we have seen government bodies crack down on ecommerce platforms for counterfeit goods, fake orders, delivery fraud and most recently, predatory pricing and brand or seller bias. Will this focus on cleaning up the online shopping journey trickle down to quick commerce as well?

For now, Zepto, Blinkit, Swiggy Instamart and BBNow might not be under the scanner in a major way, but will the rising competition force companies to cut corners when scaling up?

Will Competition Throw Zepto Off?

No matter how we look at it, Zepto has actually managed to disrupt players such as Zomato-owned Blinkit and Swiggy’s Instamart which should ideally have made the most of their existing scale when quick commerce emerged as a category in 2020.

The company saw that grocery by itself would outpace food delivery, and the mixed focus of Zomato and Swiggy allowed Zepto to come out of the left field.

To be clear, Swiggy and Zomato have the larger network in India till now, but Zepto still continues to enjoy the unique advantage of singular focus over its rivals.

The three-horse quick commerce race is about to change though with the entry of Flipkart and Reliance JioMart, as well as the growing reliance of BigBasket on quick commerce.

The Tata-owned platform has replaced slotted deliveries with BBNow, modelled after Instamart, Blinkit and Zepto, and is pumping in serious marketing dollars to grow its customer base.

Mukesh Ambani-led Reliance Industries Ltd (RIL) is reported to be close to launching its own quick commerce operations through JioMart after taking a punt earlier and pulling out. Reliance is looking to deliver groceries in select cities in under 30 minutes and is likely to ramp up operations by next year.

JioMart will tap into Reliance Retail’s network of over 18,000 stores across the country. That kind of scale would allow JioMart to potentially catapult the existing group of quick commerce apps, Blinkit, Swiggy’s Instamart and Zepto as well as Tata-owned BigBasket and Flipkart.

Flipkart is fresh with funds from Google and majority stakeholder Walmart and is also likely to make a major push for grocery delivery, where Blinkit, Zepto and Swiggy have created a precedent on how to make this work.

Can Zepto continue to bank on its execution and singular focus on quick commerce to succeed in a market, where it not only has to fight off Blinkit and Swiggy, but also giants such as Reliance and Flipkart?

Sunday Roundup: Startup Funding, Tech Stocks & More  

  • This past week, startups cumulatively bagged funding of $201 Mn across 21 deals, with Battery Smart’s $65 Mn round making the bulk of this tally
  • Nykaa expects its fashion business to only become EBITDA positive by FY26, or nearly two years from now. How will the markets react to this timeline? 

  • The NCLT has directed BYJU’S to maintain status quo with regard to existing shareholders and their shareholding, effectively putting a halt to its $200 Mn rights issue
  • Data from recruitment firms points towards a declining trend in salaries for key edtech roles, with annual pay falling by almost 50% compared to the highs of 2021
  • Times Internet has reaped at least $1 Bn from selling its multiple digital properties since 2022, with ET Money’s $44 Mn deal being the most recent example

The post Zepto’s Turn In The Spotlight appeared first on Inc42 Media.

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Kenko Health In Catch-22: Investor Deadlock Puts Insurtech Startup On Thin Ice https://inc42.com/features/kenko-health-investor-deadlock-insurtech-startup-shut-down/ Wed, 12 Jun 2024 12:15:50 +0000 https://inc42.com/?p=462158 For Mumbai-based Kenko Health, the future was always about insurance. The founders — Aniruddha Sen and Dhiraj Goel — launched…]]>

For Mumbai-based Kenko Health, the future was always about insurance. The founders — Aniruddha Sen and Dhiraj Goel — launched Kenko Health in 2019 after spending more than two decades collectively in the sector.

The idea was to make health insurance more affordable and healthcare more accessible through deeper insurance penetration. But without an insurance licence from the Insurance Regulatory and Development Authority (IRDA), Kenko’s go-to-market strategy was built around a quasi-insurance model.

But the goal was always insurance. And given the background of the founders and the large value creation opportunity in insurance, Kenko attracted the attention of major investors.

By early 2022, it had already raised more than $13 Mn from Peak XV Partners, Beenext, Orios Venture Partners, angel fund Waveform Ventures, accelerator 9 Unicorns and the likes of Jupiter cofounder Jitendra Gupta, CRED founder Kunal Shah, Pine Labs CEO Amrish Rau as angel investors.

Buoyed by this capital, Kenko seemed to have cracked the revenue model for its subscription-based health plans for consumers. This is a quasi-insurance product, which covers outpatient department (OPD) benefits during hospitalisation as well as medicine purchases.

As we see in its official filings, Kenko’s revenue grew from roughly INR 5 Cr in FY22 to INR 85 Cr in FY23 (17X growth), even though the net loss almost tripled to INR 68 Cr from INR 24 Cr in the previous year. But given that this was just the third full fiscal year in its lifetime, there were encouraging signs of growth.

In fact, things couldn’t have looked better for the company when it was about to raise close to INR 220 Cr ($27 Mn+) in June 2023 from Healthquad, B Capital, Bertelsmann and other large institutional funds as indicated by its regulatory filings. Armed with this, the startup was hoping to clear the capital requirements threshold for insurance.

But this is also where things came undone for Kenko — not only did the Series B not go through, but Kenko is left in a difficult Catch-22 position.

Right now, the insurance goal is looking more and more out of reach for Kenko, according to sources close to the shareholder group and the founders of the company.

Insurance Hurdles Derail Kenko

“Kenko approached IRDA and the regulator was of the opinion that while any company is free to raise capital from VCs, the easiest path to a licence is having an Indian entity with domestic capital as the lead investor. We were told that the insurance regulator was very specific in asking for domestic capital backing new insurance players,” one source close to the investor group told Inc42 last month.

But discussions between the management and the existing shareholders have resulted in discord, Inc42 has learnt over the past two months.

In particular, some shareholders are displeased with the restructuring proposal, which they believe leaves them with very little value for the capital already invested.

It must be noted that Peak XV Partners (investing as Sequoia Capital India & Southeast Asia) is Kenko’s lead external shareholder having led its Series A round. Peak XV is followed by Orios Venture Partners and Beenext in terms of shareholding.

Inc42 sent questions to Kenko Health’s cofounders Sen and Goel separately in early May 2024, as well as its existing shareholders. CEO Sen did not respond to our questions sent on email or follow-up text messages.

On the shareholder side, only one investor responded to our questions but declined to comment.

Other sources close to the investor and management group at Kenko spoke to us on the condition of anonymity. And the problem, we were informed, began roughly a year ago when the company had to rethink what investors it brings on.

Having to change its fundraising strategy in the middle of a key round in August 2023 was a major blow for Kenko. It had seen commitments from marquee investors such as B Capital, Healthquad and Bertelsmann and turning them down was never going to be easy.

While there was real confidence about Kenko’s future because of the founders’ pedigree and the revenue growth, even the best of founders cannot adjust as quickly as Sen and Goel had to.

Another source, who has seen the company’s journey closely, added, “Getting a big commitment in the middle of a funding winter was not easy. And then the company had to shift its focus to Indian investors, specially family offices or large corporations. The founders had to tell large VCs and investors to hold on.”

Beyond the need to bring in domestic investors, the corporate structure of Kenko also posed some problems as the insurance business had to be run by a new entity which was created only in 2022, whereas the current operations are handled by the parent company Redkenko Health Tech Private Limited from 2019.

Focus Turns To Domestic Investors

Raising from Indian family offices sounds simple enough — HNIs and family-run corporations are increasingly looking to diversify their portfolio and back startups. In fact, HNIs and family offices are also backing large funds in India as limited partners. So the regulator’s stipulation was not unusual.

Even in a tough market for fundraising, Kenko is said to have seen interest from two large family offices in India. One of them is still in talks with the company on how to proceed. According to the ET report on the state of Kenko, the company had received a term sheet from Hero Group.

Inc42 could not verify whether Hero Group had prepared a term sheet for the investment. However, it is the contours and the structure of this deal that has forced Kenko Health into a Catch-22.

Firstly, the incoming investor has to get the go-ahead from Kenko’s existing shareholders for the proposed new structure. Existing investors have to give approvals to their revised equity holdings.

In this case, Kenko Health had to restructure its entire cap table. Existing shareholders would have had to relinquish some stake in this restructure and dilute equity in favour of any incoming investor.

“Some of the shareholders felt they needed to be either adequately compensated through some kind of returns for backing the startup when it did not have a licence, and others were wary of whether the resultant equity dilution would essentially leave them with a really small piece of the company,” one of the key shareholders in Kenko told Inc42.

Even if shareholders agree prima facie, the specific terms of the deal could become a problem later on as talks advance, added another source close to the group of existing shareholders in the company.

Another source close to the investor group added, “The company has to first get shareholder approval for a new investor. Even if there is a consensus on dilution, there might be differences in terms governing information or anti-dilution rights in the new deal.”

Talks between the founders and representatives of the family office are said to have been going on for months, with no real headway in either direction. Nothing is certain, but if things take a lot of time, the family office may back off, another person close to the company’s management told Inc42.

The Compliance Bar For Investing In Insurance

What complicates the matter more is that Kenko would only be an attractive investment opportunity if it could get the insurance licence.

Getting the regulatory nod depended on a large domestic investor coming in as the lead shareholder. However, even this may not guarantee a licence, and with no such guarantees, this is a risky bet for any incoming investor.

“There was no doubt on the execution side of things. The founders are a perfect fit for insurance but the company needs the licence to prove it. And regulators can reject applications for a number of reasons. Even the likes of Paytm or PhonePe are waiting for an insurer licence,” added the cofounder of a Bengaluru-based insurance tech startup.

To get the general insurance licence, Kenko registered a new entity called Kenko General Insurance Limited in May 2022. One of the requirements for an insurer licence is that the entity has to clearly state the word ‘insurance’ in its registered name. The new corporate entity would essentially carry out the business of insurance for the Kenko group.

While it was the holding company Redkenko Health Tech Private Limited that raised the funds till date, any new capital was set to be invested towards the insurance play.

Under the restructuring proposed by founders, existing shareholders would be given shares in Kenko General Insurance Limited in lieu of their shares in Redkenko Health Tech Private Limited, the current main entity.

 

There are of course other eligibility criteria for prospective insurance companies, including capital requirement of between INR 100 Cr and INR 200 Cr depending on the segment and insurance model.

Perhaps the most critical eligibility requirements are to do with the shareholding of the investors and promoters.

While 100% FDI is allowed in the insurance space, there are a number of restrictions on how much shareholding each investor can have, and this changes depending on the number of insurers these investors have invested in, as per the updated regulations as of December 2022.

To steer clear of the hurdles posed by these restrictions, companies applying for an insurance licence are often advised to have a clear domestic lead investor as well as significant equity holding for the promoter group — in this case, founders and the lead investor.

 

Further, companies that have been rejected by IRDA have to wait between two and five years before reapplying for a licence. Plus, in certain cases, reapplication is not allowed if the licence bid is rejected.

So Kenko could not afford to rush the deal and slip up in any manner when it comes to the eligibility criteria.  Given IRDA’s requirements, in many ways, restructuring at Kenko is being forced due to regulatory reasons. The founders have very little room to manoeuvre in this non-bargainable position.

Massive Opportunity Waiting To Be Unlocked

The best option for the founders was getting Kenko Health’s various investors on the same page about dilution, but this is proving to be difficult. Three out of the five institutional shareholders in the company are against the proposed restructuring, while several other investors seem to be on-board.

An existing shareholder, who was not completely in favour of the deal, told us on the condition of anonymity, “We have been open to any new investment in the company, subject to the offer being fair to all parties, non-discriminatory & consistent with the terms of shareholder agreements.”

So what has led to the disagreements and is the deal proposed by the company to existing shareholders and the incoming investor unfair?

“As far as the deal proposed by the company under the new structure, up to 75% of the equity would be held by the incoming investor, the founders would have a large enough single-digit stake, while other existing investors would see dilution from their current positions. In some cases, they would end up seeing their stake reduced by 4X or 5X,” claimed another source close to the existing investor group.

The problem, of course, is that such a dilution would give many existing investors a smaller piece of the company, albeit one that could potentially become much larger than Kenko Health in its current state.

One investor who has assessed Kenko in the past year said that most VC funds would rather have a small stake in a large company with an insurance licence, rather than a large piece of a company that had very limited prospects without this licence.

“Typically speaking, in the insurance business, given the low penetration in India, valuations tend to be higher than other fintech segments. There’s also a bigger IPO opportunity for investors with a registered insurance company than for a healthtech company that is quasi-insurance like Kenko right now,” we were told.

An insurance licence is only handed out on the condition that investor and promoter shares stay locked in for a period of at least years since the time of IRDA registration. It is only during a public issue that insurance companies can suspend the staggered lock-in periods for investors and promoters.

So the IPO opportunity is in fact critical for investors in the insurance space if they are to see returns before the lock-in period.

However, the potential for things to go wrong in the meanwhile is one of the reasons that some existing investors are wary of restructuring the cap table. For one, there’s no guarantee of an insurance licence even if the shareholding is resolved.

That’s not to say that all existing investors are opposed to the proposed changes.

According to one source close to a fund that has backed Kenko, “The vision from the beginning was around insurance and these are the realities of working in the insurance business. Yes, there is an equity dilution, but the deal is fair if you look at the long-term value.”

Kenko’s Future Uninsured

At the moment, however, there is no certainty of any deal materialising. The founders are still in talks with domestic family offices for a deal that works for all parties involved.

If these talks fail to materialise into an investment, Kenko Health has to swallow a bitter pill. The company laid off 20% of its workforce in August 2023, just after its bid to raise INR 220 Cr from foreign VCs failed due to potential regulatory hurdles.

Soon after that Kenko Health raised INR 10 Cr in venture debt from Blacksoil as per regulatory filings. And then in January and February this year, existing investors — Waveform, Peak XV, Orios, Beenext and 9 Unicorns — infused INR 12 Cr in the company as a bridge round, show the company’s filings with the Ministry of Corporate Affairs.

Without the insurance licence in place, Kenko’s future rests on how sustainably it can scale up its health plan subscription play, if it chooses to stay operational.

Sources indicate that another round of layoffs is underway at Kenko. This is because Kenko has to save costs to repay debt obligations as well as pending employee costs and other operational expenses for its current business in FY24.

Employees have taken to LinkedIn to raise concerns about unpaid dues after being laid off in April 2024. Customers are claiming that the company has withheld reimbursements for OPD costs incurred while their plans were active.

Kenko did not respond to our questions about these dues to customers or its former employees.

While the revenue growth in FY23 is encouraging, the company’s biggest expenses are insurance costs, benefit payouts and employee benefit costs. It spent INR 42 Cr, INR 37 Cr and INR 35 Cr respectively in this regard. The layoffs in 2023 would have reduced the employee benefit costs in FY24, but the other two costs are directly linked to revenue growth, and cutting them would mean taking a bath on overall growth.

In other words, while Kenko set out to build an insurance business, at the moment, its costs are like a B2C healthcare middleman that works with insurance providers.

As per FY23 filings, the company has over INR 42 Cr in the bank and it looks like Much of this reserve was exhausted during the course of FY24. This can be understood by the fact that the company raised debt from Blacksoil, and got a bridge round in early 2024, as stated above.

Some sources close to the company expressed optimism that a deal may be cracked with the new investor given that the business had good traction with users till FY23. But this optimism is not shared by all close to the company. While some are opposed to the deal, others are left with little to no recourse but to write off the investment if the new deal does not go through.

And in case the startup is unable to resolve this situation, it stands to lose out on all the value it had created in the past four years. So in a sense, Kenko is in a make-or-break situation and the startup has no insurance to fall back on.

The post Kenko Health In Catch-22: Investor Deadlock Puts Insurtech Startup On Thin Ice appeared first on Inc42 Media.

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ixigo IPO: The ‘Cockroach Startup’ Goes Public https://inc42.com/features/ixigo-ipo-the-cockroach-startup-goes-public/ Sun, 09 Jun 2024 00:30:22 +0000 https://inc42.com/?p=461642 When we caught up with ixigo cofounder Aloke Bajpai in early 2023, the focus had turned away from the company’s…]]>

When we caught up with ixigo cofounder Aloke Bajpai in early 2023, the focus had turned away from the company’s first bid to go to the public market.

And now 15 months later, Bajpai and ixigo are once again on the cusp of the IPO. This time around though there’s no hitting the brakes like in 2021.

The ixigo IPO opens tomorrow morning and with this one of the most unique startups in the Indian ecosystem will soon be jostling with listed competition in the stock market.

Unique because ixigo is often called a ‘cockroach startup’. “We have always been a very scrappy and frugal company,” Bajpai told us last year in reference to the cockroach startup moniker, when we dove into ixigo’s playbook for frugal and sustainable growth

And also unique because it is a major milestone in the 18-year journey of a venture funded startup. Not many venture-backed startups have displayed such resilience, survived multiple cycles of recessions and reached profitability like ixigo has done.

So the ixigo story is something different, and that’s the subject this Sunday. But only after a look at these top stories from our newsroom this week:

  • The Startup Ecosystem’s Wishlist: Aarin Capital’s partner Mohandas Pai has called on the next Narendra Modi-led government to ease angel tax hurdles and set up an INR 50K Cr fund of funds for startups to take the Startup India vision forward
  • Swiggy’s IPO Test: With Swiggy all set to bring in one of the largest IPOs in India for a tech startup, what is the grey market’s view on the valuation and what Swiggy needs to do to win over investors
  • Zomato’s Rollercoaster: Despite the high potential for Blinkit, a profitable food delivery business and the ever-growing Hyperpure B2B vertical, Zomato seems to have lost some of its charm in the stock market. So what gives?

ixigo On The IPO Bandwagon

After three startups went for public listings in May, it’s now ixigo’s turn to keep the IPO momentum going in June. Come tomorrow, the ixigo IPO will open for subscription and once again test the appetite of public markets investors for new-age tech stocks.

Given the recent experiences of TBO Tek, Go Digit and Awfis last month, the subscription for ixigo is expected to be healthy, the competition is steep in the travel tech segment. But ixigo’s profitability and its sustainable model are being counted as major advantages despite the competition.

The ixigo IPO comprises a fresh issue of shares worth INR 120 Cr and an offer for sale (OFS) component of 6.67 Cr shares worth INR 620 Cr. The startup has set a price band of INR 88-93 per equity share for its public issue.

At the upper end of the price band, ixigo is expected to raise a total of INR 740 Cr. Out of this, the company has raised over INR 333 Cr from 23 anchor investors at a price of INR 93 per equity share.

Most analysts believe that the competition will be iixgo’s biggest challenge given players such as EaseMyTrip, MakeMyTrip, Yatra, Flipkart-owned Cleartrip, as well as the likes of Paytm, Amazon, PhonePe and others that have travel ticketing verticals.

In fact, travel tech is one of the most competitive spaces in India and the market is still underpenetrated to a large extent given the use of ticketing agents and travel agencies in smaller towns and even large cities for corporate bookings.

This could be a cause for concern according to some analysts, because investors might not move to ixigo as soon as they see the IPO. Many investors have built a robust travel portfolio in the past two years, so this could be one potential hurdle for ixigo, but in all likelihood the IPO will see healthy oversubscription.

“The likes of EaseMyTrip, Yatra, TBO Tek and others might have tapped some of the liquidity of large investors in the past two years, and nobody wants too much exposure to travel given the present geopolitical situation around the world,” says one travel segment analyst with a Big Four firm.

The analyst added that ixigo has a strong moat in the railway ticketing business, which is an untapped market for investors after IRCTC.

Going Beyond The Comfort Zone

As we noted a few weeks ago, the competitive advantage in railway ticketing could become a double-edged sword for ixigo since IRCTC is the platform’s most important partner and also its biggest rival for direct train bookings. In its DRHP, the company highlighted that any variation or termination of its agreement with IRCTC might have an adverse impact on its business.

Train ticketing constitutes almost half of ixigo’s revenue. For the nine months ending December 2023, train ticketing revenue of INR 265 Cr contributed 45.3% to the total ticketing income of INR 585 Cr. ixigo posted a consolidated net profit of INR 65.7 Cr in the first nine months of FY24, up 3X from INR 23.4 Cr in the entire FY23.

At the same time, this is also a moat for ixigo, since its revenue base is higher than EMT or Yatra.

Analysts believe that it might be a good opportunity for investors to subscribe to the IPO from a long-term perspective, and the profitability track record is also very encouraging. But for long-term value creation, ixigo has to compete with majors such as EaseMyTrip, Yatra, MakeMyTrip, Cleartrip and others that focus primarily on flights and hotels.

Ixigo Revenue Streams

This will help reduce the company’s high dependence on IRCTC as a partner, which is pretty much the biggest risk for investors, according to analysts.

So while ixigo has largely relied on its railway ticketing business to grow and increase its user base, the same energy has to be brought to the air ticketing, hotels and packages businesses as well.

Given that ixigo’s core target customer in Tier 2 or Tier 3 India is price-sensitive, the company has to spend significantly on customer acquisition. Advertising and sales promotion expenses made up 24% of total revenue as of December 2023, and this is much higher than the 18.6% in FY23

Other risks such as its limited experience of operating as an online ticketing agent also come into play, since ixigo transitioned to ticketing in 2019-20 from being a travel aggregator. It has also expanded into hotel bookings only as recently as 2024, so here too it has limited operating experience.

Will ixigo Go For Acquisitions?

But these risks apply equally to players who are looking to grab market share from ixigo in the train bookings space. At the end of the day, all travel tech players will have to push the accelerator on all key verticals in travel.

For example, ixigo recently launched an AI-powered travel planning and recommendations tool called “ixigo PLAN” for personalised itineraries and destination suggestions, which the company is hoping will target customers in metros and Tier 1 cities.

The company is also building its hotels business from the ground up since late 2023 and launched this recently. So there are some areas where ixigo will clearly need to invest from the proceeds of the IPO. And there could be more acquisitions on the cards as well.

After narrowing down on train and bus bookings as a core business, ixigo acquired Confirmtkt and AbhiBus in 2021. Other players have also gone for inorganic expansion to enter new verticals.

For instance, EaseMyTrip acquired ETrav Tech in April this year to focus on the corporate bookings space as the company looks to diversify its portfolio in the non-air segments.

In 2023, EMT acquired Guideline Travels, TripShope Travel Technologies and Dook Travels, as well as hotel booking marketplace cheQin. This after acquiring Spree Hotels & Real Estate for INR  18.25 Cr in 2021.

It must be noted that EMT was a bootstrapped company when it went public and as a result, it is doing what the likes of ixigo did with VC money in their growth stages.

But it’s also fair to say that ixigo’s competition is also new to some of the key lines of business in travel, and it’s definitely a large enough market for multiple players.

The Cockroach Mentality

India’s travel tech ecosystem is witnessing promising growth and is expected to receive a further boost with the advent of AI-led tools and products. Unlike the ecommerce sector, where there is a duopoly of Amazon and Flipkart, the travel tech segment has plenty of players with high brand visibility and the numbers to back it. At the moment, the market is far from saturated, and this means ixigo and others can grow and thrive without cut-throat competition.

A report by Allied Market Research estimates the global travel tech market to reach $21 Bn by 2032, growing at a CAGR of 8.6% between 2023 and 2032.

The analyst quoted above said there is no shortage of capital in the Indian public markets, and all manner of investors are ready to invest in companies with unique stories and attractive valuations. In both these regards, ixigo scores highly.

The valuation itself has sobered down from the 2021 expectations significantly with the IPO size cut almost in half from three years ago.

But most importantly, ixigo’s story continues to be unique among Indian startups for its steady run of profitability and the clues it leaves behind for startups to solve the growth vs profits dilemma. It’s showing that even cockroaches can get to the stock markets.

Sunday Roundup: Tech Stocks, Startup Funding & More 

The post ixigo IPO: The ‘Cockroach Startup’ Goes Public appeared first on Inc42 Media.

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Zomato’s Up-And-Down Ride: Is The Stock Losing Its Charm? https://inc42.com/features/zomato-stock-losing-public-markets-charm/ Thu, 06 Jun 2024 12:25:15 +0000 https://inc42.com/?p=461235 The Zomato stock has been one of the most intriguing success stories from the 2021 vintage of startups that went…]]>

The Zomato stock has been one of the most intriguing success stories from the 2021 vintage of startups that went for public listings.

After popping on listing, Zomato has typified the investor sentiment when it comes to tech stocks. In the first year of being a public company, the Zomato stock crashed, along with the rest of the market, amid the massive sell-off at the end of 2021 and early 2022. However, this also set the stage for a big comeback.

And Zomato’s comeback did happen, coinciding with the company inching towards profits by around March 2023. We’ve of course covered the ups and downs in detail, but every quarter for the past five quarters, Zomato gathered momentum and became one of the hottest stocks.

The company’s market cap touched the $20 Bn (INR 1.6 Lakh Cr) along the way, and when Zomato ended FY24 with record profits of INR 351 Cr ($40 Mn), it seemed that the stock would continue to climb. But in the weeks since the release of its Q4 results, Zomato has been one of the weakest new-age tech stocks.

After touching an all-time high of INR 207 during the intraday trading on May 13, Zomato closed the trading session on Wednesday (June 6) at INR 183.65. This is a decline of over 11% from the all-time high mark in less than a month. In fact, the stock fell to as low as INR 146.85 during the intraday trading on June 4, when the votes for the Lok Sabha elections were being counted.

Zomato Stock Sees Big Fall In June 2024

However, the stock did manage to rally nearly 7% on June 5 as investors went shopping after the previous day’s crash. But despite the high potential for Blinkit and the possibility of unlocking massive profits there, Zomato’s profitable food delivery business and the ever-growing Hyperpure B2B vertical, Zomato seems to have lost some of its charm.

In fact, even the day after it reported the profits for the full fiscal year FY24, Zomato saw a 6% drop in share price.

At the time it was believed that the company’s less-than-robust performance in the food delivery segment particularly grated investors, many of whom looked to book profits anticipating slower growth in Q1 FY25 (the ongoing quarter).

In its Q4 presentation and earnings call, Zomato stressed that it would also have to invest heavily to scale up Blinkit, which is also being seen as a hurdle in the quick commerce vertical’s bid to reach profitability.

Zomato Stock, But Value Tied To Blinkit 

The rapid growth seen in the quick commerce business has compelled Zomato to double down on Blinkit. It is looking to nearly double its store count by the end of FY25. This aggressive expansion is also likely to have tempered investor expectations around future growth in profits.

While Blinkit did turn adjusted EBITDA positive in Q4, the road to full profitability is still long. And since the Q4 results, a raft of bad signals have come to the market, including the entry of Reliance and Flipkart as stiff competition in quick commerce, possibly spooking many investors.

Mukesh Ambani-led Reliance Industries Ltd (RIL) is reported to be close to launching its own quick commerce operations through JioMart after taking a punt earlier and pulling out.

The conglomerate is looking to deliver groceries in select cities in under 30 minutes and is likely to ramp up operations by next year. Reliance reportedly plans to take it to around 1,000 cities in future, and JioMart will tap into Reliance Retail’s network of over 18,000 stores across the country.

Zomato-owned Blinkit vs quick commerce competition

That kind of scale would allow JioMart to potentially catapult the existing group of quick commerce apps — Blinkit, Swiggy’s Instamart and Zepto — and also end the nascent ambitions of Tata-owned BigBasket and Flipkart before they take off.

Flipkart is fresh with funds from Google and majority stakeholder Walmart and is also likely to make a major push for grocery delivery, where Blinkit, Zepto and Swiggy have created well-oiled playbooks.

While the potential threat from Reliance cannot be ignored, the fact is that Blinkit has not yet cleared the doubts in the investor mind by itself. So JioMart only compounds the problems for Blinkit.

Remember, Blinkit is not just a vertical for Zomato, it could soon become larger than food delivery. Analysts such as Bernstein estimate that Blinkit will have larger revenue than food delivery by FY27.

Where will Zomato stock gain value from?

“A lot of the value built into the Zomato stock over the past year is linked to the growth potential for quick commerce, and if Zomato is shedding the gains now, that’s largely because of the potential weakness in the Blinkit narrative,” according to an analyst at a Mumbai-based brokerage that has been covering Zomato since August 2021, a few weeks after the listing.

Patience Needed For New-Age Stocks

Another thing that most analysts told Inc42 is that Zomato is not a stock for the short-term gain chasers. It’s a stock that can have a 2X or 3X growth in the next two years if investors show patience. This seems obvious, but it’s important to have this context when talking about the recent weakness seen in the stock.

Particularly because a lot of new-age investors are joining the market who are more exposed to the power of brands like Zomato or Nykaa or Paytm. Paytm’s woes have become part of memes, but the fact is investors have lost real money and it won’t be the first time that a ‘startup’ stock sees such a meltdown.

“Zomato’s gain in the past year is only half the story. The stock has grown as a direct result of operational efficiency, but this comes at the expense of a large scale. Zomato still needs to show it can continue to bring in profits despite the investment needed for scale which is a matter of a few quarters at least,” the analyst quoted above added.

Investors in the public market cannot expect to see the rocket growth that private market investors and VCs are used to. Assuming that a new-age tech stock will sprout wings is a big mistake made by investors, particularly novice investors, because they may not see threats to business models in the same way as experienced investors who have lived through cycles.

“Tech-first business models are more exposed to the changes in the underlying infrastructure and the internet ecosystem around which they are built. Newer investors don’t have the years of expertise needed to react unpanicked to such changes, one relevant example of which is AI,” the founder of a Bengaluru-based consultancy and auditing firm added.

However, one cannot blame investors alone. Brokerage signals are not all in the Zomato stock’s favour.

Australian brokerage firm Macquarie gave Zomato an ‘underperform’ rating and assigned the stock a price target of INR 96, roughly half of the price Zomato is trading at today.

Macquarie’s view is centred around the competition from Reliance JioMart which has a last-mile logistics arm Grab, and has invested in Dunzo which does have operational history in the quick commerce space.

And given that Swiggy is also likely to be listed within a year, things are not going to be easy for the Deepinder Goyal-led company. Zomato has done the hard yards when it comes to profits, but now it has to drive value for shareholders to retain their long-term faith and that’s an entirely new ballgame.

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Elections 2024: The ‘Startup India’ Vision For The Next Five Years https://inc42.com/features/india-elections-2024-startups-vision-next-five-years/ Mon, 03 Jun 2024 23:30:19 +0000 https://inc42.com/?p=460820 India is set to get a new government by today evening, whichever way you look at it, as the results…]]>

India is set to get a new government by today evening, whichever way you look at it, as the results of the 2024 General Elections are announced. And if you ask Indian startups, no matter who is in power by June 4, 2024, there is a need to set the right vision for the next five years.

Many believe that the next five years will be the defining years for Indian startups, with some of the biggest startups set to go for public listings and AI changing the product and market dynamics. As such the results of the 2024 Indian elections could well decide the future of Indian startups.

Founders that have been celebrated for years will be put to pre-IPO litmus tests and the fate of some giants hangs in the balance. The government has set 2030 as a target for many key milestones particularly in relation to electric mobility and sustainability, so the next five years will be just as critical as the past ten years, which have been celebrated as the golden age of startups.

So what can the startup ecosystem expect from the next five years? And what should be the new government’s vision which would hold Indian startups in good stead till 2030 and the decade that will come after that

Through conversations with some veterans of the startup ecosystem and venture capitalists that have seen India mature over the years, we are able to bring some clarity to those questions — although there are no definitive answers yet.

Startup Founders In Election Games

A few days ago on May 20, 2024, right in the thick of the 2024 General Elections, a curious development involving some of the biggest Indian startups caught our attention.

Zomato’s Deepinder Goyal, Urban Company’s Abhiraj Bahl, Honasa’s Varun Alagh, EaseMyTrip’s Rikant Pittie, MapmyIndia’s Rohan Verma, Peak XV Partners’ MD Rajan Anandan among others gathered in Delhi, but it was not a tech conference.

Instead, it was a night where these CEOs, venture capitalists and drivers of the tech economy mingled with the leadership of the current ruling party, the Bharatiya Janata Party (BJP), and spoke glowingly about the past ten years for Indian startups

To be fair to the entrepreneurs and CEOs, this was not an endorsement of the current ruling party, but meant to be a celebration of how far the Indian startup ecosystem has come in the past ten years. But the subliminal message was clear, given the timing of the evening, and reportedly some of the founders even endorsed the current government for another term.

With the members of parliament elected by the day’s end and a new government soon to be in place, perhaps this is the right time to understand where startups fall in the political machinery today. And also answer why many entrepreneurs found themselves in the middle of electoral campaigns.

This is not the first startup event that has the government’s support. The Startup Mahakumbh in March, for instance, was bigger and even saw Prime Minister Narendra Modi meet some of the startups on the ground. And the National Startup Day, introduced in 2022, is another example of how the government has directly engaged with startups.

The Indian government’s policies for startups and engagement with the stakeholders is perhaps unique among the large economies of the world. The Startup India programme launched in 2015 and formalised in 2016 is all set to complete a decade. Indeed, Startup India was one of the flagship programmes for the current government during the 2014-2019 tenure, and was given some more impetus in the past five years.

“I have seen the tech industry of the early 2000s and the government did not necessarily promote technology, but rather focussed on traditional economic growth engines. By 2013-14, tech was firmly a growth engine and the last two governments had to capitalise on this movement. This is why we saw the policies that enabled tech such as Startup India and Digital India,” a senior tech founder and investor told Inc42.

The next government will also have a big focus on digital products and services. “They are the future. Every industry will go through the tech transformation so there needs to be an automatic focus on tech policies, especially with AI coming up,” the founder and CEO added.

Indian Startups In The Election Debates

When it comes to the 2024 General Elections campaigns by various parties, that May evening in Delhi was the biggest showcase for startups and how far the tech ecosystem has come. Naturally, given that this happened right in the midst of polls, not everyone was so happy about this subtle endorsement of the BJP by entrepreneurs.

Many on X (Twitter) and social media pointed out that entrepreneurs ought to be neutral in their public stance on elections and focus on the business. The fact that many present on the night — Zomato’s Goyal, EaseMyTrip’s Pitti, MapmyIndia’s Verma and Honasa’s Alagh — run public companies and have a larger responsibility towards neutrality was another point raised by some.

Of course, those on the opposing side to the BJP were not happy that many of the founders did not engage with non-BJP parties on manifesto points, seemingly out of fear, even though founders put forth certain points such as angel tax as being problem areas.

When it comes to the vision for the next five years, there is some indication that the two major parties (and their allies) have some specific plans for the tech and startup ecosystem.

For instance, the manifesto of the Indian National Congress (INC) states that the party, if elected, would abolish angel tax. “We will eliminate “Angel tax” and all other exploitative tax schemes that inhibit investment in new micro, small companies and innovative start-ups,” the INC’s poll manifesto states.

The INC also talks about job-creation push in laggard states. “Congress will restructure the Fund of Funds Scheme for start-ups and allocate 50 per cent of the available fund, as far as possible equally among all districts, for providing funds to youth below 40 years of age to start their own businesses and generate employment.”

The Congress also spells out some measures it would potentially implement to improve ease of doing business such as ensuring adequate sharing of resources needed by entrepreneurs. “We will remove the current environment of distrust and fear, and create a healthy ecosystem where private enterprises, regulatory authorities, tax authorities and government will work in a spirit of mutual cooperation and respect.”

The opposition alliance party also says it would focus heavily on green energy and deeptech sectors for future growth. “The challenges of the future include the changes in the global economy, advanced technology such as artificial intelligence, robotics and machine learning, and climate change. The future of our energy is Green Energy. We will mobilise the massive capital required for our green energy transition,” the Congress pre-poll manifesto added.

Now, let’s take a look at what the BJP says about startups in its manifesto.

Given the fact that the previous BJP-led government brought in Startup India, it’s no surprise that the startup ecosystem features on the BJP manifesto for 2024 too. It spoke about four points — Expanding the Startup Ecosystem, Expanding Funding for Startups, Providing Mentorship to Startups, Encouraging Startups in Government Procurement.

“We will expand the existing Startup India Seed Fund Scheme and Startup Credit Guarantee Scheme to ensure adequate funds,” the BJP manifesto says.

The manifesto talks about the impact of the various enablement programmes for startups and how they will be expanded under the next government, if the BJP is reelected to power. The party also says it would encourage new startups in Tier 2 and Tier 3 cities. Besides this, the BJP states that it would promote startups in the sports sector and those building forest-based enterprises.

When it comes to future growth, the BJP manifesto focussed heavily on the space sector and areas such as quantum computing, geospatial data and more. There’s also prominent mention of supporting the electronics and component ecosystem by promoting semiconductor design and manufacturing.

“We will develop a comprehensive ecosystem under the IndiaAI mission, driving AI innovation through collaborative strategic programs and partnerships to position Bharat as a global leader in AI innovation and build domestic capacities to ensure tech sovereignty,” ruling party BJP says in the manifesto.

It must be remembered that election manifestos don’t always materialise. But the fact is that both the major parties have looked to focus on startups, technology and emerging industries when it comes to job creation and economic growth.

One could argue that the BJP is more direct about the areas it wants to target, and indeed, startups have been a more clear focus of the BJP-led governments of the past two terms. However, there’s little in the manifestos beyond continuing that vision, nothing that talks about what Indian startups need in 2024.

“It can be said that neither of the manifestos focus on specifics on enabling the next phase of growth for Indian startups. The vision is there, broadly speaking, but specific action points are missing. Many founders might prefer the current government because of the track record of supporting startups,” says a Delhi-based partner of a noted VC firm.

Focus On The New Era For Indian Startups

Of course, the fact that the Indian startup ecosystem has flourished in the past eight to nine years is a testament to the entrepreneurial spirit of Indians, even though a lot of credit is due to the startup-specific policies brought in since 2015, and frameworks that have eased new venture creation.

We have written extensively about how Startup India has fuelled entrepreneurship and encouraged investments into Indian startups, but others believes that this is a pivotal time for Indian startups and tech. One could argue that just focussing on how things have improved might be missing the point a bit.

Action is also needed on several other fronts from whoever wins the 2024 General Elections. There’s a need to remove the fear of regulations in key startup sectors, the need to secure the future of Indian businesses and people with climate resilience action, the need to boost semiconductor manufacturing, the need to build IPs in AI, next-gen software development, robotics, and a lot more, with specific policy that will attract the big investments for Indian startups.

“It can’t be argued that startups have not grown, but now, the new government needs to focus on new areas and look at incubators and accelerators for domain-specific growth. If we are serious about AI, semiconductors and robotics then we need to show this through action and dedicated projects. Space tech is a good example of how to make this happen,” the managing director of a marquee VC fund pointed out.

The government made a bridge between spacetech startups and government-backed organisations such as ISRO. A similar backing was seen for fintech applications with the RBI sandbox and digital public goods.

The future of Indian tech is ultimately not going to be determined by government or policies of the past or simply sticking to what worked. The maturing and profitable business models of Zomato, Honasa, Urban Company and others in the past year show that past government action has resulted in the right outcomes. Now it’s time to enable different kinds of startups.

“When it comes to AI, data protection, semiconductors and deeptech, a more firm course of action is needed. India has a rich history of R&D in science, biotech, pharma and all areas that will be changed by technology and AI in the next few years, but this is lost because we cannot compete when it comes to commercialisation like the West. This needs to change,” said a managing partner of a Mumbai-based VC firm.

It’s true that government support has created the right conditions for some of these startups to thrive in the past eight years, but that was an India which was waiting for the consumer base, where internet access was limited and where startups were a fairly new idea.

Now the focus needs to turn on the gaps that do exist, and here simply, relying on past laurels may not be enough.

Startup India was a tech policy for the 2015 era, but this is a new generation of tech. Time for the next central government to look at what Indian tech and startups need for 2024 and beyond.

The post Elections 2024: The ‘Startup India’ Vision For The Next Five Years appeared first on Inc42 Media.

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The Jio Threat To Fintech Startups https://inc42.com/features/jio-financial-services-threat-fintech-startups/ Sun, 02 Jun 2024 00:30:06 +0000 https://inc42.com/?p=460363 One app to rule them all: that’s the fintech story in India over the past couple of years. And now…]]>

One app to rule them all: that’s the fintech story in India over the past couple of years. And now Jio Financial Services (JFS) is ready to show off its own super app.

With the launch of the ‘JioFinance’ app, JFS is looking to integrate digital banking, UPI, bill payments, and insurance advisory in one app, and the company is also adding digital lending and an investments platform to the mix.

Even though it is in the beta phase at the moment, JioFinance is going to be a major headache for the competition due to Reliance’s vast network of retail stores and its various SME partners. If Jio 4G was a key growth factor for fintech apps (Paytm, PhonePe, Google Pay et al), JioFinance threatens to eat their lunch.

So, how does Jio’s entry change things for these startups and companies that have defined fintech in India till now? This is what we will look to answer this Sunday but after a look at the top stories from our newsroom over this past week, incidentally featuring two of JioFinance’s big rivals:

    • Into The CREDverse: Super apps are a strong theme in the fintech world and CRED exemplifies this movement with its acquisition-led platform play. A deep dive into how the platform has expanded in the past year.
    • Paytm’s Lost Merchant Magic: Paytm took the super app route for merchant services and it paid off massively till 2024, but now this vertical is reeling under operational challenges and compliance lapses. Can the fintech giant bounce back?
    • The ‘30 Startups’ Spotlight: Going from scaled up giants to early-stage innovators — a look at the May edition of our coveted list of the most innovative startups in India that are cracking PMF and gaining traction.

Jio Goes The Paytm Way

Jio’s strategy of having products in key verticals is similar to Paytm’s playbook, right down to the payments bank licence. JioFinance app’s key features on debut include digital banking centred around the Jio Payments Bank as well as insurance broking and secured loans against mutual funds.

“Our end goal is to simplify everything related to finance in a single platform for any user across all demographics, with a comprehensive suite of offerings like lending, investment, insurance, payments and transactions and make financial services more transparent, affordable and intuitive,” a JFS statement said.

The payments bank account is likely to sit at the centre of the super app platform, just as Paytm Payments Bank did for Paytm till February 2024 before the RBI action against the bank, and the subsequent changes in Paytm’s backend banking partnerships for lending and payments.

Till the RBI action, most analysts saw the payments bank licence as a major competitive advantage for Paytm. It also enabled the payments app to offer faster transaction times and lower failure rates.

The same advantage will be critical for JioFinance to stand out among a sea of payments apps today. JFS also plans to include secured lending products such as loans against mutual fund investments and home loans in the future. Besides this, it plans to enter the mutual fund business through the JV signed with BlackRock.

During the Q4 FY24 post-earnings call with analysts, JFS managing director and CEO Hitesh Kumar Sethia said, “In the past quarter, the [payments] bank has revamped its digital savings account offerings and also launched virtual debit cards leading to a rapid increase in the number of customers acquired. In the coming quarters, we expect to ramp up our business correspondent touch points to facilitate further growth.”

But given the current market, the payments play will be the central large funnel through which Jio Financial Services acquires users for other services. JFS’ go-to-market strategy will be critical given the competition.

The Fintech Super App Field

While most large fintech companies have gone the super app way, their GTM strategy has differed.

Paytm relied heavily on acquiring digital payment consumers at a very early stage with its wallet business and built inroads into other services including UPI. Till very recently, in fact, UPI was not a big focus for Paytm given how much more profitable the wallet business is and the better terms for merchant discount rates on wallets compared to UPI.

Google Pay and PhonePe used Paytm’s example and doubled down on customer acquisition as well, before slowly adding more and more pieces to their platforms. PhonePe’s entry into the secured lending space, announced this week, is an example of how the Bengaluru-based decacorn is building a larger fintech empire leveraging its lead in UPI.

BharatPe took the B2B route and is now slowly adding B2C products to its mix. BharatPe’s JV for the Unity Small Finance Bank is another competitive advantage for the Peak XV Partners-backed company.

CRED started by tapping the creditworthy creamy layer of the urban population and built on that with more products, while Groww built a sizable lead in the investments space before jumping into lending and payments.

Zerodha which has the second largest active investor base after Groww is another formidable competitor for JFS in the investments space.

Each of these companies is also looking at payment aggregator licences to build further products that help them own a bigger piece of the digital financial services value chain. Jio too has a PA licence which will be leveraged for its B2B verticals.

While the super app field is growing wide, and rightly so given the untapped depth in the market, these specific GTM strategies indicate that owning a single niche is vital. This forms the spine against which the other parts can be added.

What strategy will Jio Financial Services and JioFinance rely on? And how will the fintech platform look to tackle the scale of existing players in each of these verticals? How will the larger Reliance universe link to JFS?

The Jio Financial Services Advantage

By all indications, JFS is more focussed on the wealth management opportunity. The JV with BlackRock has been expanded to cover wealth management and broking, in addition to the asset management.

The strategy questions will be more important for Jio to answer because it is already on course to raise funds and is expected to garner plenty of interest from institutional investors, sovereign funds and private equity giants.

The company is also looking to raise the limit of foreign investment in its equity capital up to 49%, for which it has sought a shareholder nod. JFS’ formation as part of a demerger from Reliance Industries in mid-2023 meant it was already a heavily capitalised business, but its new platform push will require further fresh infusion.

Remember the Jio Platforms funding spree in 2020, and then a similar run for Reliance Retail in 2023? It’s time for Jio Financial Services to be the next big Reliance bet.

Besides investments in the JV with BlackRock, Jio will also use the funds to scale up its merchant business and take on the likes of Paytm which are currently struggling. JFS launched Voice Boxes last year and plans to add to its PoS and devices network in 2024.

Its subsidiary Jio Payment Solutions Limited, which operates the payment aggregator business, will drive the merchants business, and here Jio will also have to fight off Paytm, PhonePe, Google Pay, BharatPe, CRED, Pine Labs and others that have scaled up their PoS businesses.

Not to mention the big investments needed on the consumer side for payments. If Jio hopes to drive scale for its platforms rapidly, it will need to invest heavily on customer and merchant acquisition. The Jio telecom subscriber base of 470 Mn (47+ Cr) users will very likely be JFS’ first target.

Adani Group is also eyeing a fintech super app and has partnered with ICICI Bank for its payments play. The Adani One super app logged INR 750 Cr in sales in FY24, according to reports, the group could leverage ONDC for its ecommerce and payments businesses. Along with Jio, Adani also poses a major threat to the fintech startup ecosystem.

Given the intense competition, Sethia told analysts in April this year that JFS’ advantage can be broken down into three aspects: “Number 1, the Jio brand; number 2, capital; and number 3, customer adjacency from our ecosystem,” he said.

Will these three be enough for the JFS super app? The competition has the deeper fintech experience, and startups such as Paytm, PhonePe, Google Pay, BharatPe, CRED have shown that they rapidly implement new technology and have built tech stacks that can support scale of millions. These are brands in their own rights too and are digitally-native companies that are also investable.

JFS will definitely have the pedigree of Reliance and the Jio brand and even the capital, but fintech is proving to be more than that. Can Jio Financial Services step up?

Sunday Roundup: Tech Stocks, Startup Funding & More

  • Indian startups raised more than $217 Mn across 31 deals, this past week, a massive 273% week-on-week jump, taking the May 2024 tally to just over $650 Mn. Stay tuned for our full report
  • Coworking space provider Awfis made a strong market debut this week, with its shares listing at a substantial premium of 12.8% on the BSE

The post The Jio Threat To Fintech Startups appeared first on Inc42 Media.

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Mamaearth’s Makeover https://inc42.com/features/mamaearth-honasa-profitability-omnichannel/ Sun, 26 May 2024 00:20:57 +0000 https://inc42.com/?p=459086 Many have celebrated Zomato’s rise to profitability, and how it has managed to stay there over the course of four…]]>

Many have celebrated Zomato’s rise to profitability, and how it has managed to stay there over the course of four quarters. But the same credit is due to Mamaearth and Honasa.

After reporting profits in the last three quarters, the company ended FY24 with profits of INR 110.52 Cr, a big turnaround from the INR 150.96 Cr loss of FY23.

So what exactly propelled Mamaearth and Honasa towards this major milestone? And has Honasa cracked the house of brands model to finally realise the promise of this model?

That’s what we will look at but after these top stories from our newsroom this week:

  • Paytm’s Big Test: After reporting 3X higher year-on-year losses in Q4FY24, Paytm is on the ropes, but it has a plan to get out of its current financial turmoil. Can Vijay Shekhar Sharma turn things around?
  • Tira’s Next Phase: As competition intensifies in the beauty segment — not least from Honasa — Reliance-backed Tira is banking on unique value propositions through its private labels. Is it enough to fight off rivals?
  • ixigo On The IPO Trail: With the startup IPO season in full bloom, ixigo is waiting in line to join the bourses. Does it have enough of an edge over the travel tech competitors?

What Worked For Honasa?

Honasa started out in 2016 with Mamaearth and an eye on making the most of the direct-to-consumer ecommerce wave that was about to kick off. For the first four years, it was largely an online-only brand, till the Covid-19 pandemic when it began looking at retail outlets as a way to be closer to consumers.

While ecommerce boomed and flourished after the initial days of the lockdown, Mamaearth focussed heavily on the omnichannel model expanding to 10K stores by the second half of 2020 and with an eye on long-term brand building. In fact, this helped Mamaearth establish itself as a new-age alternative to traditional FMCG brands in the beauty, skincare and personal care segments.

In fact, in FY24, the company made nearly 35% of its revenue from offline sales, and a bulk of this has come from general trade retail outlets, which shows that Mamaearth positioned itself not as a premium product but targetted mass availability.

But it was also during this time, the company even acquired other large brands with affinity to beauty and personal care, that have helped it have a good mix of premium and mass products. We will look at how these acquisitions have proved critical later, but it is the omnichannel distribution that has also become one of Honasa’s key strengths over the years.

One D2C founder told us that while everyone was talking about omnichannel in 2021 and 2022, it takes years to establish the distribution network that has paid off for Honasa in FY24.

In FY24, Honasa also began a transition journey by eliminating super stockists from its supply chains and going to direct distributors. This eliminated a big cost and allowed the company to walk towards profits. The direct distributor model is active in Honasa’s top 10 cities by sales and is expected to be adopted across its key markets.

While there was an impact in terms of sales growth in Q4FY24 due to inventory reduction and supply chain recalibration, the company expects to recoup in the quarter ahead, according to its analyst call post the earnings. Next on the cards is broader expansion of offline retail presence, and that means taking what worked for Mamaearth and taking it to other brands.

Honasa’s House Of Brands: Looking Beyond Mamaearth

As we mentioned, soon after the funding peak of 2021, Honasa acquired two major brands. First there was Mumbai-based BBlunt from Godrej Consumer Products and then Dr Sheth’s, a dermatologist-formulated premium skincare brand. Honasa also acquired a health content platform Momspresso, which was subsequently shut down due to inefficiency in scaling.

It also invested in building Aqualogica, Ayuga and The Derma Co as standalone brands, and most recently launched Staze 9to9. In May, the company also acquired Cosmogenesis Laboratories, a research-led cosmetics development company.

These brands and their individual product lines and positioning has been key for Honasa. The company identified a premium gap in its lineup and launched new products under differentiated brands. The acquisition of BBlunt gave it a strong channel for beauty products, while Dr Sheth’s expertise allowed it to explore new-age formulations.

Ayuga targetted the trend of ayurvedic and herbal products in BPC, while Aqualogica created a water-based patented formulation. These are significant investments that take time to gather momentum and in FY24, some of this seems to have paid off.

In FY24, The Derma Co scaled to an annual recurring revenue (ARR) of INR 500 Cr and is now expected to touch an ARR of INR 1,000 Cr within 3-5 years.Honasa is now focusing on rolling out The Derma Co in offline channels through the more upmarket modern trade stores and chemists.

Similar growth projections are also anticipated for its other brands Aqualogica and Dr. Sheth’s, which are expected to have ARR of INR 500 Cr as well as BBlunt, which is expected to touch INR 250 Cr in the same time frame.

CFO Ramanpreet Sohi told analysts that the company sees 20%+ revenue CAGR in the next three years, with Mamaearth’s growth expected to be in the double-digit figures and other brands driving a significant part of the growth.

The company is quite certain that investments in new product development have worked out. New products contributed 18% to sales in FY24. Cofounder Ghazal Alagh told analysts that product innovation is a key driver of growth and will contribute over 50% to the incremental revenue in FY25 and ahead.

Honasa’s Place In The Beauty Landscape

While it’s clear that Honasa has the momentum of the past couple of years behind it, the company is set to experience increased competitive intensity in the online space with conglomerates targeting the beauty category and individual brands growing large.

The former of the two can splurge on discounts, while the latter can have the product edge in the long run, if Mamaearth fails to identify emerging trends. Analysts were clearly told that Honasa is not focussing on categories outside beauty and personal care (say, home care or lifestyle accessories for example) and it is also not looking at mass categories within BPC. Skin care is the largest segment for Honasa (accounts for 60% of the topline) and is the fastest growing category, followed by hair care, colour cosmetics and baby care.

Honasa wants its brand to be aspirational in nature and focus on retail where typically there is higher per-capita spending on beauty and personal care, but brokerages such as Kotak Securities believe that quick commerce will be a key for higher margins for Mamaearth in the long run.

These are all highly competitive areas with the likes of Tira and Nykaa investing in private labels and offline penetration. The growth seen by the likes of The Minimalist, Nat Habit, Pilgrim, The Beauty Co, Plum and others and the entry of new brands such as Gabit will also test Honasa in the long run. Many of these are also using Honasa’s playbook to expand offline.

The heavy reliance on Mamaearth as a brand is also a worrying factor for the group. Even at the time of its IPO, the Mamaearth factor was seen as a weakness in Honasa’s house of brands. So going forward, it will be critical for the company to build other brands to Mamaearth’s levels.

In this regard, Honasa will have to continuously invest in brand recall on quick commerce and retail channels. While FY24 showed that Honasa can ring in the profits, the maturing beauty market in India means there is no time to rest.

Sunday Roundup: Tech Stocks, Startup Funding & More

Funding Drops By Half: Week-on-week startup funding saw a major dip as just $58 Mn was raised by Indian startups this past week

Google’s Flipkart Bet: Walmart-owned Flipkart has brought Google on board as a minority investor but has not disclosed the size of the investment

Awfis Awaits Listing: The public issue of coworking space provider Awfis was subscribed 11.4X after bidding closed for the IPO. Will it make a bumper debut on the markets?

Digit’s Lukewarm Debut: A day after listing, Go Digit General Insurance was given a Sell rating by brokerage firm Emkay for its rich valuation and lack of competitive advantage

Blinkit Gets Sporty: Blinkit has added branded sports goods, athleisure wear and gym equipment to its quick commerce cart in a bid to diversify its product mix.

The post Mamaearth’s Makeover appeared first on Inc42 Media.

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Zomato, Swiggy And The New Shades Of Food Delivery https://inc42.com/features/zomato-swiggy-new-shades-of-food-delivery/ Sun, 19 May 2024 00:30:40 +0000 https://inc42.com/?p=457812 There’s little doubt that Blinkit has become a rocketship for Zomato in the past year, and we already looked into…]]>

There’s little doubt that Blinkit has become a rocketship for Zomato in the past year, and we already looked into what’s working for the quick commerce platform earlier this week.

But this Sunday, we wanted to focus on how Zomato became Zomato in the first place. That means food delivery and here, there’s been some discussion about food delivery in India hitting a wall.

The point being made is that outside of the metros and cities, growth for food delivery has been tepid and underwhelming. And that Zomato — and indeed Swiggy — will see slow growth in the near future as a result.

But this may be a bit of an exaggeration. In our opinion, it’s not that Zomato and Swiggy are hitting a wall, but it’s just that the road ahead is not paved. The question is can their existing businesses continue to hold good while they wait.

We’ll look at the food delivery revenue games in light of potentially slow growth, after a look at these stories from our newsroom this week:

Quick Commerce Vs Food Delivery

First, we need to understand why food delivery has seemingly taken a backseat. The answer is closer to home for Zomato and Swiggy than one might expect. It’s quick commerce.

Blinkit, Zepto and Swiggy Instamart have essentially replaced food delivery in the minds of many consumers.

Incidentally, the quick commerce growth has come in the same cities and regions where food delivery has dominated. The overlapping of these two models definitely seems to have had a worse impact on food delivery. After all, an average consumer is more likely to buy groceries twice a week than order in from Swiggy or Zomato twice a week. While food delivery is still considered discretionary spending, groceries are certainly not.

Plus quick commerce use-cases have widened in the past few quarters, making it more indispensable than food delivery in many cases.

In its Q4 FY24 results, Zomato revealed that quarter-on-quarter the food delivery business saw a decline in gross order value (GOV). This was expected because even in the previous fiscal year, Zomato’s Q4 GOV declined compared to Q3, which accounts for the peak business day of New Year’s Eve.

The near-instant availability of ready-to-eat products, coffee, salads and other grocery staples on Blinkit, Swiggy and Zepto has definitely grabbed a share of the consumer’s wallet in the past year.

As a result, Zomato’s food delivery gross order value grew 28% year-on-year (YoY) and declined 0.6% quarter-on-quarter (QoQ), whereas quick commerce GOV almost doubled on a YoY basis and saw a sharp 14% sequential jump.

Swiggy, which is expected to record revenue of over INR 10K Cr in FY24 as per sources, is also seeing greater acceleration on the quick commerce front. In fact, one could even say that quick commerce is changing how these companies are viewing delivery too.

Take for instance, Zomato’s large order food delivery fleet. This can easily be extended for larger orders on Blinkit, a trend that’s already gathering momentum. So in many ways, quick commerce is becoming the new face of delivery startups.

One could even imagine these as small Blinkit kiosks with a fixed inventory of the most purchased products or seasonal products, ready to go to the customer as soon as they place the order. Not too far fetched for Zomato or Blinkit, given recent experiments on both platforms.

How Zomato thinks about the food delivery business model

Platform Fees Play Their Part

Despite a decline in orders, Zomato has managed to add to its profits significantly in Q4 FY24. Net profit grew 26.8% to INR 175 Cr in the quarter and the company attributed this primarily to higher average order value, improvement in take rate and ad monetisation, introduction of platform fee and cost efficiencies. “Together, these factors more than compensated for the lower customer delivery fee on account of the free delivery benefit on Gold orders”

It’s interesting that Zomato name-drops Gold here because as we see some benefits under Gold have been unbundled by the platform.

Zomato’s priority delivery service is one example of a Gold feature that’s been ported out for the wider consumer base. Of course, Zomato charges a platform fee per order as well, regardless of whether the consumer is a Gold subscriber or not. Depending on the restaurant, there may be a handling fee or a packaging charge as well.

More recently, there’s a surge fee, which has cropped up recently, particularly during peak lunch hours, where we have seen delivery fees as high as 5X a regular order. The fact is that food delivery as a service is much dearer for the average consumer than it was a year ago, and many might argue that it’s a worse experience than takeaways in some cities.

It will be interesting to see where Swiggy stands on these metrics when its FY24 numbers are released. With the Bengaluru-based delivery giant expected to hit the stock markets to take on Zomato later this year, analysts predict that both businesses will be more or less on par in terms of the revenue breakdown and unit economics.

Like its old rival, Swiggy has also relied on platform fees to increase its take rate from every order. Last year, cofounder and CEO Sriharsha Majety mentioned that the company is profitable on the food delivery front after excluding some one-time costs. But we do know that the company stands in losses as of December 2023.

Where Will Growth Come From?

So in light of the discussion of food delivery hitting a wall even as Zomato’s revenue has grown, it could be argued that perhaps the more affluent Indians who continue to use Zomato frequently are not averse to paying a little more.

Zomato says that its monthly transacting customers (MTC) have grown in line with the overall growth in volumes at around 20%.

“We expect that as the business GOV continues to grow 20%+ (which we have guided on), that will likely be a combination of some AOV increase and order volume increase,” Zomato CFO Akshant Goyal claimed in an analyst call this week, adding that most of this growth is going to come from new customers joining the MTC base.

Beyond consumers, revenue growth for food delivery is also highly dependent on the growth in the restaurant business as well. Last quarter, Goyal told analysts that among new restaurants “a large chunk of what we are seeing as new restaurants today are cloud kitchens, at least on our platform”.

This makes sense given that the restaurant space has become highly competitive due to recent capital accumulation by some large players through public listings. This has pushed some of the newer entrants or brands out of retail spaces and into the territory of cloud kitchens. The lack of talent is another recent pain point for the retail restaurant industry.

Cloud kitchens are more important for Zomato because a lot of their spending goes to ads on platforms such as Zomato and Swiggy. Overall, Zomato has added 33% more monthly transacting restaurants in the past year. Creating an ad platform that works is critical for Swiggy and Zomato to keep its flywheel running and attract more restaurant partners.

Swiggy And Zomato’s Parallel Lives

When we talk about food delivery, the challenges and the opportunities are as applicable for Swiggy as they are for Zomato. Even though Zomato and Swiggy seem to be such strong rivals, the companies move in parallel tracks more or less. Zomato all but admitted that in the earnings call with analysts after the Q4 FY24 results.

When asked whether revenue growth for food delivery will come from the consumer side through more fees or restaurant side through ads, CFO Goyal insisted the company does not approach the business in a binary way.

“We think of it more in terms of optimising absolute profits in the business while providing the best experience to customers. And to be able to do that, these answers on economics keep changing. So, there is also an element of competition here and what they are doing and so on.”

 

The CFO clarified that Zomato doesn’t have a target on each of these line items such as take rates from consumers or ad sales. The goal is about meeting the margins targets.

In the FY24 annual presentation, the company boldly says, “investments in category creation now largely behind us” and talks about the progress in profitability, claiming that EBITDA margins on food delivery would remain around 4%-5% of the GOV in the medium term from the current 3.3%.

It’s taken nearly a decade for Zomato to get to the position where it can talk about margins not just notionally but actually have the numbers to back it.

Growth might be relatively slow compared to previous years, but in a market that is trending towards saturation, the winner is often the one that ekes out the most profit. Now it’s Swiggy’s turn to show its cards.

Sunday Roundup: Tech Stocks, Startup Funding & More

  • Startup Funding Drops: Indian startups raised $121.8 Mn across 21 deals this past week, nearly half of what was seen in the week-ago period, and well below the recent weekly average tally
  • Delhivery’s New Plans: Delhivery is looking to expand into drone manufacturing and freight air transportation services; after reporting EBITDA profitability in in FY24

The post Zomato, Swiggy And The New Shades Of Food Delivery appeared first on Inc42 Media.

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Blinkit Takes Off: How Zomato’s Quick Commerce Bet Delivered In FY24 https://inc42.com/features/blinkit-growth-year-fy24-zomato-quick-commerce/ Mon, 13 May 2024 16:51:04 +0000 https://inc42.com/?p=456875 Exactly a year ago, we asked if food delivery can solve Zomato’s Blinkit problem — but now after a watershed…]]>

Exactly a year ago, we asked if food delivery can solve Zomato’s Blinkit problem — but now after a watershed FY24, the quick commerce platform seems to be the one doing the heavy-lifting for Zomato.

Here’s some perspective: Zomato’s food delivery gross order value grew 28% year-on-year (YoY) and declined 0.6% quarter-on-quarter (QoQ), whereas quick commerce GOV almost doubled on a YoY basis and saw a sharp 14% sequential jump.

While Blinkit’s revenue for the full FY24 was over INR 2,300 Cr, its GOV or gross order value soared 97% year-on-year (YoY) to INR 4,027 Cr in the quarter ended March 2024.

The quick commerce platform clocked revenue of INR 769 Cr in Q4 FY24 as against INR 363 Cr in the year-ago quarter and INR 644 Cr in Q3 FY24. Importantly, Blinkit turned adjusted EBITDA positive in March 2024, right as it exited FY24.

Beyond the numbers, the focus on Blinkit was clear from the fact that Zomato’s now-signature ‘Shareholders’ Letter’ was largely dedicated to the quick commerce vertical. Blinkit cofounder and CEO Albinder Dhindsa and Zomato cofounder and CEO Deepinder Goyal took turns in celebrating the milestones for the platform over the past year.

While Dhindsa spoke about the growing network of stores in key markets, CEO Goyal pointed out that the Blinkit deal was critical for the company, even though it may have seemed like a risky one at the time of acquisition.

“When we acquired Blinkit, we outlined that one of the key reasons to acquire the business was to defend the food delivery business, because a well entrenched quick commerce player could pose an easy threat to the food delivery business in the long term,” Goyal wrote in the letter.

Expanding The Blinkit Network 

Even though Blinkit is a small part of Zomato’s large empire, contributing just under 20% to the total revenue in FY24, this share has grown from 11% in FY23.

Plus, in terms of standalone revenue, its growth outpaced food delivery on a YoY basis as well — 186% YoY growth for Blinkit vs around 40% for the food delivery platform.

Blinkit quarterly revenue growth in fy24

A large part of this outsized growth for Blinkit, Dhindsa said, has come due to store expansion strategies. “In Q4FY24, we added 75 net new stores taking our total store count to 526. For comparison, this is more than the number of stores we added in the three preceding quarters cumulatively,” the Blinkit CEO added.

A majority or 80% of the new stores in Q4 FY24 were opened in the top eight cities for the platform, with Delhi NCR seeing the most investments in terms of store expansion. Delhi NCR is also the biggest contributor to Blinkit’s GOV and revenue, and well ahead of the other 25 cities that Blinkit currently has a presence in.

The addition of new stores allows the platform to reach more customers and be more consistent in terms of the product, irrespective of the location the customer is ordering from — this is linked to the baseline service expectations for quick commerce, as Dhindsa further explained in the letter.

The GOV for Bengaluru, Blinkit’s second largest market, is less than 30% of Delhi NCR’s GOV.  The company said that it will look to get Bengaluru and other large cities such as Mumbai and Hyderabad to the same penetration levels as Delhi NCR, both in terms of store footprint and GOV.

Blinkit GOV (INR Cr) in Delhi and other cities

Bengaluru, Blinkit’s next big target, is incidentally the home ground for Zomato rival Swiggy. Now, as Blinkit gears up to fight Swiggy Instamart on its home turf, it will certainly add an interesting dimension to this rivalry.

In the ongoing quarter (Q1 FY25), Blinkit is looking to add another 100 stores and reach a base of 1,000 stores by the end of FY25. Despite the planned store expansion spree, Blinkit said its overall adjusted EBITDA is likely to hover around breakeven for the next few quarters.

New Categories Pay Off 

One of the reasons for the EBITDA improvements is the higher average order value and improvements on the unit economics front in terms of delivery fees, platform fees and other miscellaneous charges.

Zomato is also looking to broaden the focus area for Blinkit by adding more brands across new categories, in a bid to compete with ecommerce marketplaces like Amazon and Flipkart. Already, Blinkit is delivering products such as Apple iPhones, Sony PlayStation 5 consoles, electronic accessories and home appliances such as air coolers in a matter of minutes.

Blinkit is also selling gold coins, sunglasses, everyday apparel and kitchen appliances these days. In fact, the recently launched Zomato large order delivery fleet is perfectly suited for delivering such large products and packages in the future.

With 40% growth in the number of stores in FY24, Blinkit is now able to offer a wider selection of products to most of its users, Dhindsa added.

Besides this, the platform is looking to enable fast-growing direct-to-consumer (D2C) brands by building its own supply chain to directly source products as well as manage stock from new-age brands.

While quick commerce has become a major sales channel for D2C brands, the path is not exactly easy for newer brands. Blinkit is looking to enable these brands by leasing warehouses to increase their distribution footprint in key markets.

It’s not just Blinkit that has moved in this direction — Swiggy recently integrated Swiggy Mall into Instamart. However, Swiggy Mall, in terms of availability, is currently restricted to Bengaluru – its biggest market.

Blinkit, on the other hand, is looking at category expansion in most of its top markets, in addition to Delhi NCR.

Take, for instance, the recent introduction of air coolers on Blinkit, coinciding with summers in India. Besides Delhi NCR, Blinkit customers in Bengaluru and Hyderabad could also order the appliance and get it within 10-15 minutes. So Blinkit is jumping in with both feet when it comes to new categories, and it’s clearly making a difference in the number of daily orders as well as the average order value.

Service Reliability Makes A Difference

“In our case, we obsess about making our service reliable. Our investments (intellectual and financial) in the business are over-indexed to making our service more and more reliable. Reliability means a) availability of products at all times and b) quick and predictable delivery times,” Blinkit CEO Dhindsa said in the ‘Shareholders’ Letter’.

It’s hard to quantify reliability of a service, but Dhindsa went out on to list some of the operational parameters that are vital for quick commerce, and Blinkit seems to have passed the litmus test here.

The average delivery time for Blinkit was 12.5 minutes in the month of March 2024. Close to 75% of the orders were delivered within a two-minute window of the promised delivery times, while item fulfilment was higher than 99%, Dhindsa claimed.

“We believe that a business built on the back of great service quality is much tougher (and hence more defensible) than just offering lower prices (usually through unsustainable subsidies),” the CEO added.

But that does not mean that Blinkit is completely turning away from discounting. While some categories do have heavy discounts, the company is countering this with improvements on the unit economics front.

Blinkit’s Unit Economics Leaps

Dhindsa pointed out that the Blinkit’s “high quality of service results in higher customer willingness to pay us a delivery fee thereby leading to better economics.”

Blinkit added an INR 2 handing fee for every order, just like Zomato’s platform fees. This has undoubtedly led to improvements in the bottom line for the platform.

For context, the GOV-to-revenue ratio improved to nearly 20% in Q4 FY24, compared to around 17% in Q4 FY23. Besides, Blinkit’s adjusted EBITDA loss improved to INR 37 Cr in the March quarter from INR 89 Cr in the preceding quarter and INR 203 Cr a year ago.

These might seem like marginal improvements, but with scale, they can snowball into major contributors to Zomato’s overall profitability

Further, Dhindsa claimed that almost 100% of Blinkit’s orders in March 2024 had a “non-zero delivery fee with an average delivery fee per order of INR 20 (not including new customers).

What’s Next For Zomato’s Quick Commerce Bet?

One potential soft spot for Blinkit could be its weaker presence beyond Delhi NCR. The company has admitted that it needs to increase the penetration of its stores in Bengaluru, Mumbai and Hyderabad among other cities in its network.

Zepto is said to be inching forward in terms of market share and has the ability to raise fresh funds to expand rapidly. Swiggy is looking at an IPO in the next year or so, and is said to be in talks to raise fresh funding before the potential public listing. On the other hand, Blinkit can rely on some of Zomato’s cash reserves of over INR 12K Cr, for its growth push.

“In addition to scaling up the existing store network and use cases, we will be adding more use cases so that the Blinkit platform is even more useful in the everyday lives of our customers,” the CEO stated in the letter.

It will be interesting to see what these new additions will be — we have seen the company indicate that it might be venturing into home repair and other handyman services which would overlap with Urban Company. But this has not yet come to fruition.

Besides this, quick commerce rivals have experimented with delivery of packaged food and beverages, including Zepto Cafe and Swiggy Instacafe. While Blinkit has not yet revealed its plans in this regard, it will be interesting to see where the quick commerce platform goes in the year ahead.

There’s little doubt that FY24 has proven Blinkit’s potential to a large extent, but now it has to show that these improvements were not a flash in the pan.

The post Blinkit Takes Off: How Zomato’s Quick Commerce Bet Delivered In FY24 appeared first on Inc42 Media.

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Digit IPO: Litmus Test For Insurance Tech https://inc42.com/features/digit-ipo-litmus-test-for-insurance-tech/ Sun, 12 May 2024 00:29:28 +0000 https://inc42.com/?p=456611 Nearly two years ago, Go Digit was set for an IPO. But market conditions, SEBI regulations and more put that…]]>

Nearly two years ago, Go Digit was set for an IPO. But market conditions, SEBI regulations and more put that plan on hold.

But the insurance tech unicorn is back for another shot at a public listing, and this time around, the IPO is definitely happening. The company has set a price band in the range of INR 258 to INR 272 per equity share for its upcoming INR 1,125 Cr+ initial public offering, which is opening for bids on Wednesday, May 15.

With this, Go Digit is becoming one of the first major IPOs of 2024. And other companies are lining up in 2024 and 2025 to join the insurance tech unicorn. So in many ways, the Digit IPO is one of the most critical ones for the Indian startup ecosystem since 2021. Which way will the coin fall for Go Digit?

We look to answer that, but first, a look at the top stories of the week:

The Question Of Valuation

The first thing we have to turn our attention to is the valuation for Go Digit or the pricing for the IPO. The insurance startup is going for an IPO at a discount of 25% to its last known private market valuation, which is largely a result of how much things have changed in the past two years.

At a price band of INR 258 to INR 272, the company is eyeing a valuation of $3 Bn (approximately INR 24,000 Cr) on the higher band. However, its last private valuation in 2022 was $4 Bn (close ot INR 32,000 Bn). Go Digit founder and chairman Kamesh Goyal said the price band will leave plenty of value on the table for investors, and is in line with what investment bankers have advised the company.

While the class of 2021 might have tried ambitiously to list at super-high valuations — Paytm being a prime example— the past two years have shown the reality of the market for companies such as Digit. More and more Indian startups, particularly those at the later stages, are realising that the valuation terms of the past are history. Now, companies are more than happy to raise money at lower valuations as long as survival is possible, no matter if they are private or going for a public listing.

In fact, for a unicorn, Digit is going for a relatively small listing. In terms of fresh funding, the company is looking to raise INR 1,125 Cr, while the offer for sale from existing shareholders has also been halved to 54 Mn shares from 109 Mn shares as stated in Digit’s previous IPO filings.

Digit’s valuation expectations are still relatively high compared to other insurance players in the market. At the higher price brand, the company is looking at a 680X multiple on revenue basis, whereas the insurance industry leaders are close to 43X.

Investors we have spoken to believe that given the low penetration of insurance in India, high valuations are a norm. Plus many investors believe that insurance tech is only going to grow larger with new models of underwriting, the increase in data and high growth ceiling for business-related insurance products.

“The Indian non-life insurance market will grow at 13-15 per cent in the medium term. The industry’s growth will be primarily driven by the health and motor insurance segments, supported by increasing disposable income levels and a rise across other segments,” ratings agency CareEdge said in an April 2024 report about the Indian insurance space.

So let’s look at the two major categories it is targeting that will determine the course of the general or non-life insurance space, and how Digit is placed in this regard.

The Digit Network: Motor Vs Health Insurance

There is no denying that Digit is seeking the valuation multiples of a typical tech startup, while being in the insurance business which is tightly governed by regulations. In fact, in the early days of the startup, Digit relied heavily on the digital onboarding of customers, and in the past few years, this reliance has gradually reduced.

Online direct selling is still relatively small for Digit and other players, as compared to human agents selling insurance plans and onboarding users after KYC. Even a digital insurance platform cannot be completely online, and has to work as the traditional players do because of the high bar for regulatory compliance.

This is why today, Digit has a network of 61K+ distribution partners and nearly 59K sales agents on the ground. According to the company’s revised DRHP, Digit expects the majority of its customers to be acquired through its agent and broker network, which is to say that the company has to increasingly look at the model which has been popularised by LIC, and followed by other players, including insurance tech companies like InsuranceDekho.

Much of Digit’s network is geared towards selling motor insurance. This comprises 61% of Digit’s business, while health insurance is a distant second at 14% of the gross premium received by the company in FY24.

Because motor insurance is mandated by law for all vehicles, this is a highly competitive segment and there’s no real moat for companies except low premiums and discounts on insurance plans. Health insurance is the true underpenetrated product.

Digit’s share of the overall health insurance market is just around 3%. This is the big opportunity that Goyal will be targetting after raising capital from the public markets.

Analysts believe that Digit will have to up its game across multiple insurance products to continue the premium growth that justifies its valuation multiples which are quite rich compared to listed companies.

Growing Profits Are Key

The only factor that can help Go Digit swim against this tide is profitability, and here, there may be some merit to the company asking for high multiples from the market.

According to General Insurance Council data, Digit had a gross written premium (GWP) of INR 7,941.1 Cr in FY24, which is nearly 30% higher than the INR 6,160.08 Cr it recorded in FY23. However, Go Digit’s RHP only has data up to December 2023, when GWP was at INR 6,679 Cr. When comparing the GIC data to Digit’s FY23 numbers, we can see an increase of just under 10% in GWP.

In comparison, the nearest insurance tech competition is Acko, which had a GWP of INR 1,870 Cr in FY24 and INR 1,509 Cr in FY23. This is an increase of just under 24%, which is more than 2X of what Digit saw, highlighting that a relatively low revenue base is not a disadvantage for Digit’s competition.

This is yet another indicator of the low insurance penetration in India.

For the first nine months of FY24, i.e as of December 2023, Digit sharply brought down its operating loss to INR 10 Cr, while profit after tax (PAT) stood at INR 129 Cr. Chairman Goyal said the loss is small at operating level and not meaningful to impact the company’s services.

“Most of our business is retail, so expenses will be high. If you look at our AUM in the last 6 years, it has been more than 15% of some of the top 5 companies. When you are growing fast, it leads to losses because your commission expenditure has to be expensed on day 1 while revenue is earned over a period of 365 days.”

As for the category split and the heavy reliance on auto or motor insurance, Goyal acknowledged that health insurance has to become the key focus for Digit going ahead. “Our health (insurance) business has doubled over the years. The loss ratio was good at a time when everyone was losing. We doubled our premium in one year. In three years, it will be the fastest-growing category for us,” he said.

Three years is a long time and competition in the insurance space is only expected to grow. So, while Goyal may be optimistic, there’s a lot that Digit has to prove before it can claim for certain that the IPO valuation was on the mark.

The New IPO Wave

However, Digit’s IPO is important for other reasons. Before we wrap up, let’s take a moment to see why the Digit IPO is a big deal for Indian startups and tech companies.

The Digit IPO is not just vital for the company but also a test of the Indian startup ecosystem, and something of a report card on the past three years.

After PB Fintech, Nykaa and Paytm got their listings in November 2021, Go Digit is the next major new-age tech company going for an IPO. It’s been three years, and in that gap a lot has changed. Unicorns have largely delayed their IPOs, including the likes of OYO, boAT, Pine Labs and others, besides Digit.

So many entrepreneurs and public markets investors would be watching the fate of Digit now, because it will give them a hint about how other IPOs might be received. Besides the insurance unicorn, other key public listings expected in 2024 include FirstCry, PayMate, Awfis, Mobikwik, Ola Electric and OYO, and Swiggy is expected to join this group by later this year. There’s a bit of pressure on the startups of an older vintage to get those returns for investors.

As per an Inc42 ‘s 2024 u, 95% of investors believe that IPOs would be the most popular exit route for startups in 2024, given that most M&As are going through only because of their distressed nature. Essentially, IPOs are becoming a reality for investors, even though the valuation maths is still very critical.

For many of those who backed Digit, as early as 2016 when the company was founded, this is a vindication. These investors are all but certain to make a lot of money from the Digit IPO, given how these things usually work.

But as far as the public markets are concerned, the key to future value creation will be profits and profits alone. Will Digit’s rich valuation be able to sustain itself as the company adds to its revenue base?

That is a critical question that is likely to be answered later this month. And another big question is: will the public market response to Digit determine the fate of other massive Indian startup IPOs in 2024?

Sunday Roundup: Tech Stocks, Startup Funding & More

Weekly Funding Drops: Startup funding was a low-key affair this past week as compared to the previous one, with just over $220 Mn raised across 21 deals, a 30% decline week-on-week

Groww ‘Returns’ To India: Fintech unicorn Groww has completed its reverse flip, shifting its domicile to India from the US, merging the holding company Groww Inc with its Indian entity Billionbrains Garage Ventures Private Limited

Bhavish Aggarwal’s Feud: Amid a tussle with Microsoft-owned LinkedIn over a post on the use of genders in AI, Ola chief Bhavish Aggarwal said that Ola would stop using Microsoft’s Azure and migrate to a native cloud platform, but is this easier said than done?

TBO Sees Big Bids: B2B travel portal Travel Boutique Online received an overwhelming response for its IPO, with 86.7X subscriptions as of the final day for bidding

The post Digit IPO: Litmus Test For Insurance Tech appeared first on Inc42 Media.

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The Clock Is Ticking For BYJU’S https://inc42.com/features/the-clock-is-ticking-for-byjus/ Sun, 05 May 2024 00:19:22 +0000 https://inc42.com/?p=455657 How often does a company paying salaries make the headlines? But that’s the state of BYJU’S today. Like this past…]]>

How often does a company paying salaries make the headlines? But that’s the state of BYJU’S today.

Like this past week, when the company clearing the salary backlog for March 2024 was widely reported. The caveat is that only some employees within the company have been paid, and not others — we’ll get to that later.

While a lot has been said about BYJU’S in the past year, it still does not answer the question of whether the company can survive the storm. Cofounder Byju Raveendran has turned over every stone to keep his company afloat, including the new BYJU’S 3.0 plan, but seems to have fallen short on most accounts.

So the question is: Can BYJU’S even be saved? We will look to answer that, but, as usual, after a look at the top stories from our newsroom this week:

  • The Payment Aggregator Rush: Why have the likes of CRED, Groww, Pine Labs, PayU, mSwipe and others entered the payment aggregator field despite increased regulatory scrutiny and higher burden of compliance? Here’s an explainer
  • 30 Startups To Watch: The 46th edition of Inc42’s much-anticipated ‘30 Startups to Watch‘ is here, and, with it, we are once again turning the spotlight on the most innovative early-stage startups in the country today. Take a look at the list
  • Swaayatt’s Story: Bhopal-based Swaayatt Robots is looking to take on automobile giants in the autonomous vehicle space and claims to have a lead on much of the competition. Is this hype or reality?

No Salary, No Future

Let’s start with the headlines this week around the company settling some salaries.

First, there were reports about the company suspending monthly fixed salaries for its sales team. According to reports, the company would only pay the sales staff on the basis of their weekly sales. This change essentially puts the sales team on the chopping block, according to two current employees at BYJU’S.

“It’s impossible to earn a living by trying to sell BYJU’S courses at this point of time. We have to sell test prep and other online courses, which is not something customers want because offline learning is the better option right now,” one current business development associate in Bengaluru told us.

This after the company laid off many employees from its sales team in pursuit of the inside sales strategy last year. Under the inside sales strategy, associates were paid incentives on the basis of their performance, but now the basic salary is being linked to performance.

Employees claimed the company will only pay a percentage of the weekly revenue generated by each member of the sales staff at the end of the seven days. The policy will continue till the end of May 2024, but that’s the current status, and no one knows whether this will be extended for longer.

Another employee revealed that currently most sales employees are working from home given that BYJU’S has given up most office spaces. “There is no infrastructure which is needed for inside sales, so the new performance-linked salaries is just one way of telling us that our time with the company is running out. There’s no future at this company.”

A couple of days after the salary changes for the sales team, reports claimed BYJU’S had cleared the March 2024 salaries, but this did not include the salaries for the sales team. What’s important to note here is that this is just a portion of the employee dues.

Not to mention, the frequent changes in salary terms and contracts for employees is bound to have a demoralising effect on the current workforce, leading to higher churn and attrition.

Can BYJU’S Stay Alive?

Employees who were laid off in late 2023 and early 2024 are yet to be paid salaries as Inc42 had reported earlier, and even the most recent salary payments do not include the backlog for February and March for many employees.

The only people who have been paid are part of the management team and handle administrative functions that are needed for everyday operations, not related to sales. In other words, the employees needed to keep the corporate entity alive are being paid, those in the sales team allege.

Reports claimed the monthly salary burn for the company is between INR 40 Cr ($5 Mn) to INR 50 Cr ($6 Mn), and that’s not even counting the backlog of salary and the dues owed to the various vendors, which we have covered in detail here.

While CEO Raveendran has claimed that the delay in salary credits is due to the company being unable to access funds from its recent rights issue, the reality is that $200 Mn will not go a long way towards compensating employees.

In this regard, the BYJU’S 3.0 plan — which includes lower salaries for new hires, consolidated operations for verticals and other cutbacks — does not seem to infuse much confidence.

Sales is critical for BYJU’S to prove that it’s not dead. It’s not enough to keep the corporate entity alive and working with no revenue coming in.

Even compared to past years and BYJU’S sales-first DNA, there’s a lot more pressure on the sales team today. Only now, the pressure is not coming in the form of words or targets from the management, but rather on the basis of the pay itself.

And is it even fair to ask the sales team to sell more when the BYJU’S brand has suffered a pretty big hit in the past few months?

The Fall Of Brand BYJU’S

A CEO of a rival edtech company, which also has a significant presence in the offline space, told Inc42 this week that BYJU’S troubles have not only harmed the company but also the Indian edtech sector. “We were only able to achieve 40% of the targets set for online courses, while offline coaching has seen more students each year.”

This after upGrad’s Ronnie Screwvala also claimed that due to ‘one rotten apple’ the industry is seeing reputational damage. “If people had asked questions, they’re now beginning to ask, four years back, it would have been a very different story,” Screwvala had said during February’s ASU+GSV & Emeritus Summit.

Of course, it’s not just BYJU’S that’s having trouble selling online learning as a proposition, but the industry as a whole is seeing some headwinds. From Physicswallah to Unacademy to Vedantu and others, most of BYJU’S competitors are more focussed on the offline business and hybrid online-offline models to bolster revenue.

PW’s cofounder Prateek Maheshwari said that online learning grew 80% YoY in FY24 compared to 115% growth for offline learning. The startup plans to open 50 more centres in the next two years, Maheshwari said in February this year.

For BYJU’S, competing with these startups on offline learning expansion is next to impossible. The company has no money to pay employees, let alone look at expanding its offline presence. Indeed, the cutbacks under BYJU’S 3.0 extend to the BYJU’S Tuition Centres as well as the online learning side.

Several educators at the BYJU’S Tuition Centres (BTCs) in Delhi, Bihar and West Bengal have been let go. In their place, the company has roped in educators at lower salaries who have been asked to work for longer hours and also have to do online lessons in addition to offline coaching.

“Reputation is everything in education and once there are questions raised about the legitimacy of institutions, these tend to stick around for years. Look at what happened with IIPM or even now with influencers who use online platforms to lure students,” a founder of a Delhi NCR-based student counselling platform and a veteran in the education sector, told Inc42.

In other words, BYJU’S as a brand is on the death spiral and very little can be done to salvage any reputation in the short term. It might take years for BYJU’S to become a reputable platform again, and as things stand, the company does not have the luxury of time.

Sunday Roundup: Tech Stocks, Startup Funding & More

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Why Are Startups Joining The Payment Aggregator Rush Despite RBI’s High Compliance Bar https://inc42.com/features/fintech-startups-india-payment-aggregator-rush-rbi-compliance/ Thu, 02 May 2024 06:30:03 +0000 https://inc42.com/?p=455098 It’s a payment aggregator (PA) feeding frenzy out there as dozens of startups and big tech companies have bagged the…]]>

It’s a payment aggregator (PA) feeding frenzy out there as dozens of startups and big tech companies have bagged the licence in recent months.

Since December last year, the RBI has approved the PA applications or has given in-principle approval to Zoho, Juspay, Decentro, CRED, PayU, Enkash, Pine Labs, Amazon Pay, Innoviti, Razorpay, CC Avenue, Cashfree, Tata Pay, Google Pay, Infibeam Avenues, Mswipe, among others.

Just this week, Groww and Worldline Global also joined this list. Overall, more than 20 companies have received the green light from the central bank in 2024 alone.

So what explains this sudden rush to become a payment aggregator and why exactly are companies queuing up?

The payment aggregator rush in India is particularly curious because becoming a PA could soon come with increased regulatory scrutiny on startups, and higher burden of compliance as well as increased cost of due diligence.

The RBI is looking to bring in a new set of guidelines for this space over the next month. In draft directions released on April 16, 2024, the central bank has sought comments and feedback from the fintech and payments industry. Stakeholders have till May 31, 2024 to submit their views to the RBI, post which the final guidelines are likely to be finalised before the next quarter.

In the present state, the draft directions bring in some much-needed clarity on the entry requirements for companies looking for a PA licence, but along with this, the central bank has looked to ensure a higher degree of customer monitoring by existing and future payment aggregators.

As one Gurugram-based fintech startup founder put it, “The KYC and due diligence requirements are pretty much similar to what the RBI expects of universal banks. It may seem like a challenge, but it’s a welcome change since it creates a level playing field.”

The primary attraction for a payment aggregator licence is that entities can enable ecommerce sellers and other merchants in India to accept various payment instruments from customers, pool these collections and get settlements through PAs, without the need to create a separate payment integration system of their own.

Essentially, PAs act as intermediaries between the merchant and the customer, ensuring that funds are transferred in a timely manner to the former.

The Cost Of Being A PA

Many of the players that we spoke to are either in the process of replying to the central bank or are awaiting approvals for their payment aggregator licence bids and in this case, not many are willing to publicly comment on how the new guidelines might complicate matters.

“This is definitely going to increase the cost of compliance for some startups, but more importantly it hurts those merchants that want to start selling online. They have to ensure full compliance with the rules so that they can be onboarded by PAs, but this is not always possible,” said a Bengaluru-based founder of a payment aggregator startup.

While these are not the final guidelines, industry sources we spoke to believe that the Reserve Bank is unlikely to budge from its position on many of the points.

In particular, the RBI’s stipulation for customer verification is likely to remain unchanged, but there could be further clarity on points such as maintaining common escrow accounts for online and offline operations.

Customer verification is going to be a sore point for many PAs as many independent sellers operate out of informal workspaces or may not have the adequate documentation required by the RBI.

The RBI’s diligence requirements are rather stringent on the time allowed for payment aggregator to comply.

The central bank has stipulated that those with an existing PA licence or those who have applied for one and are awaiting approval need to process 100% of their gross processing value (GPV) through customers and merchants whose diligence has been completed.

Meanwhile, companies that apply after the guidelines have been notified will need to have 100% compliance on the customer due diligence front within the first year of operations.

The RBI has allowed for a phase-wise implementation of diligence but PAs have to increase the base of verified customers by 25% every three months from December 2024.

Diligence Burden On Payment Aggregators, Merchants

With higher due diligence requirements, startups fear that it will take them longer to onboard new customers. Plus, it also adds to the cost of compliance both on the PA side as well as merchant side.

For instance, some PAs might have to increase the strength of their in-house teams for customer verification purposes. While several are banking on automation to accelerate onboarding, the RBI has called for physical verification of merchant and business documentation.

However, given the mandate for physical verification, those PAs who do not want to hire additional employees could be compelled to empanel agencies and outsource the verification.

“This might be cheaper than hiring staff to conduct the verification in-house, but also opens up risks of inadequate checks by agencies that are dealing with large volumes. At the end of the day, the burden to ensure that the verification is done in the right manner still falls on the PA,” said another industry insider and cofounder of a digital KYC solutions company that works with a number of such payments companies.

With the new guidelines, the RBI has for the first time also brought physical digital payments under the same ambit as the rules for online digital payments. This means that companies offering point-of-sale systems or quick response (QR) codes or soundboxes among other devices to small and medium retail merchants would also need to get a PA licence for operations.

While the RBI has separated these two licences, it allows players to apply for both or either with different thresholds for due diligence of its customers i.e merchants.

“Essentially, it’s making it harder for smaller merchants to sell online or to implement PA services such as QR codes or soundboxes. Many of these merchants do not have data related to contactability or proper addresses in the places they operate. Many have permanent addresses in other states, so this complicates how quickly they can be onboarded,” added the Delhi NCR-based founder quoted above.

What Explains The Payment Aggregator Rush

Given these potential compliance challenges, one wonders why there is a glut of companies lining up at the RBI for a PA licence.

Besides the obvious economic upside, there is also a feeling that the RBI wants to encourage a large base of PA entities to ensure that no single PA can gain an advantage over the others in terms of onboarding merchants.

For instance, given the PA licence for Amazon Pay or Google Pay or Tata, there is always a danger of big tech companies and conglomerates monopolising the PA space and leveraging affinities between their various businesses to dominate the market.

Having multiple payment aggregators also means that merchant onboarding does not slow down due to friction with any particular player’s verification operations.

“When it comes to UPI, two or three platforms have a large market share and now the regulator is looking to tackle this with caps on the transaction shares for each platform. Instead of concentrating payment aggregation with one or two companies, it’s better for the system to have multiple players who all have to follow the same rules,” according to the founder of a Mumbai-based fintech-focussed fund.

This would also help arrest any potential slowdown in the number of online sellers or verified retail merchants. With many PAs targeting the merchant and seller base, there is a greater chance of covering the depth of the market faster. “India has millions of merchants and online sellers who need better KYC. It’s better to have 20 players operating and growing this penetration rather than one or two players enjoying the access which is not suited for such a large market,” the investor added.

And this is not an overnight development either. Many of these startups have waited for nearly a year for RBI’s nod and perhaps the recent spate of approvals is a sign that the central bank was waiting to make up its mind on the regulations needed to govern online payment aggregation, which is seen as a critical pillar of the digital economy.

So why are more and more startups going for a PA licence even as compliance seems to be getting harder? The answer ironically is because compliance is getting harder, and everyone sees a chance of grabbing a chunk of the market in these circumstances.

The post Why Are Startups Joining The Payment Aggregator Rush Despite RBI’s High Compliance Bar appeared first on Inc42 Media.

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Swiggy IPO Out For Delivery https://inc42.com/features/swiggy-ipo-competition-food-delivery-quick-commerce/ Sun, 28 Apr 2024 00:30:33 +0000 https://inc42.com/?p=454301 Three years after Indian startups lined up for public listings in 2021, we are back on the IPO trail in…]]>

Three years after Indian startups lined up for public listings in 2021, we are back on the IPO trail in 2024. And it’s Swiggy which is looking to make the most of this renewed optimism.

The Bengaluru-based food delivery and quick commerce giant has reportedly taken the confidential filing route for an INR 10,414.1 Cr ($1.2 Bn) IPO. And it has the company of Indian unicorns such as Ola Electric, MobiKwik, Digit Insurance and FirstCry on the IPO road this year.

Interestingly, Swiggy’s IPO plans come despite the company‘s inability to clear the profitability hurdle in FY24 by most accounts. And as we have seen over the past year, this is a critical factor for success in the public markets.

And at the same time, Swiggy’s quick commerce business Instamart seems to be slipping against the competition. So this Sunday, we wanted to examine whether these challenges will derail Swiggy’s potential IPO in 2024?

But first, here’s a look at the other top stories from our newsroom this week:

  • Online Fashion Boom: The Indian ecommerce opportunity is projected to cross the $400 Bn+ mark by 2030, with online fashion platforms accounting for more than 25% of this surge, according to the latest report by Inc42
  • Koo’s Woes Continue: After seeing a massive decline in users, Tiger Global-backed Koo has halted salary payments for April 2024 as talks with strategic partners are yet to fructify, the company confirmed in our exclusive report
  • Healthify’s Cutbacks: Another Inc42 exclusive — the healthtech giant has laid off 150 employees in a restructuring exercise as it looks to make its India business EBITDA profitable and expand its offerings in the US market

Swiggy Joins IPO Buzz

Before we dive into the past year for Swiggy, let’s take a look at the IPO details. Swiggy’s potential IPO offer will include fresh issue of shares worth INR 3,750.1 Cr (about $449 Mn) and an offer-for-sale component worth INR 6,664 Cr (around $799 Mn), as per regulatory filings.

Founded in 2014 by Sriharsha Majety, Nandan Reddy, Phani Kishan Addepalli and Rahul Jaimini (who exited in 2020), Swiggy is backed by VC and PE giants such as Prosus, Accel, SoftBank and Invesco among others.

While the company was valued at $10.7 Bn after its funding round in early 2022, in recent weeks, many of the company’s investors, including Invesco and Baron Capital, have marked up the value of their investments in Swiggy, which would bring the company’s valuation to over $12 Bn.

At the moment, little is known about which shareholders will be offloading their shares in the IPO but reports suggest Prosus is likely to shed a bulk of its stake in Swiggy.

The global investment giant could well be tagged as Swiggy’s promoter in the IPO given its large shareholding. Currently, Prosus owns 33% of Swiggy, which would automatically make it a promoter in any public offering.

But the investment arm of South African conglomerate Naspers is said to be in talks to sell a portion of its stake before the IPO to bring its holding under 26%, which would release it from SEBI’s restrictions on the shares it could sell after the public listing.

Profitability Remains A Question Mark

Given the valuation markups by key investors in recent months, there’s optimism about Swiggy significantly cutting its losses over FY24.

As Inc42 reported in early 2024, Swiggy is expected to report revenue of over INR 10,000 Cr in FY24, 20% higher than the INR 8,260 Cr it reported in FY23. This is largely due to a big surge in Instamart orders, platform fees related to food delivery and growing traction for its dining out business, according to sources within the company.

Other sources who have seen Swiggy’s disclosures for H1 FY24 told us the company touched INR 4,735 Cr in revenue only from food delivery and its quick commerce vertical Instamart. This is over half of the total revenue from these two verticals in FY23.

So while the revenue base has definitely grown, the real question is whether profitability is within reach. As early as May 2023, Swiggy claimed that its food delivery business was more or less profitable, but things have changed since then, particularly given the competition in the quick commerce space (more on this later).

While we don’t know the loss for FY24, as per reports, Swiggy trimmed its net loss to around $207 Mn (INR 1,730 Cr) in the first nine months of the fiscal year, compared to the INR 4,179.3 Cr net loss in the entire FY23.

But some analysts we spoke to believe that this may not be enough given Zomato’s swing towards profits in FY24. If Zomato is able to show profits for the full fiscal year, which we will find out in the next month or so, then Swiggy will have to do a lot more than just shave some of its losses.

“Quick commerce is the key for long term profitability. Blinkit has already outpaced Zomato’s food delivery business. A Goldman Sachs report this week said that Blinkit’s contribution to Zomato’s market value has surpassed the core food delivery business. So Instamart will be extremely critical for Swiggy,” according to Rahul Jain, vice president of brokerage firm Dolat Capital.

The Goldman Sachs report estimated that Blinkit has an implied value of INR 119 per share, compared to INR 98 per share for the food delivery vertical. As a result, Blinkit is contributing close to $13 Bn to Zomato’s market cap, out of a total market cap of nearly $20 Bn.

Importantly, Blinkit has been contribution positive in the last two consecutive quarters. In February, Blinkit’s contribution margin, as a percentage of GOV, in the overall business improved to 2.4% in Q3 FY24 from 1.3% in Q2 FY24.

Losing Ground On Quick Commerce

Blinkit’s massive surge is despite the fact that Zomato’s food delivery business has looked to push the accelerator on platform fees and delivery fees in recent months. Given this shift in dynamics between food delivery and quick commerce, it will be interesting to see how well Instamart holds up for Swiggy in the long run.

It’s no secret that Swiggy started as a food delivery startup, and while it was one of the first movers in the quick commerce vertical with Swiggy Instamart, its two major rivals Blinkit and Zepto have made the most of the quick commerce opportunity.

On the food delivery side, Swiggy has gradually ramped up the platform fees and has also added collection fees from restaurants in the past year. The company charges between INR 3 to INR 4 per order from customers, which directly contributes to Swiggy’s bottom line.

Platform fees have become an industry-wide trend, so this may not necessarily be a big moat for profitability for Swiggy. Besides this, it’s been a year of restructuring exercise at Swiggy, which included mass layoffs, reduction in spending, and streamlining of operations to reduce cash burn.

Whether it is the partnership with IRCTC to deliver pre-ordered meals to train passengers or merger of its premium grocery vertical InsanelyGood with Instamart, the startup has taken a number of steps to boost revenue and curb its losses.

In a bid to push up the average order value for quick commerce, the company recently integrated Swiggy Mall, which sold a wide range of non-grocery items like footwear and electronics items, within the quick commerce offering.

This will be critical as Zepto claims to be on pace to achieve $1.2 Bn in annual sales in FY24, which will undoubtedly be helped by the recent introduction of Zepto Pass loyalty programme and a per-order platform fee.

Even though it remains the second largest quick commerce player in India after Blinklit, Swiggy has seemingly lost its first mover advantage in this category.

In a recent report created in collaboration with HSBC Global Research, Zepto claimed that it has a market share of 28% in January 2024, compared to Zomato-owned Blinkit’s 40%. Instamart, which was the market leader in March 2022 with 52% share, has seen its share of the pie drop to 32% in January 2024, the report claimed.

While it may not be the most accurate representation of the market given Zepto’s collaboration with HSBC, this is not the first report to indicate that Swiggy is losing ground on the quick commerce front. And what complicates this further is the big push for quick commerce from the likes of Tata-owned BigBasket and Flipkart in recent months.

So even as Swiggy gets ready for its IPO, it has to contend with multiple challengers in the highly lucrative quick commerce vertical, while also ensuring that this doesn’t take its focus away from food delivery or the dining out business.

And this also means Swiggy’s potential public listing will be the first public test for quick commerce as a category in India. Which way will the market sentiment fall when Swiggy eventually comes up for its IPO?

Sunday Roundup: Tech Stocks, Startup Funding & More

Funding Dip: After two weeks of steady funding inflow, there was a decline in startup funding this past week, with a total of $172 Mn raised across 21 deals, down 33% week-on-week

WhatsApp’s Ultimatum: Continuing its legal tussle with the Indian government, WhatsApp told the Delhi High Court that it would be forced to pull out of India if it is forced to revoke end-to-end encryption in its app

Jio’s FY24 Numbers: Despite muted sequential growth in Q4, Jio Platforms’ operating revenue for FY24 grew 10.4% YoY to INR 1.09 Lakh Cr, while its annual net profit rose 12% to INR 21,423 Cr

FirstCry Pulls DRHP: Kids-focussed omnichannel retailer Firstcry has reportedly withdrawn its DRHP filed with SEBI and is likely to file new IPO papers with more up-to-date financial disclosures

Mixed Signals For Paytm: Indian mutual funds increased their shareholding in Paytm during the March quarter despite selloffs by foreign institutional investors. Does this signal an imminent rally for the fintech giant?

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