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May 4, 2015
India Internet
Rishi Jhunjhunwala
+91(22)6616-9039
rishi.jhunjhunwala@gs.com
Goldman Sachs India SPL
Piyush Mubayi
+852-2978-1677
piyush.mubayi@gs.com
Goldman Sachs (Asia) L.L.C.
Venkat Surapaneni
+91(22)6616-9047
venkat.surapaneni@gs.com
Goldman Sachs India SPL
Goldman Sachs does and seeks to do business with companies covered in its research reports. As
a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision. For Reg AC certification and other important disclosures, see the Disclosure
Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not
registered/qualified as research analysts with FINRA in the U.S.
May 4, 2015
Table of contents
PM Summary: Transforming into a hyper-local, on-demand market
17
20
23
24
31
35
38
40
43
45
47
48
52
54
57
59
62
64
66
67
68
69
70
71
72
74
Appendix
80
Disclosure Appendix
83
The prices in the report are as of the market close of April 28, 2015, unless stated otherwise.
May 4, 2015
Over the next 15 years, we estimate India will have more than one billion digital users. This
would be a unique global phenomenon, witnessing arguably the largest shift online in a
countrys population. We summarize 10 pulse points of the India internet sector that make it
a unique market and potentially one of the largest opportunities in the internet space globally.
US$300bn addressable
market for e-commerce
by 2030E from US$20bn
currently
We forecast the Indian e-commerce market to grow 15X to 2.5% of GDP, or US$300bn, by
2030 driven by hyper growth in affordable smartphones, improving infrastructure, and a
propensity to transact online. Further, Indias attractive demographics the youngest
population in the world should lead to 300mn+ new online shoppers in the next 15 years,
making e-tailing the largest online segment. We outline the four key total addressable
markets (TAMs) which we think could potentially catalyze transformation of domestic
companies into multi-billion dollar businesses:
Opportunity: We estimate the Indian e-tail market to reach about US$220bn by FY30E
in terms of gross merchandise value (vs US$7bn currently) driven by online shopping
penetration rising to 25% from 4% currently.
Opportunity: We estimate the online travel agency (OTA) market to grow to US$40bn by
FY30E from US$8bn in FY14 driven by rise in online travel penetration from 41% in FY15 to
50% by FY30E.
Catalyst: We believe the underpenetrated hotels and packaging segment would be the key
growth driver in the OTA space. At present, the OTA market is dominated by airlines which
contribute 55% of the total revenues. However, we expect other categories such as hotel
bookings, railways and car rentals to grow at a faster pace.
Comparison to US and China: We estimate the Indian OTA market at US$40bn in FY30E
vs current US market at US$137bn and China at US$23bn.
Catalyst: With increasing online adoption and expanding e-commerce market, time
spent by consumers on online media is set to rise, in our view. We believe this is likely
May 4, 2015
to shift the advertising spend to online media such as social and mobile. Further,
significantly lower digital ad rates in India are likely to rise driving the online ad market.
Comparison to global ad-spend penetration: As per our US team, the global online
ad spend stands at 23% currently and is expected to go up to 36% over the next five
years. We also assume a similar online ad-spend penetration in India by FY30E.
Opportunity: We estimate the electronic payments market in India to grow from just
US$80mn in FY15E to US$5bn by FY30E, largely driven by migration of offline retail to:
(1) electronic modes of payments and (2) e-commerce as data penetration improves.
We look deep into the various ecosystem enablers that are likely to propel growth of online
adoption in India. We focus on six key areas:
1)
2)
Capital infusion: Accelerating as global firms enter: Inflows from private equity funds/
public listings will support aggressive expansion, M&A, and price competition.
3)
4)
Logistics: Within the bottleneck lies the opportunity: Logistics/last mile delivery
bottlenecks may be deterrents, but potential introduction of GST may lower barriers.
5)
Government initiatives: Likely to pick up: Government would likely be a key enabler
through its initiatives (Digital India) and reach (India Post, IRCTC, JAM trinity).
6)
Talent availability: Driving the start-up ecosystem: With abundant supply of engineers
from the IT sector, India has enough specialists to enable the digital shift.
Increasing importance
for global internet giants
We highlight how India is fast becoming one of the most important markets for global
internet and telecom giants as they look beyond China for opportunities. US giants are
targeting ad revenues (such as Google, Facebook) and the e-tailing pie (Amazon); Asian
majors such as Samsung, Xiaomi are eyeing significant smartphone shipments, while
Alibaba/Softbank look for strategic stakes in the India internet opportunity, helped by low
entry barriers compared with some of the other markets, in our view.
While the Indian internet opportunity looks compelling, we see some risks around
execution. Some of the key challenges faced by the industry are: (1) lack of investment in
telecom infrastructure, delayed rollout of 4G services and Digital India initiative, (2)
regulatory uncertainty over taxation, listing, and foreign investment restrictions, (3)
continuous cash burn by companies resulting in fragmented business models, (4) lack of
logistics and technology infrastructure that may slow the pace of online adoption, and (5)
language diversity may be a deterrent to online adoption.
4T
May 4, 2015
850
25,000
MILLION
/ 1.25
BILLION
INTERNET PENETRATION
20%
BANK ACCOUNTS
30% OF POPULATION
400mn people in India have bank accounts. The
Prime Ministers flagship program Jan Dhan
Yojana has opened 125mn bank accounts and
issued 111mn debit cards in 5 months since its
launch in Aug 2014. We estimate that 2/3rd of this
was previously unbanked.
FIBERIZATION
9%
LOGISTICS BOTTLENECK
WAREHOUSING & DISTRIBUTION
COSTS
10%-18%
SMARTPHONE SHIPMENTS
CHEAPEST SMARTPHONE
$40
Source: CIA Fact book, IAMAI, CNNIN, comScore, RBI, Holisol Logistics, Ministry of Finance, News articles (including The Economic Times, Business Standard),
Goldman Sachs Global Investment Research.
India is on the way to becoming the country with the second-largest digital population in the world by 2020, in our view. This would
be a unique global phenomenon, witnessing arguably the largest shift in a countrys population towards the online segment (to
reach 1bn by 2030 vs. 280mn for US and 640mn for China currently). We believe India will leapfrog traditional tech adoption themes
(such as accessing internet through PC and broadband), and move towards online mobile penetration. The current e-commerce
market size in India is c.US$20bn vs. US$675bn for the US and US$200bn for China, but we expect it to reach US$300bn by 2030 .
May 4, 2015
Exhibit 1: Comparison of population of individual Indian states vs. top 20 countries in terms of the internet population in the world (excluding China)
Indian Census (2011), Internet statistics (July 2014)
6T
InternetusersinCountries
Thailand
PopulationinIndiaStates
Canada
Italy
Spain
Argentina
Australia
Nigeria
United
States
of
America
France
Brazil
Philippines
Vietnam
Russia
Turkey
S.Korea
Japan
Indonesia
United Mexico
Kingdom
50
100
150
*MadhyaPradeshgroupedin100mngroupasitandUttarPradesh
>=100mn
50100mn
2550mn
<=25mn
Source: India Census, Data from respective countries, ITU, World Bank, Goldman Sachs Global Investment Research.
togetherrepresentequivalentinternetusersintheUS
200
Germany
Millions
UttarPradesh
MadhyaPradesh*
Maharashtra
Bihar
WestBengal
TamilNadu
Rajasthan
Karnataka
Gujarat
AndhraPradesh
Odisha
Telangana
Kerala
Jharkhand
Assam
Punjab
Chhattisgarh
Haryana
Delhi
JammuandKashmir
Uttarakhand
HimachalPradesh
Tripura
Meghalaya
Manipur
Nagaland
Goa
ArunachalPradesh
Puducherry
Mizoram
Chandigarh
Sikkim
AndamanandNicobar
India may prove to be a different market from China, especially from the perspective of a new addressable market for global internet
giants. China has higher entry barriers for foreign companies, potentially helping homegrown Chinese companies to develop
successful business models in China. However, India could potentially become one of the largest markets for the foreign companies,
beyond China. While India has one of the youngest populations in the world, its online market lags that of the US and China
significantly with the largest Indian company (unlisted) valued at US$13bn (vs US$380bn/US$220bn for US/China) and total listed
market cap of only US$4bn (>US$1tn/US$550bn for US/China).
May 4, 2015
Population
Demographics
320
mn
2G/3G User
China
India
USA
MedianAge
PerCapita
Income
Population
38
yrs
$54K
1.25bn
27
yrs
Timespent
Timespent
DataUsage
2G/3GUser
74
mins
1,450
mb/mth
243
MedianAge
PerCapita
Income
$2k
DataUsage
Population
1.35bn
2G/3GUser
MedianAge
37yrs
Timespent
PerCapita
Income
$7.5K
DataUsage
640
Internet
Penetration
280m
n
254
mn
Market
Market
size
$675
bn
Mcap
>$1
trillion
Largest Co
$380
bn
24
Market
$15
bn
32
158
256
403
73
Mcap
$4
bn
Largest Co
$13
bn
Market
$200
bn
Mcap
>$550
bn
Largest Co
$220
bn
Source: CIA Fact book, IAMAI, CNNIN, Cisco, iResearch, Statista, comScore, News articles (including The Economic Times, Business Standard), Goldman Sachs Global Investment Research.
Note: Data as of 2014 or latest available. For India, the largest company is unlisted and its valuation is based on the latest round of funding raised.
May 4, 2015
Exhibit 3: Indian telecom infrastructure ecosystem is evolving fast, creating a launch pad
for higher internet penetration
Network of forces coming together
Post spectrum auction in Mar,
2015, India telcos now have
spectrum to enable pan-India
3G coverage
Spectrum
Devices
Fiber/
Towers
Tariffs
Source: Company data, TRAI, DoT, Goldman Sachs Global Investment Research.
$2,000
$1,800
mn
$3.4bn
$1,600
$1,457
$1,400
$1,200
$1,000
$800
$503
$600
$400
$200
$94
No
Applicant
JVPartner
1
2
3
AdityaBirlaNuvo
BhartiAirtel
Cholamandalam
InvestmentandFinance
FinoPaytech
Futuregroup
GITechnology
Oxigen
Paytm
RelianceIndustries
VakrangeeLtd
Vodafone
IdeaCellular
KotakMahindraBank
NA
$1,757
$181
$322 $304
$115
$0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2013 2013 2013 2013 2014 2014 2014 2014 2015
Source: News articles (including The Economic Times dated Apr 16, 2015,
Business Standard dated Jan 16, 2015), Crunchbase.
4
5
6
7
8
9
10
11
NA
IDFC
NA
RBLBank
NA
StateBankofIndia
NA
YesBank
Source: RBI.
May 4, 2015
(1) Consumer is king: The consumer will benefit from heavy discounting and incentives
as we are currently witnessing, funded by the significant flow of private equity funds.
(2) Survival of the richest: Companies with better balance sheets, not necessarily better
business models, would survive in the first round of consolidation.
We are currently in between both these themes. As the market matures, firms will go
public and consolidate once profitability is established for 2-3 years. Horizontal firms will
standardize their offerings while vertical firms will specialize to personalized offerings.
Firms with better data will be able to build better brands by analyzing consumer behavior,
interests and spending patterns, in our view.
Exhibit 6: We are currently between the Consumer is king and Survival of the richest phases
Life cycle of the India internet sector: A hyper-local and on-demand market
Survival
of the
"Fittest"
US$300
Going
Public
Major IPOs
hit markets
Survival
of the
"Richest"
M&A in private space
Start-ups
bloom as PE
money flows in
Consumer
is
"King"
Firms with
better data
will build
better brands
Horizontals will
standardize;
Verticals will
personalize
Flipkart vs. Myntra
Heavy discounting
To Be or Not To Be
US$10
100
200
300
400
500
600
700
800
900
1,000
May 4, 2015
Digital ad revenues: Google, Facebook/Whatsapp, and Twitter with already a large user
base in India are likely to target this pie.
2)
3)
Apart from this, we note that other major companies such as Alibaba/Softbank have made
strategic investments in several unicorns such as Snapdeal, Olacabs, and Paytm. Recently,
Mr. Ratan Tata announced buying stake in Xiaomi (source: The Economic Times, April 27,
2015) as it plans to aggressively expand operations in India with a first India-specific
handset model Mi4i at Rs12,999 launched in India on April 23, 2015.
Note: Size of bubble represents unique visitors from India for global websites
*For Samsung, Xiaomi and Apple: X-Axis = market positioning in India based on smartphone shipments in 4Q2014, Y-Axis =
Market share of smartphones in India in 4Q2014. Size of bubble represents smartphones shipments in India in 4Q2014.
Source: Alexa, comScore, Gartner, Goldman Sachs Global Investment Research.
10
May 4, 2015
Exhibit 8: No separate regulator in place for e-commerce yet, still governed by existing rules/laws
Regulatory landscape for e-commerce and related businesses in 2014
6T
Category
ReserveBankof
India
Dept. ofIndustrial
Policyand
Promotion,Dept.
ofCommerce
Regulation
AffectedCompanies
2factorauthenticationismandatoryforcard/online
payments
PaymentsLandscape Allowingpaymentbankslicenseswhichwillallow
acceptanceofdepositsuptoRs100k,issuanceofdebitcards,
offeringfinancialproductslikeMFs,Insurance.
ForeignDirect
Investment(FDI)
Listing/IPO
ValueAddedTax
Dept.ofRevenue
M&A
Logistics
100%inB2Becommerce
100%insinglebrandretail(offline)
51%inmultibrandretail(offline)
AllB2Cecommerce
companies
Mobilewallets,payment
gateways,ecommerce
companies,telcos
Dept.of
Information
Technology
Alletailingcompanies
Completerestrictiononforeignonlineretailerstosell
Foreignecommerce
productssourcedbythemselvesshouldrelyonmarketplace
companies
modelwhichis100%allowed
Distributableprofitsinatleast3outofpast5yearsand
positivenetworthinthepast3years
Ministryof
Corporate affairs
Lossmakingecommerce
companies
ForgoodssoldbyonlineretailerslikeAmazonundertheir
ownrisk(fulfilment),theyshouldbepayingVATratherthan Alletailingcompanies
themerchant
CurrenttaxregimeandunclearM&Aregulationsforonline
Allecommercecompanies
companiesmaketheM&Aprocesscomplicated
Dept.ofConsumer
affairs
LackofGSTleadstoinefficienttaxationofsalestaxandVAT
ineachstateandresultinginmultiplewarehousesindifferent Alletailingcompanies
locationsandlackofeconomiesofscale
Ministryof
Statisticsand
Programme
Implementation
Dep.Of
Information&
Broadcasting
Ministry ofHome
&Finance
Source: News articles (The Economic Times, Business Standard etc.), Goldman Sachs Global Investment Research.
eCommerce
solution
Type
Shipping solutions
Aramex
REDe
B2B and B2C
Blue Dart
E-business solutions B2B and B2C
Delhivery
Delhivery
DTDC
Dotzot
FedEx
FedEx
India Post
Express Parcel
India Post
Business Parcel
Logistic aggregators
KartRocket ShipRocket
Zepo
ZePost
B2B
B2B and B2C
B2B and B2C
B2B and B2C
B2B and B2C
B2B
B2B
CoD
Pre-paid
offered
reach
(Pincodes) (Pincodes)
1,900
3,300
2,200
4,100
2,600
7,100
2,650
50 cities
25,000
2,600
8,000
5,550
50 cities
25,000
9,000
6,100
16,000
8,220
ChallengestoFiberizationinIndia
1. Complicated Right of way procedures and high ROW charges. Different
rules in different states for getting clearances
2. Lack of investments in infrastructure by private telecom operators.
Copper wire network mostly owned by PSUs
3. Low smartphone and PC penetration
4. Lack of digital literacy and consumer awareness in rural areas about
advantages of internet
5. Lack of data spectrum. Paucity of spectrum leading to low speeds
6. Poor network coverage. BTS: population ratio in India much lower than in
China
Source: Goldman Sachs Global Investment Research.
11
May 4, 2015
US$ 12.5bn
Tiger Global
Management
US$ 5bn
US$ 2.4bn
US$ 2bn
SoftBank
DST Global
SoftBank
Kalaari Capital
SoftBank
Kleiner Perkins
Naspers
Nexus Venture
Partners
Tiger Global
Management
Sherpalo
Ventures
DST Global
eBay
Intel Capital
Steadview
Capital
Mumbai Angels
T Rowe Price
Singapore GIC
Temasek
Holdings
Accel Partners
Others
Matrix Partners
Ant Financial
(Alibaba Sub)
SAIF Partners
Intel Capital
Silicon Valley
Bank
Others
US$ 1bn
Tiger Global
eBay
Steadview
Capital
Matrix Partners
Omidyar Network
Others
Sequoia Capital
Others
US$ 700mn
Others
US$ 1.5bn
Others
US$ 400mn
US$ 300mn
US$ 300mn
US$ 250mn
US$ 165mn
Newshunt
Sequoia Capital
Info edge
Sequoia Capital
Vy Capital
Cisco
investments
Others
American
Express
Falcon Edge
Capital
Sequoia Capital
Matrix Partners
Hillhouse Capital
SoftBank
Accel Partners
Tybourne Capital
Nexus Venture
Partners
SAIF Partners
Sequoia Capital
Others
Omidyar Network
Network 18
Others
Falcon Edge
Darby Overseas
Investments
Others
Helion Venture
Partners
Others
Others
Internet
Telecom
Banks
Logistics
Real Estate
Consumer
Info Edge
Bharti Airtel
ICICI Bank
GATI
Phoenix Mills
Titan
Just Dial
Idea Cellular
HDFC Bank
DLF
Shoppers Stop
MakeMyTrip
Reliance
Industries (R-Jio)
State Bank of
India
Snowman
Logistics
Pantaloons
Blue Dart
Bharti Infratel
Dish TV
Source: Crunchbase, News articles (including The Economic Times, VC Circle, Forbes, Business Standard), Goldman Sachs Global Investment Research.
12
May 4, 2015
6T
Otherfinancialservices
GMV(US$bn)
250
12% CAGR
144%
US$bn
$300
$300
$17
$8
16% CAGR
$15
$40
$250
$220
44%
$0
FY15E
FY20E
FY25E
FY30E
$3
$7
$12
$19
$27
2018E
50
$21
50%
57%
2017E
$50
$220
2016E
$81
90%
71%
100
30%CAGR
$100
110%
70%
$169
$150
130%
150
2015E
$200
150%
CAGR
20152020:47%
20152025:32%
20152030: 26%
200
2014
$350
Growth(%)[RHS]
36%
$37
29%
$47
30%
$112
19%
13%
10%
10%
2030E
Mobilerecharge
2025E
Adtech
2020E
OTA
2019E
ETail
6T
Totalonlinetravelmarket(US$bn)
Totaltravelmarket(US$bn)
Totalonlineadspend
Onlinepenetration(%)[RHS]
55%
90.0
79.5
50%
80.0
49%
70.0
60.0
50.0
40.0
41%
43%
40%
30.0
20.4
22.8
20.0
10.0
42%
8.1
9.4
25.5
10.7
28.5
12.3
44%
31.9
14.1
45%
46%
50%
62.5
13%CAGR
40.0
40.0
12,000
30%
10,000
25%
19%
8,000
40%
35%
4,000
FY30E
FY25E
FY20E
FY19E
FY18E
FY17E
FY16E
FY15E
30%
15,043
36%CAGR
6,000
18.4
0.0
FY14
40%
35%
31%
20%
15%
7%
8%
452
596
2,767
FY14
FY15E
FY20E
2,000
37%
24%CAGR
30.5
16.2
US$mn
14,000
45%
35.8
16,000
Onlineadas%oftotal[RHS]
8,093
10%
5%
0%
FY25E
FY30E
13
May 4, 2015
10) When will they be profitable and how much funding is needed?
Companies in India are currently burning cash at an average rate of 1.35X of the GMV sold,
through heavy discounting, marketing, free shipping and handling, cash incentives and
various other incentives that e-tailers give to attract consumers. We believe this is likely to
continue till the online shopper penetration reaches a steady state, in about 5 years from
now. As such, we estimate that e-tailers are likely to continue their cash burn to keep their
growth intact, while slowly working towards lowering and eventually eliminating
aggressive consumer incentives. We estimate that the e-tail industry will need at least
US$20bn of incremental cash infusion to sustain before it reaches a steady state in FY20.
4T
Exhibit 16: Currently, companies are incurring almost 1.35X of their GMV as expenses,
driven by high discounting and promotions
Currentetailerrevenuesplit
160%
140%
120%
30.0%
100%
80%
12.0%
8.0%
5.0%
7.0%
3.0%
2.0%
3.0%
Payment
Gateways
Others
35.0%
65%
60%
40%
20%
0%
Vendors
Discounts
Marketing& Technology
Promotions
Logistics
Warehousing Packaging
Loss
Exhibit 17: We estimate that US$20bn of incremental cash burn is needed to sustain GMV
growth to US$47bn over FY15E-FY20E
Etailing:Incrementalannualfundingneeded(US$bn)
$25
$20
$2.4
$1.5
$20
2019E
2020E
FY15EFY20E
$4.3
$15
$4.7
$10
$4.0
$5
$2.9
$0
2015E
2016E
2017E
2018E
14
May 4, 2015
15
USA
Amazon
US$ 174bn*
eBay
US$ 83bn*
eBay
Amazon
Trip Advisor
US$ 1.2bn
Trip
advisor
Expedia
US$ 5.8bn
Expedia
Overstock
US$ 1.5bn
Flipkart
US$ 3bn *
Snapdeal
US$ 1.5bn *
CHINA
Amazon India
US$ 1bn *
Overstock
Google
LinkedIn
Facebook
US$ 12.5bn US$ 52.5bn US$ 2.2bn
INDIA
Yahoo!
US$ 4.4bn
Naukri
US$ 72mn
Zomato
US$ 10mn
Just Dial
US$ 100mn
Yahoo!
Uber
US$ 10bn #
Alibaba
US$ 365bn*
JD.com
US$ 41.9bn*
Dangdang
US$ 1.1bn*
Alibaba
JD.com
Dang
dang
Tencent
US$ 13bn
Tencent
Makemytrip
US$ 139mn
Yatra
US$ 60mn
May 4, 2015
Exhibit 18: Indian companies are just beginning to develop, still several years before they resemble their peers in the US and China
Ola Cabs
US$ 300mn #
UBER
Source: Company data, News articles (including The Economic Times, Forbes, Business Standard), Goldman Sachs Global Investment Research
Qunar
Baidu
eLong
US$ 200mn
eLong
SouFun
Holdings
US$ 688mn
SouFun
CTrip
US$ 1.2bn
CTrip
16
Note: Numbers represent revenue in US$ for 2014. For India, revenue for FY15 (ending Mar 2015)
* Gross merchandize value (GMV), # Gross transaction value (GTV)
Data as of 2014 or latest available
Qunar
US$ 285mn
Baidu
US$ 7.4bn
May 4, 2015
To be or not to be online: This is the initial phase of the internet journey when most
4T
of the data access was through broadband and resulted in limited penetration. With 3G
auctions happening in India in 2010 and telcos rolling out 3G on mobile, it led to a
significant adoption of data services. Internet penetration has now reached 20% of the
population vs. 13% a year ago. Cheaper handsets and data tariffs have resulted in a big
shift towards being online.
Start-ups bloom on PE seed capital: This phase saw the initial success of some of the
online business models such as Flipkart selling books, and Bookmyshow/ Makemytrip
selling movie/air tickets. This was followed by PE funds flowing into India as investors
started looking for opportunities beyond China. As a result, start-ups started emerging
at a rapid pace and funding became more accessible.
Exhibit 19: We are currently between the Consumer is king and Survival of the richest phases
Life cycle of the India internet sector: A hyper-local and on-demand market
Survival
of the
"Fittest"
US$300
Going
Public
Major IPOs
hit markets
Survival
of the
"Richest"
M&A in private space
Start-ups
bloom as PE
money flows in
Consumer
is
"King"
Firms with
better data
will build
better brands
Horizontals will
standardize;
Verticals will
personalize
Flipkart vs. Myntra
Heavy discounting
To Be or Not To Be
US$10
100
200
300
400
500
600
700
800
900
1,000
17
May 4, 2015
Consumer is King: With significant amount of private equity money flowing into India,
4T
4T
Survival of the Richest: This phase marked the beginning of the first round of
4T
4T
consolidation in the internet space and is underway. The transactions are mostly in the
private space with the companies acquiring peers of somewhat similar size in order to
gain scale or technical know-how, and to fend off competition. This phase is not
necessarily driven by firms with better business models acquiring other companies,
but by firms with more cash. Hence, this phase will see the survival of the richest, not
necessarily the fittest. We have recently witnessed the Flipkart-Myntra, OlacabsTaxiforsure, Snapdeal-Freecharge deals.
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capture the limited time of an online consumer, we believe there will be space for both
horizontals and vertical specific companies. It will not be a market for just one business
model. Horizontal companies (e.g. Flipkart) would need to standardize their offerings
so that volumes will drive profits, while vertical companies (e.g. Myntra) would need
to personalize the user experience and get premium pricing despite lower volumes.
Going public: This is the phase when companies, looking to become profitable in the
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next 18-36 months, would consider going public through the IPO route in India or the
US, depending on investor appetite, access, regulatory ease and addressable market.
Data will build brands: As consumers spend more and more time on internet for
social networking, shopping, entertainment, and services, consumer behavior and
usage patterns are likely to become increasingly important to gauge. Hence,
companies with proprietary access to data would be able to build much better brands
and prove to be a key differentiator.
Survival of the Fittest: We believe this would be last phase of the internet life cycle
before the market matures and peaks out. In this phase, companies would consolidate
as the business models with more powerful competitive advantage will survive,
whereas the weaker business models will suffer lack of capital and profitability. This
would end up in the weaker companies getting acquired and it becoming a winner
takes all market.
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18
May 4, 2015
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some of the largest names in the Indian internet market, India is now home to at least 6
unicorns (US$1bn+ companies) including the largest e-tailers: Flipkart and Snapdeal; taxi
hailing app: Ola cabs; mobile classifieds company: Inmobi; wallet/mobile commerce
company: Paytm and online/mobile classifieds company: Quikr.
Potential billion dollar babies? Several other companies like restaurant finder Zomato,
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mobile wallet company Mobikwik, real estate classifieds company Housing.com, local
news aggregator NewsHunt and ticketing platform Bookmyshow have raised funds at
valuations of more than US$100mn.
Home for start-ups: We believe that besides these companies, there are several others
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that may emerge to potentially become billion dollar companies in the near to medium
term. India is fast becoming a home for start-ups in the e-commerce space and private
equity funds are fuelling the hyper-growth of new ideas and technologies.
The ancillary technology unicorns: Apart from the regular internet firms, we are also
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witnessing the emergence of multi-billion dollar ancillary firms which are disrupting the
technology landscape such as IPSoft in automation and Mu-Sigma in data analytics.
Exhibit 20: Six unicorns have emerged in India, room for more
Last reported valuations and investors in each of the companies
6T
US$ 12.5bn
Tiger Global
Management
US$ 5bn
US$ 2.4bn
US$ 2bn
SoftBank
DST Global
SoftBank
Kalaari Capital
SoftBank
Kleiner Perkins
Naspers
Nexus Venture
Partners
Tiger Global
Management
Sherpalo
Ventures
DST Global
eBay
Intel Capital
Steadview
Capital
Mumbai Angels
T Rowe Price
Singapore GIC
Temasek
Holdings
Accel Partners
Others
Others
US$ 700mn
US$ 400mn
Others
US$ 1.5bn
US$ 1bn
Ant Financial
(Alibaba Sub)
Tiger Global
SAIF Partners
Intel Capital
Silicon Valley
Bank
Others
Matrix Partners
eBay
Steadview
Capital
Matrix Partners
Omidyar Network
Others
Sequoia Capital
Others
US$ 300mn
US$ 300mn
US$ 250mn
US$ 165mn
Newshunt
Sequoia Capital
Info edge
Sequoia Capital
Vy Capital
Cisco
investments
Others
American
Express
Others
Falcon Edge
Capital
Sequoia Capital
Matrix Partners
Hillhouse Capital
SoftBank
Accel Partners
Tybourne Capital
Nexus Venture
Partners
SAIF Partners
Sequoia Capital
Others
Omidyar Network
Darby Overseas
Investments
Helion Venture
Partners
Network 18
Others
Falcon Edge
Others
Others
Source: Crunchbase, News articles (including The Economic Times, VC Circle, Forbes, Business Standard)
19
May 4, 2015
Info Edge: Info Edge is Indias largest online classifieds company with top 3 positions
in the recruitment listing (Naukri), real estate listing (99Acres) and restaurant listing
(Zomato) portals. It also has investments in matrimony, education, financial services,
deals and gifts portals. Hence, among the listed companies in Indian internet, Info
Edge has the most diverse and balanced mix of companies with steady state market
leadership businesses such as Naukri and hyper-growth global expansion business
such as Zomato (also refer to our report, Blend of steady-state and hyper-growth
business models; Buy, dated May 4, 2015).
2)
Just Dial: Just Dial is Indias largest online and voice search classifieds company with
more than 30% of Indias small enterprises listed on its portal (2014). Just Dial has a
dominant share in online local search classifieds and is now expanding its footprint to
23 other categories such as e-tailing, travel, tickets, foods through its search and
transact platform called Search Plus (to be launched in FY16) (also refer to our report,
Leveraging the competitive edge in Search Plus; maintain Buy, dated May 4, 2015).
3)
Makemytrip: MMYT is Indias largest online travel services provider with more than
40% share of gross bookings in the online travel market (2014). On one hand, it has the
air ticketing business which is a mature market with moderate growth, and on the
other it is expanding its footprint in the underpenetrated hotels and packages segment
(also refer to our report, Profitable growth key to re-rating in a maturing OTA market;
Neutral, dated May 4, 2015).
4)
Bharti Airtel (covered by Aditya Soman): It is Indias largest mobile operator with
market leadership in 12 of 22 regions and revenue market share over 30% (2014).
Bharti Airtel is a pan-India operator with the largest spectrum holding and offers
2G/3G/4G services. The Indian internet opportunity may have an impact on growth in
data demand, revenue mix, EBITDA margins and capital expenditure. In addition,
consolidation and some new entrants could potentially alter the competitive landscape.
5)
Idea Cellular (covered by Aditya Soman): It is Indias 3rd largest mobile operator
with a revenue market share of almost 18% (2014). Idea offers 2G and 3G services on a
pan-India basis. The Indian internet opportunity may have an impact on growth in data
demand, revenue mix, EBITDA margins and capital expenditure. In addition,
consolidation and some new entrants could potentially alter competitive landscape.
6)
7)
8)
20
May 4, 2015
ICICI Bank (covered by Tabassum Inamdar): ICICI Bank has been at the forefront of
innovation in particular in the retail digital space. Some of its product introductions
are: 1) first bank to launch Facebook banking, banking on Twitter and goal based
savings product iWish in a tieup with SmartyPig, 2) Launched Indias first contactless
debit and credit cards, 3) Recently launched Pockets (their e-wallet) the first Indian
bank to do so. The e-wallet allows users to instantly send/request money to/from any
e-mail id, mobile number, friends on Facebook and bank account and make payments
at e-commerce websites.
10) HDFC Bank (covered by Tabassum Inamdar): HDFC Bank seems to be ahead in
converting customers to the digital platform. It is one of the largest processors of online
banking transactions, and has now managed to notch up a 32% market share (9MFY15)
in mobile banking and c. 40% share in e-commerce transactions (as per the company).
Recently, it has focused on creating Hindi language apps and will be soon launching
mobile wallet. Management believes that its success is in the high usage of the channels
rather than launching too many products. Having said that, they too plan to launch on
social media, but would do so with more comprehensive banking products and services.
11) Blue Dart (Not Covered): It is one of the largest courier companies in the organized
air express segment in India. The company is looking to open multiple warehousing
centres (called e-fulfilment centers) across the country where sellers on e-commerce
portals can store goods and value added services are provided. Each time an order
comes in, the product is packed and shipped to the consumer, saving time as the
couriers do not have to go to the seller's location to pick up the item.
12) GATI (Not Covered): Prominent logistics companies in the Indian surface logistics
industry such as GATI are looking to capitalize on the e-commerce opportunity. In
1QFY15, Gati stated that it expected to sustain the trend of growing its ecommerce
volumes at 100%+ yoy for the next two years. It earmarked capex to invest in cold
chain warehouses to benefit from the online distribution of perishable goods. From
delivering over 5.5mn packages in a month currently, the company is targeting to
deliver 1mn packages per day by 2020.
13) Snowman Logistics (Not Covered): It is one of the largest temperature controlled
logistics service providers in India. Management wanted to use the IPO proceeds
(listed in Sept 2014) for expanding capacity from 25 depots currently to 37 depots in
the medium term as it expects strong growth in the segment. The company has
reported 40%-50% CAGR sales growth over the past 4 years.
14) Phoenix Mills (covered by Puneet Jain): It is currently one of Indias largest retail mall
companies having the largest mall in four key metros. 80% of its value accrues from retail
malls. As per our India consumer team, rental growth of malls are typically impacted due
to lower SSSG of tenants due to potential shift from offline to online retail, but this can be
partly mitigated if some area is occupied by restaurants and multiplexes.
15) Titan (covered by Puneet Jain): It is Indias largest specialty retailer selling jewelry
(80% revenues as of 2014), watches (15% revenues) and eye-ware/accessories. As per
our India consumer team, the watches segment is susceptible to large discounting on
Swiss watches by online retailers, although the Swiss Franc depreciation helps them.
16) Home and personal care (HPC) firms and offline retail (Shoppers Stop, Pantaloon
Not Covered): Over the medium term, emergence of large online grocery retailers
tends to alter working capital cycle of large FMCG firms, as per our India consumer
team. Currently HPC companies in India enjoy negative working capital due to the
unorganized distribution chain.
21
May 4, 2015
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companies emerging with new ideas that are spending significant amount of cash currently.
It is difficult to pick which companies would survive over the long term. We believe the five
factors that will decide which companies survive over the long term are: (1) management
quality, (2) business model, (3) moats or entry barriers, (4) potential addressable markets,
and (5) cash costs in the form of fixed vs. variable.
Scale, technology and capital are the most common moats: While moats may differ for
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different verticals, there are three moats which are common for most:
1)
Scale: In most of the verticals, it's a winner-takes-all market with room for at the most
one or two more competitors apart from the leader. Hence, gaining scale quickly is
becoming quite critical even if it is coming at the expense of significant cash burns.
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Technology: While a lot of the business models are replicable, especially when there
2)
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is no underlying physical entry barrier to it (such as exclusive supplier tie-ups for an etailer), technology can potentially be a big differentiator. Companies that invest in
building franchise technology platforms and data mines will be able to maintain a
competitive edge.
3)
Capital: In the first half of the life cycle of the industry, availability of capital is a very
strong moat. Companies with strong investor backing and free capital available would
be able to buy out competition early if it proves to be disruptive and a challenge to
their own model, or they can use it to gain scale through burning significant cash on
customer acquisitions.
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E-tailing
Merchant ecosystem
Digital Advertisements
Traffic
Distribution network
Data quality
Capital infusion
Ability to discount and
spend on customer
acquisition and retention
Technology / Data
Superior analytics, better
pricing algorithms, better
customization
Trust/Customer
loyalty Reward points,
Navigation/Interface
Ability to find
listings/services easily
Integration w/
payment systems
Seamless integration with
different payment
methods
Grievance redressal
Navigation/Interface
Payments/Wallets
User base
Bigger the user base,
higher the acceptability
from merchants
Universal
acceptability
Payment method should
be merchant agnostic
Low charges
Lower the costs, higher
the acceptability by
merchants
Capital
Ability to discount to lure
customers to sign up
Ease of use
Pay in as many fewer
steps as possible
Security
Safety and security
policies, grievance
redressal
Online Travel
Footprint
Large footprint
(airlines/hotels) implies
more choices for
consumer; more choice
implies more consumers
Partnerships
Travel agents,
complementary service
providers, global access
Market share
Higher the market share,
better the ability to sign up
new merchants and
negotiate favorable terms
Ratings
Higher the number of
ratings, more comfortable
customer feels to book
Navigation/Interface
Easy navigation and
smooth transacting
capability are vital
22
May 4, 2015
23
May 4, 2015
Exhibit 22: Indian telecom infrastructure ecosystem is evolving fast, creating a launch pad
for higher internet penetration in India
Network of forces coming together
Spectrum
Devices
Fiber/
Towers
Tariffs
MB of usage, is already among the lowest globally at 0.5 cents (US$) per MB, similar to the
trend in voice ARPU which is at US$2/month. Data rates in India are 2X cheaper than in
China and nearly 3X cheaper than in the US. Despite the low tariffs, data consumption,
measured as per capita consumption across all mobile phone subscribers in India, has
been significantly lower than in China/US (Exhibit 10) due to slow adoption and lack of
proper ecosystem in the past 5 years.
Exhibit 23: Data tariffs in India are declining over the past
four quarters (yoy)
0.35
Datatariff(Rs/MB)
0.33
CostperMB(UScents)[RHS]
1.2
1.1
1,400
1.0
1.0
1,200
0.31
0.8
1,000
0.29
800
1,450
600
0.27
0.4
0.6
0.4
400
0.2
200
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
0.25
158
India
256
China
US
Source: Company data (Bharti Airtel, Idea Cellular, RCom, China Mobile, China
Unicom and China Telecom, Verizon, AT&T and T-Mobile used as proxy for
respective markets), Cisco, Goldman Sachs Global Investment Research.
24
May 4, 2015
Telcos focusing on data revenues: As data adoption picks up, it is becoming a key
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revenue growth driver for Indian telecom companies. Our telecom research team expects
data revenues to drive 43% of incremental revenues by FY25E for the Indian telecom sector.
Widespread adoption of data plans has resulted in data prices coming down by almost 20%
in the past 2 years. Further, economies of scale are also driving these prices lower. The
team expects data consumption by 3G/4G data subscribers to increase to c.1GB/month by
FY25E from c.395MB/month in FY14 driven by (1) better smartphone penetration, (2)
convergence to IP and (3) more localized content.
New entrants may act as another catalyst: Launches by new entrants such as Reliance
Jio (the only private operator to have a pan India 4G/LTE spectrum) would impact: a) price
of data plans, b) per capita data consumption, and c) coverage area of high speed internet
4T
4T
(4G network/ FTTH). Moreover, R-Jio has already launched its chat app called Jio-Chat
which is offering free audio/video calls and messages.
Free internet for consumers: We note another trend with internet companies tying up
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with telecom companies to offer free internet applications or website access and the cost is
borne by the telco/internet firm rather than the consumer, e.g. Internet.org by Reliance
Communications and Facebook, and Airtel Zero by Bharti Airtel, Flipkart and others,
(although Flipkart has recently pulled out of the scheme).
250
800
200
600
150
400
MTS India
Tata Docomo
BSNL
MTNL
Aircel
Note: 3 ticks indicate strong focus, 2 ticks indicate moderate focus and 1
indicates limited focus
Source: Company data, Goldman Sachs Global Investment Research.
Dataprice(Rs/GB)[LHS]
100
200
Datause(MBs/month)[RHS]
50
FY25E
Reliance Jio
1,000
FY24E
RCOM
300
FY23E
FY22E
FY21E
Idea Cellular
FY20E
1,200
FY19E
350
FY18E
FTTH
FY17E
Bharti Airtel
Vodafone India
Wired
Internet
FY16E
3G/4G
4G data
(dongle) on phone
FY15E
3G data
(phone)
FY14
Operator
4T
25
May 4, 2015
6T
Smartphone
3,500
6T
Featurephone
NewSmartphonelaunchesinIndia
Rs
3,022
3,000
2,712
2,611
2,575
2,565
400
350
300
250
200
150
100
50
0
2,500
2,000
1,500
1,000
740
698
687
689
712
Oct14
Nov14
Dec14
Jan15
Feb15
2013
368
299
215
202
46 63
BelowRs
5K
500
2014
Rs5K
15K
Rs15K
25K
18 18
18 27
Rs25K AboveRs
35K
35K
Source: 91mobiles.
4T
Smartphonepenetration
75.1
3G/4Gsubspenetration
82%
78%
80%
Incrementalsmartphone
shipmentsin2014 more
thantotalshipmentsin
2013
46%
38.1
37.0
20.6
16%
16.5
9%
India
China
USA
Source: Company data (Bharti Airtel, Idea Cellular, RCom, China Mobile,
Verizon, AT&T used as proxy for respective markets), Gartner, Goldman Sachs
Global Investment Research.
2012
2013
2014
Source: Gartner.
26
May 4, 2015
500
50%
40%
400
Smartphoneusers(mn)
300
30%
Smartphonepenetration(RHS)
200
5.1%
5.9%
7.2%
16.0%
10.7%
81
20%
10%
151
3G/4Gsubspenetration
54.2% 60%
650 mnsmartphone
usersby2020according
toEricsson
600
100
R=0.8089
80%
USA
70%
60%
Europe
50%
Russia
40%
India 2020
China
S.Africa
30%
20%
Indonesia
India
10%
0%
0%
0%
2020
50%
Smartphonepenetration
100%
Source: Company data (Bharti Airtel, Telkomsel, China Mobile, Vodafone, MTN,
Verizon, AT&T, MTS are used as proxy for respective markets), Gartner,
Goldman Sachs Global Investment Research.
Chinese 4G ecosystem to help India too: China has seen a rapid development in the 3G/4G
ecosystem as 4G subscribers crossed 100mn in 2014 and are rising rapidly. As a result,
availability of 4G handsets has also become greater. 4G-LTE spectrum band auctioned in
India is same as that of China 2300 TD LTE and potentially 2600 TD LTE which implies
compatibility of 4G handsets from China (available at a reasonable price). The cheapest
3G/4G handsets in India are now available for US$40/US$150, respectively. The trend is likely
to continue with the entry of multiple Chinese handset makers such as Xiaomi, Oppo, and
OnePlus. Xiaomi has already claimed 4% market share of smartphones in the first 3 months
of its launch in India as of Dec 2014, as per Gartner.
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4T
27
May 4, 2015
Spectrumband
Comments
2G
3G
1,400
1,160
1,200
992
1,000
800
4G
SpectrumInventoryinIndia(MHz)
520
600
421
400
306
200
0
900
1800
2100
2300
800
6T
6T
Nonspectrumcapex
SpectrumAuctionsinIndia(MHz)
1000
Spectrumcapex
Capexas%ofsales(RHS)
880
800
600
400
19%
350
17%
300
15%
250
400
385
355
295
95
11%
150
178
200
13%
200
46
104
99
85
100
9%
50
7%
5%
2100 2300 800 1800 900 1800 800 900 1800 2100
2010
2012
2014
2015
Source: Company data, Goldman Sachs Global Investment Research.
4T
4T
4T
4T
4T
28
May 4, 2015
TotalBTS('000)
500
450
400
350
300
250
200
150
100
50
0
1,200
3G/4GBTS('000)
1,000
431
387
268
200
21
2025E
India4G
400
126
2014
India3G
600
170
31
India2G
Indonesiatotal
800
283
ChinaMobile4G
2014
Bharti
2025E
2013
Idea
2014E
2015E
Note: 2013 corresponds to FY14 for Indian and CY13 for China/Indonesia
Source: Company data, Goldman Sachs Global Investment Research.
Non-spectrum capex way behind China: China Mobile has spent US$34.4bn of non4T
4T
spectrum capex in 2014 as it ramps up its 4G footprint in China. For the past five years, its
average has been US$25bn vs. Indian companies spending US$4-5bn. However, we expect
industry capex to rise 55% over the next 3 years to US$8.3bn from US$5.3bn in FY12-FY14.
The incremental spend is likely to be on towers, better in-building solutions, and new
network equipment.
6T
2.50
6T
40
2.29
34.4
35
2.00
BTSperthousandsubs
30
3G/4GBTSperthousandsubs
25
1.50
30.2
20.3
21.0
20.8
20
1.15
15
0.90
1.00
0.93
0.83
0.83
10
0.68
5
0.50
0.25
0.17
0.16
0.00
China
(ChinaMobile)
US
(average)
Indonesia
(Telkomsel)
Bharti
Idea
6.7
6.1
6.0
3.7
3.6
0
FY11
FY12
FY13
FY14
Bharti
Idea
Vodafone
RJio
Towerco's
ChinaMobile
FY15
RCOM
29
May 4, 2015
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R-Jio to reportedly launch coverage in 800 cities: Recent media articles (such as
Business Standard, Dec 17, 2014) have stated that R-Jio is set to launch its TD-LTE based
4G services across 800 cities over the next 12 months and that it may augment its 4G
launch with FTTH (Fiber to the home) broadband and Wi-fi based devices. We think this
coupled with the national rollout of fiber optic network by the Indian government could be
a game changer. Coverage of fiber to carry data in India is currently at 9% penetration but a
combination of Jio and NOFN may expand it at least to a 40%+ over the long term.
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113
Towersharingagreementof
RJiowithdifferentoperators
('000)
100
80
60
45
40
42
36
Connectivity
Bandwidth
Open access
28
20
11
Additional capacity
8
Challenges
Complicated Right of way procedures and high ROW
charges. Different rules in different states for getting
clearances
Lack of investments in infrastructure by private telecom
operators. Copper wire network mostly owned by
PSUs
30
May 4, 2015
S.No
Investor
1
2
3
4
5
6
7
8
9
10
SequoiaCapital
IDGVenturesIndia
TigerGlobalManagement
HelionVenturePartners
AccelPartners
NexusVenturePartners
BlumeVentures
KalaariCapital
IntelCapital
NorwestVenturePartners
#VCInvestments
madeinIndia
74
58
43
41
40
38
37
32
32
30
$2,000
$1,800
mn
$1,757
$3.4bn
$1,600
$1,457
$1,400
$1,200
$1,000
$800
$503
$600
$400
$200
$94
$181
$322 $304
$115
$0
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2013 2013 2013 2013 2014 2014 2014 2014 2015
Source: Crunchbase.
Source: News articles (including The Economic Times dated Apr 16, 2015,
Business Standard dated Jan 16, 2015), Crunchbase
GoogleCapital
Google's firstinvestmentin
India Freshdesk infuses
$31mnalongwithexisting
investors
US$10bn
SoftBankannounces
planstoinvest
US$10bninIndiain
comingyears
Oct, 2014
Jun, 2014
Alibaba
Alibababacked
AntFinancial
Twitter
TwitterbuysIndian takes25%stake
inPaytm
marketingservices
providerZipDialfor
$30$40mn
Feb, 2015
Jan, 2015
Jul,2014
US$2bn
Amazon announcesan
additionalUS$2bn
investmentinIndia
GoogleCapital
Google provides
freshfundingto
CommonFloor
India'sonlinereal
estatecompany
CapitalraisedbyinternetfirmsinIndia(US$bn)
Financialservices/Others
$0.15
$0.22
Social/Entertainmentetc.
$0.24
$0.33
Latestround(US$bn)
Restaurants&Food
$0.18
$0.36
Totalraised(US$bn)
Travel&logistics
Classifieds
$0.58
$0.96
$0.63
$1.20
$4.24
ecommerce
$0.0
$2.0
$4.0
$6.71
$6.0
$8.0
31
May 4, 2015
In 2014, the capital commitment towards e-commerce companies in India has been about
US$6bn, with about 85% of it coming in the second half of CY14. Within e-commerce, e-tail
has captured a major share of capital flows followed by classifieds and travel/logistics. We
expect the capital infusion to continue into 2015 as internet penetration picks up pace
backed by economic reforms on the horizon such as potential rollout of GST reforms. We
believe that investment opportunities in the e-commerce derivate sectors such as
warehousing, distribution and logistics, education, financial and other business services
are likely to take center-stage.
Company
Industry
Latestroundofinvestment
Investors
e-commerce
Flipkart
Amazon India
Snapdeal
Paytm
Shopclues
Urban Ladder
CaratLane
Others
Marketplace/Retail
Marketplace
Marketplace
Mobile Marketplace
Marketplace
Lifestyle Shopping (Furniture)
Lifestyle Shopping (Jewellery)
Lifestyle Shopping (Furniture,
Amount
(US$mn)
Totalraised
US$mn
$4,241
$700
$2,000
$627
$525
$100
$50
$31
$208
$6,712
$2,500
$2,000
$1,100
$525
$116
$77
$52
$342
$628
$200
$150
$100
$50
$30
$98
$1,198
$216
$346
$140
$50
$97
$350
$585
$400
$35
$23
$30
$25
$72
$960
$677
$43
$45
$44
$26
$126
Mobile ads
Community (C2C)
Real estate
Automobile aggregator
Advertising
Automobile, Community, Real
SoftBank
Tiger Global Management, Matrix, Nokia, Omidyar Network
SoftBank
Hillhouse Capital, Tybourne Capital, Sequoia Capital
Nexus, Helion, Peepul Capital, Norwest
Tiger Global Management, Canaan Partners, Nexus, DN
estate, deals
Transport
Logistics
Transport
Transport
Travel/Accommodation
Transport, logistics
32
May 4, 2015
Exhibit 49: Global pioneers in the internet sector are now eyeing investments in India. Nearly all global majors have
established a presence in India in recent months
Key investments in Indian internet companies by leading private equity/venture capital firms in the past 3 years
6T
SoftBank
Sequoia
Capital
Tiger Global
Management
Accel
Partners
Naspers
Other
Investors
Intel Capital
Twitter
Google
Capital
Tencent
Holdings
Newshunt
Investee
Companies
33
May 4, 2015
4T
which could not only impact print media companies but will also be quite important for
online advertisers.
Logistics: Logistics and distribution are the key enablers of e-commerce in India, more
so due to the bottlenecks in Indian infrastructure. Increasing capital inflows are
ensuring investments in logistics and last mile delivery infrastructure. Further, logistics
firms as well as real estate firms providing warehousing facilities are likely to be
impacted, in our view.
Recruitment: A surge in the internet sector and significant capital inflows has resulted
in significant demand in workforce across technology, management, finance and
administration levels which would impact recruitment consultants and classified
companies such as Info Edge (Naukri.com), in our view.
4T
4T
4T
4T
Consolidation: In order to gain scale, combat competition and acquire niche offerings
4T
4T
such as personalized deals, companies may look to acquisitions with the help of capital
raised. We are already in the middle of the first phase of consolidation where
companies with better funding are acquiring peers in the space. Start ups and
companies which have gained a reasonable scale are being impacted by this trend.
offline channels of economies such as offline retail stores, traditional vendors and
capital providers.
Exhibit 50: Key sectors and companies impacted by capital flows into e-commerce
Advertising
Most Internet
companies
business models
are either B2C or
C2C. Consequently,
there is a need to
advertise
Winner takes all
phenomenon
accelerating
advertising spends
Companies
Media companies
Search providers
Social media
advertisers
E.g.: Times Group,
Just Dial, Google,
Facebook, InMobi
etc.
Logistics
Current logistics
infrastructure
covers less than
10% of the
countrys postal
codes
Multiple tax
structure leading to
decentralized
warehouse
networks
Consolidation
Consumers
Rapid growth
leading to talent
hunt
Recruitment
As industry grows,
consolidation bound
to happen
IT/ITES industry
suffering high
attrition rates
leading to higher
retention/ recruiting
costs
Several acquisitions
happened in last
few months.
Internet companies
incentivizing
consumers through
heavy discounts
Companies
Companies
Warehousing and
distribution solution
providers
Colleges/
Universities
Students/Job
seekers
E.g.: Naukri,
LinkedIn, Times
Jobs, Randstad,
Team Lease etc.
E.g.: Flipkart
acquired Myntra,
Goibibo acquired
Redbus
Companies
Niche/vertical
companies
E.g.: Zovi,
Pepperfry, Urban
Ladder, Zomato,
Hike, Policybazaar
etc.
Higher competition
leading to better
customer service
quality
Sectors
Consumers
Traditional vendors
Capital providers
34
May 4, 2015
Low card penetration makes case for evolving payment landscape: Credit card
4T
penetration in India is quite low, with only 20mn cardholders as of Sep 2014, implying 1.7%
penetration. Further, while there are 431mn debit cards as of Sep 2014, a lot of these may
be used only for cash withdrawals and not for commercial transactions at all, in our view.
Hence, we believe the online payment landscape in India needs to evolve to propel the
growth of e-commerce. We believe the rise of the internet economy in India would not be
possible without a commensurate improvement in the ease of payments for consumers.
Hence, multiple niche companies, besides banks, have emerged across the payment
landscape offering several inexpensive and innovative transacting solutions.
Cash on Delivery (COD) is the most preferred mode: Our interactions with multiple e4T
commerce firms suggest the most preferred way for Indian consumer to transact still
remains cash as about 60% transactions in e-commerce as of 2014 are being done on cash
on delivery (COD) mode, vs. 2%/30% in the US/China. It is so successful in India because it
is convenient and enhances customer trust initially, in addition to enabling consumers who
do not have access to credit card/debit cards/net banking etc. to buy goods/services online.
This has helped push online commerce to the Indian consumers and propelled it to attain
critical mass. However, cash on delivery is an expensive option owing to a variety of
reasons:
Higher return rates for goods (customer refusal to take deliveries due to lack of cash,
non-serious buyers etc.)
Higher costs of handling cash (theft, loss of cash due to mishandling etc.)
Elongated working capital cycles (time for cash to reach the merchant from consumer
increases)
Higher delivery costs as third party logistic providers charge extra for such deliveries
6T
EMI/3rdpartywallets
1%
NetBanking
China
18%
12%
mn
DCyoy(%)[RHS]
60%
431
37%
300
40%
25%
100
60%
50
80%
331
22%
278 19% 19%
75
50
23
17
102
28
17%
11%
182
137
2%
7%
2%
2%
18
30%
20%
10%
0%
10%
10%
25
50%
40%
228
200
60%
394
32%
19%
150
40%
34%
33%
350
26%
30%
30%
20%
Debitcards(DC)
CCyoy(%)[RHS]
450
250
2%
Creditcards(CC)
51%
400
16%
0%
India
34%
0%
Cashondelivery
US
500
12%
DebitCards
CreditCards
9%
10%
6T
18
26%
18
20
19
20
20%
30%
Note: China wallet mix assumes Alipays wallet users as the total wallet users
in China
Source: Central Banks, Goldman Sachs Global Investment Research.
Source: RBI.
35
May 4, 2015
Providers
Coststructure
Comments
Cashondelivery(COD)
Aramex,FedEx,BlueDart,JAVAS,
Delhiveryetc.
Visa,MasterCard,American
express,Dinersclub,RuPayetc.
CCAvenue,Billdesk,PayU,Citrus,
SBIePay,zaakpayetc.
IMPSlivememberbanks(~59
bankscurrently)
Rs2580per0.5kgpacketor
2%4%ofinvoicevalue
0.75%to3%
Only4bankscharge.Rest
offerforfree
Expensivesolutionforsellers
Improvescustomerreach
Lowpenetration
Lessconvenient
Limitedcustomerbase
Merchanttieupsnecessary
Lowmerchantadoption
Longdrawnsignupprocess
0.7%to3%+convenience
feetousers
Scaleisanissue
Customerskepticism
Credit/debitcard/net
banking
Paymentgatewayscard
linked
IMPS(Immediatepayment
system)
Mobileonlybasedpayments
Mobileprepaidwallets
Airtelmoney,mpesa,Citrus,
Paytm,Itzcash,Oxigenetc.
0.75%to5%
Directoperatorbilling/
Directtobill
Airtel,Vodafone
ashighas60%
Highcoststructure
openuppaidappdownloadmarket
Indirectoperatorbilling
(chargetomobilebill)
Boku,Zong(ownedbyPayPal)
ashighas30%
Highcost/feestructure
Lowmerchantadoptionindigital
Exhibit 54: Digital payment landscape evolving rapidly in India with banks, telecom companies and specialized firms
focusing on disrupting the payments landscape
Payment system landscape and key companies
6T
Telcos
Consumers
Visa
Mastercard
RuPay
American Express
Point of Sale
Terminals
Mswipe
Ezetap
Ingenico
SBI MAB
Acquirers
ICICI Merchant
Services
Merchant Solutions
(Axis Bank)
ACH based
systems
Banks/ Card
issuers
Telco wallets
Wallets
Airtel Money
Vodafone M-Pesa
ITZ cash
Paytm cash
Citrus cash
NACH
remit2India
Payment
aggregators
Gift cards
Bank e-wallets
CCAvenue
BillDesk
SBIePay
direcpay
PayU
Zaakpay
Citrus
Shoppers Stop
Lifestyle
Merchants
Networks
Retail
Banks
Technology
Payment Banks
Paytm
Vodafone
Mobikwik
eWallets
ngpay
PayUMoney
Google wallet
Government/Regulator
Note: Payment banks are not set up yet. Companies listed have applied for Payment bank licenses with the RBI; NACH = National Automated Clearing House
Source: Company data, RBI, Goldman Sachs Global Investment Research.
36
May 4, 2015
6T
Volumeoftransactions(mn)
Walletusers(mn)
169 25
350
160
100
250
200
15
84
77
80
10
40
20
1 2
4447
3940
3433
2626
23
162020
101012111314
50
50
10
Mar11
Mar12
Mar13
Apr13
May13
Jun13
Jul13
Aug13
Sep13
Oct13
Nov13
Dec13
Jan14
Feb14
Mar14
Apr14
May14
Jun14
Jul14
Aug14
Sep14
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
152
100
Alipay
60
162
150
Paypal
Australia
113
102
120
300
Citrus
140
300
20
Source: RBI
Paytm
141
129
Kakaotalk
180
Paypal
Value(Rsbn)
6T
Reserve Bank of India the facilitator and regulator moving in the right direction:
4T
Over the years, the Indian banking regulator has also been taking incremental steps to
increase cashless transactions not only in the internet space but also offline. More recently
it has released guidelines for a universal bill payment system called Bharat Bill Payment
System (BBPS). It has also released guidelines and invited applications for payment bank
licenses, following which a large number of companies have applied.
We believe that payment bank licenses, once issued, could act as a catalyst in pushing the
Indian consumer towards a cashless economy for the following reasons:
1)
Enhanced customer trust -- will let more people sign up for electronic wallets,
2)
3)
Allows wallet companies to pay interest to customers on money stored in the wallet,
4)
Lower cash balance, regulatory control and ease of payments for small ticket items.
Date
1986
1994
1998
Jun01
Nov05
Dec07
Jun08
Apr09
Mar12
Oct14
Nov14
Nov14
Dec14
Paymentrelatedmilestone
IntroductionofMICRbasedchequeclearing
ElectronicFundstransfersystem(EFT)launched
Introductionofdebitcard
RBIallowedbankstoofferinternetbankingfacilities
Nationalelectronicfundstransfer(NEFT)launched
ParliamentclearsthePaymentandsettlementsystemsact
OperatingguidelinesformobilepaymentsreleasedbytheRBI
OperatingguidelinesforprepaidinstrumentsputoutbyRBI
LaunchofRupaydomesticcardpaymentnetwork
2factorauthenticationmandatedforallcreditcard
transactions
RBIreleasesfinalguidelinesforlicensingofPaymentbanks
Guidelinesforbharatbillpaymentsystem
EMVChipandPinmandateddomestically
Source: RBI
No
Applicant
JVPartner
1
2
3
AdityaBirlaNuvo
BhartiAirtel
Cholamandalam
InvestmentandFinance
FinoPaytech
Futuregroup
GITechnology
Oxigen
Paytm
RelianceIndustries
VakrangeeLtd
Vodafone
IdeaCellular
KotakMahindraBank
NA
4
5
6
7
8
9
10
11
NA
IDFC
NA
RBLBank
NA
StateBankofIndia
NA
YesBank
37
May 4, 2015
4T
rentals and poor connectivity have limited the presence of organized retail (less than 10%
according to EY in 2013) in India. We believe the same reasons could act as a catalyst for
heightened adoption of e-commerce in India a counter trend to that in developed
countries. However, we believe logistics and last mile delivery are key bottlenecks that
need to be addressed for faster adoption of e-commerce in India.
Traditional vendors evolving, so are new entrants: While incumbent logistic providers
4T
4T
like India Post, Aramex, Blue dart, DTDC, Fedex have specially added ecommerce solutions
to their offerings, the e-commerce industry still faced challenges in terms of handling cash
on delivery orders, return orders and customer service. This led to the emergence of
specialized e-commerce logistics companies like Delhivery, E-Com express, e-kart etc. As
most of these specialized providers suffered from limited reach across India (Exhibit 48), it
saw the emergence of logistics aggregators such as Kart Rocket and Zepo. These
aggregators do not have their own distribution network, but instead rely on the
incumbents network. They assist merchants in choosing cost/time effective way of
shipping merchandize to their customers.
Exhibit 60: Lack of retail outlet infrastructure in India
(hypermarkets) is a big catalyst for faster adoption of
online commerce, in our view
Data as of 2014
6T
6T
Marketsize(US$mn)
FY11FY14CAGR
750
700
105%
650
600
550
500
690
#peopleperHypermarket('000)
120%
3,500
100%
3,000
80%
2,500
60%
2,000
680
40%
450
400
500
350
19%
14%
20%
0%
300
ecomm.logistics
OrganizedAir
Express
OrganizedGround
Express
2,974
1,500
1,000
500
43
74
UK
USA
233
425
0
China
Brazil
India
Source: Euromonitor.
4T
Clarity on tax and regulations needed; GST may be a potential trigger: Even with the
emergence of multiple competitors, key issues such as lack of enough warehousing and
distribution space and sub optimal (or lack of) last mile connectivity still hinders the ecommerce industry. Moreover, uncertainty around tax regulations for marketplace
providers (such as Amazon, WS retail) who handle warehousing and distribution for SMEs
that sell merchandize on their platforms is causing further roadblocks. With our forecast for
e-tailing market to grow to US$220bn in size by 2030, we estimate that a significant
opportunity awaits the logistics industry.
4T
We believe the passage and potential implementation of GST starting April 2016 (goods
and services tax) could result in seamless working of the hub and spoke model in the
Indian logistics industry. This could lead to third party logistics companies (3PL) emerging
in the market place resulting in much lower logistics cost and lesser bottlenecks. Also,
modes of transportation like the railways which are currently underutilized for logistics,
would assume significance for long distance travel.
Goldman Sachs Global Investment Research
38
May 4, 2015
Exhibit 61: COD is more than twice as expensive as regular delivery, but remains the
preferred option for consumers
140
Cashondelivery(COD)
Rs
120
100
68
80
130
60
40
62
58
20
0
NonCODtotal CODshipment
charge
charge
CODcash
collection
charge
CODtotal
charge
Exhibit 62: Most logistics companies do not have enough Pan-India reach, except India Post
Key logistic solutions providers in India and their current reach
6T
Company
eCommerce solution
Type
Description
CoD offered
(Pincodes)
Pre-paid
reach
(Pincodes)
Blue Dart
E-business solutions
Provides shipping tools that businesses can incorporate in their e-tail stores
3,300
4,100
Delhivery
Delhivery
B2B
Fulfilment and logistics network for non-contact retail. Own and operate fulfilment centers
2,600
2,600
DTDC
Dotzot
Third party logistics service provider focused exclusively on e-retail delivery fulfillment
7,100
8,000
FedEx
FedEx
Provides shipping tools that businesses can incorporate in their e-tail stores
2,650
5,550
India Post
Express Parcel
50 cities
50 cities
India Post
Business Parcel
25,000
25,000
9,000
16,000
6,100
8,220
Shipping solutions
Logistic aggregators
KartRocket
ShipRocket
B2B
Zepo
ZePost
B2B
Enables e-tailers to dispatch a shipment, pick a courier company, assign an airway bill
number, and print a shipping label, among other facilities
Offers complete logistic assistance to small businesses looking to sell online
Exhibit 63: Potential GST implementation could ease logistics bottlenecks for companies
with large scale warehousing facilities and multi-modal logistics firms
How GST will change things
Central taxes
Excise
Customs duty
CST
VAT
Octroi
State Cess
To avoid duplication
of taxes
Hence, they have multiple small warehouses in each state
Target - saving taxes rather than operational efficiency
Proposed GST
39
May 4, 2015
Exhibit 64: No separate regulator in place for e-commerce yet, still governed by existing rules/laws
Regulatory landscape for e-commerce and related businesses in 2014
6T
Category
ReserveBankof
India
Dept. ofIndustrial
Policyand
Promotion,Dept.
ofCommerce
Regulation
2factorauthenticationismandatoryforcard/online
payments
PaymentsLandscape Allowingpaymentbankslicenseswhichwillallow
acceptanceofdepositsuptoRs100k,issuanceofdebitcards,
offeringfinancialproductslikeMFs,Insurance.
ForeignDirect
Investment(FDI)
100%inB2Becommerce
100%insinglebrandretail(offline)
51%inmultibrandretail(offline)
ValueAddedTax
Dept.ofRevenue
M&A
Dept.of
Information
Technology
Alletailingcompanies
Completerestrictiononforeignonlineretailerstosell
Foreignecommerce
productssourcedbythemselvesshouldrelyonmarketplace
companies
modelwhichis100%allowed
Distributableprofitsinatleast3outofpast5yearsand
positivenetworthinthepast3years
Listing/IPO
AffectedCompanies
AllB2Cecommerce
companies
Mobilewallets,payment
gateways,ecommerce
companies,telcos
Ministryof
Corporate affairs
Lossmakingecommerce
companies
ForgoodssoldbyonlineretailerslikeAmazonundertheir
ownrisk(fulfilment),theyshouldbepayingVATratherthan Alletailingcompanies
themerchant
CurrenttaxregimeandunclearM&Aregulationsforonline
Allecommercecompanies
companiesmaketheM&Aprocesscomplicated
Dept.ofConsumer
affairs
LackofGSTleadstoinefficienttaxationofsalestaxandVAT
ineachstateandresultinginmultiplewarehousesindifferent Alletailingcompanies
locationsandlackofeconomiesofscale
Logistics
Dep.Of
Information&
Broadcasting
Ministryof
Statisticsand
Programme
Implementation
Ministry ofHome
&Finance
Source: News Articles (The Economic Times, Business Standard etc.), Goldman Sachs Global Investment Research.
40
May 4, 2015
Exhibit 65: Digital India initiative proposes to connect 250k village councils to broadband via National optical fiber
network
Digital India highlights
6T
Costs
New Schemes
Ongoing Schemes
Rs130 bn
(US$ 2bn)
Rs1 tn
(US$ 17bn)
The Indian government runs one of the largest e-commerce portal in the country IRCTC
(Indian Railway Catering and Tourism Corporation) measured in terms of number of
transactions (463,000 per day in FY14). It is the online railway ticketing platform used by
the Indian Railways. It provides the first touch point of e-commerce for the vast rural and
suburban population, which is otherwise untouched by the current e-commerce industry in
India. The government could leverage this reach and look to provide e-governance and eservices across various departments, in our view.
IRCTC
India Post
# of Post Offices (PO)
# in rural areas
% in rural areas
People served per PO
Avg. area served by each PO
Employees
COD orders (Rs bn - FY14)
FY12
FY13
FY14
# of tickets (mn)
116.1
140.6
169.0
# of
Avg.
Avg.
Passengers tickets per passengers
(mn)
day ('000) per day
('000)
209.9
318.1
575.1
254.4
385.2
697.0
345.7
463.0
947.0
155,015
139,144
89.8%
7,175
2
21.2Km
460,000
2.8
41
May 4, 2015
The Indian government possesses a massive logistics network through India Post - its
postal service arm. It is the only logistics service provider in India currently that can deliver
parcels and goods to nearly 25,000 postal codes in India (nearly a 4th of total pin codes).
Several large e-tail companies in India, like Amazon and Flipkart among others, have
partnered with India Post to take advantage of its deep reach. As such, India Post is already
aiding as a catalyst in the penetration of e-commerce.
P
Further, India Post plans to launch an e-commerce marketplace of its own that could
significantly aid in improving internet and e-commerce penetration into the hinterlands of
the country. Moreover, we note that if they were to get a payments bank license from the
RBI, it could enable safer and easier way of payments for its customers.
Jan Dhan Yojna The biggest drive for financial inclusion in India
The PMJDY (Pradhan Mantri Jan Dhan Yojna) scheme intends to bring banking to every
doorstep in the country. As part of this initiative, the government has opened nearly 125mn
bank accounts as of Jan 2015 since the program started on Aug 28, 2014. Of 125mn
accounts, 110mn account holders were also issued debit cards potentially arming them
with the necessary tools to be able to transact online. We believe this increases the target
market for online commerce in India as well as helps propel India towards a cashless
economy.
JAM Number trinity: The Indian government envisages the JAM Number trinity Jan
Dhan Yojna (Bank account number), Aadhaar ID card number (UIDAI), and Mobile number
to help effectively target public resources (such as direct cash transfer of subsidies to the
poor) and deliver other governance services. As highlighted in our Indias Digital
Dividend report dated Sep 24, 2014, the delivery of governance services through the use
of technology could eliminate wastage of resources as well as drive productivity growth in
the country. We believe this could potentially bridge the per capita income gap that India
has with China/US at a faster pace fuelling consumerism, a key catalyst for e-commerce
growth, in our view.
JanDhanbankaccounts(Jan31,2015)
India
160.0
mn
140.0
120.0
Restof
population
463mn
37%
100.0
80.0
Aadhaarcards
issued
773mn
63%
Total
125.5
Rupaydebitcard
110.8
60.0
40.0
20.0
Aadhaarseeded
45.0
Source: UIDAI.
4T
42
May 4, 2015
4T
6T
6T
50,000
analytics
professionals
75000+ Post
graduates
30,000
mobility
specialists
1.5mn
industry
ready
professionals
0.8mn
science
graduates
1mn
engineers
Tougher immigration norms in the US, bridging parity help: Availability of talent is
4T
4T
improving driven by: (1) increasingly tougher immigration norms in the US, (2) reducing
purchasing power parity in India as salaries for good talent are at global levels, and (3)
potential upside in compensation from stock options in Indian start ups after they get listed
or acquired.
Start-ups boom as funds become freely available: Of late, the abundance of talent has
driven a start-up boom, catapulting India to be among the top start-up nations across the
globe. Since 2010, industry participants such as NASSCOM estimate that nearly 3,100 startups focused on technology have emerged in India. Of these, it is estimated that nearly
2,200 are digitally focused, while c.500 in the e-commerce space. As capital from around
the globe begins to flow into Indian entrepreneurial ventures, we see a virtuous cycle of
entrepreneurship and employment generation taking shape in India. Within e-commerce,
most of the interest has been in the e-tail category probably a reflection of the vast
opportunity in the space. Travel/ticketing and classifieds have closely followed while
financial services start-ups have been relatively fewer.
4T
4T
43
May 4, 2015
Exhibit 73: India is now the 4th biggest start-up hub in the
world (as of 2014)
Technologyproduct/startupsby
inceptionyear
Techproduct/digitalstartupsbykey
countries
900
800
700
600
500
400
300
200
100
0
8,000
805
6,000
590
525
41,500
7,000
680
480
5,000
4,000
3,500
3,300
3,100
3,000
2,700
2,000
1,000
0
2010
2011
2012
2013
2014
US
UK
Israel
India
Canada
etail
~3,100 Startups
200+
Travel/ticketing
70+
~2,200 Digital
focused
Classifieds
60+
Financialservices
~500
e-comm.
20+
Otheronlineservices
50+
0
50
100
150
200
250
B2C
1,820
59%
B2C/B2B
120
4%
B2B
1,140
37%
44
May 4, 2015
Delayed execution of 4G services and Digital India: Some of the key risks that can delay
the successful execution of 4G services and Digital India initiative are clarifying right of way
for laying fibre, providing more backhaul spectrum, incentivizing operators to share
infrastructure, promoting capital expenditure and incentivizing local manufacturing of
network equipment.
Lack of logistics infrastructure: Lack of retail outlet infrastructure, high rentals and poor
4T
connectivity have limited the presence of organized retail (less than 10% according to EY in
2013) in India. Further, we believe logistics and last mile delivery are key bottlenecks that
need to be addressed for faster adoption of e-commerce.
Language is an entry barrier SMS adoption is a case in point: SMS adoption could not
take off in a big way in India during 2001-2010 (despite rising wireless penetration rates)
due to the low percentage of English speaking population (only 10% in 2001). If the ecommerce firms are unable to adapt to the language diversity in India, we believe the pace
of growth may not be as strong. However, we think the English speaking population may
have increased over the past decade.
Clarity around regulatory environment: The regulatory environment in India has not
been very clear around e-commerce till now. In the past few years, there have been
concerns around lack of clarity on various regulatory/legal issues such as taxation, logistics,
foreign investment, payments landscape and vertical specific concerns. Any adverse
regulatory change could be a risk for the sector.
Oversupply of start-ups funded by private equity: The recent rise in private equity fund
flow has resulted in a significant increase in startups/new entrepreneurs. Hence, there is a
risk of oversupply of ideas in the medium term which may make the market extremely
competitive and potentially alter the profitable trajectory for some of the better business
models.
45
May 4, 2015
46
May 4, 2015
47
May 4, 2015
E-tail companies creating the ecosystem: Paucity of infrastructure, high rental expenses,
fragmented supply chain are some of the primary reasons for the low penetration of
organized retail. E-tail companies are looking to address these issues by organizing the
supply chain (aggregating merchants via marketplace model) and debottlenecking
infrastructure (such as establishing logistics solutions, warehousing and distribution centers)
to enhance the internet shopping experience, a key driver of the market, in our view.
Key assumptions for our long-term estimates for e-tailing market are:
1)
Data penetration and online shopper penetration: We forecast the overall data
penetration to reach 71% by FY30E (13% in FY14) vs. wireless penetration at 78%,
assuming the developing ecosystem will help converge data and wireless penetration
over time. Further, we estimate online shopper penetration to reach 25% levels, from
4% currently.
2)
Comparison to US and China: At US$220bn, the Indian e-tail market in FY30E would be
smaller than the current US$240bn e-tail market in the US, but larger than the current
US$134bn market in China. The significant differential in per capita income between India
and US/China partly explains the relatively small size of the Indian market. Nevertheless,
the e-tail market is likely to become nearly 1.8% of Indias GDP or 11% of the Indian retail
market by FY30E, according to our estimates.
Exhibit 78: We estimate e-tail GMV to reach c.US$220bn
by FY30E, growing at a 26% CAGR
GMV= gross merchandize value
150
110%
300
90%
250
70%
200
25%
18%
$19
$27
$37
2015E
2016E
2017E
2018E
2019E
19%
13%
100
10%
50
2030E
2025E
10%
12%
4%
2%
24
49
72
98
20%
380
122
147
15%
10%
258
6%
168
5%
0%
2017E
$12
$112
30%
9%
11%
8%
2016E
$7
29%
$47
150
2015E
$3
2014
36%
2020E
44%
50%
2014
57%
50
0
350
30%
25%
$220
71%
100
130%
Penetration(%)[RHS]
2030E
CAGR
20152020:47%
20152025:32%
20152030: 26%
200
Onlineshoppers(mn)
400
2025E
144%
150%
2020E
Growth(%)[RHS]
2019E
GMV(US$bn)
6T
2018E
6T
250
48
May 4, 2015
Population (mn)
Wireless subscribers (mn)
Penetration (%)
Data subscribers (mn)
Penetration (%)
Online shoppers (mn)
As % of online users
Penetration (%)
Average transaction value (Rs)
GMV per transaction (Rs mn)
No of transactions per annum
Annual GMV (Rs bn)
India
FY15
India
2030E
China
2014
US
2014
1,268
932
73%
244
19%
49
20%
4%
1,812
230
4.7
416
1,527
1,196
78%
1,086
71%
380
35%
25%
4,341
3,047
8.0
13,228
1,350
1,227
91%
604
45%
302
50%
22%
320
328
103%
254
79%
191
75%
60%
$7
$220
$135
$240
IndianRetailandetailin2030
GDP
$11,950
Offlineretail
etail
$1,813
$220
15%
2%
Retail
$2,033
17%
Note: GDP forecasts are from our Global Macro Research team
Source: CNNIN, Euromonitor, Goldman Sachs Global Investment Research.
Indian retail market at US$415bn in FY14: The Indian retail industry which is estimated
at c.US$415bn in size (FY14), is likely to grow at 12% CAGR till FY18, as per Euromonitor.
However, the retail industry is highly fragmented in India with organized retail accounting
for less than 10% of the market as of 2014. Lack of adequate infrastructure, high rental
expenses, fragmented supply chain are some of the primary reasons for the low
penetration of organized retail, as per the India consumer and retail team.
2013Retailmarketsplit
IndiaRetailsales(US$bn)
700
642
650
600
12%CAGR
550
Pharmacy
2%
578
463
450
Furnitureand
Others
furnishing Footware 6%
2%
1%
Consumer
durablesandIT
6%
519
500
400
Jewellery
6%
415
370
Apparel
8%
350
300
Food&grocery
69%
250
2013
2014
2015
2016
Source: Euromonitor.
2017
2018
Source: ASSOCHAM, India Brand Equity Foundation (IBEF).
49
May 4, 2015
2013OrganizedRetailmarketsplit
2013Retailmarketsplit
Food&grocery
3%
Organized
8%
Others
9%
Apparel
19%
Footwear
27%
Unorganized
92%
Consumer
durablesandIT
20%
Furnitureand
furnishing
8%
Jewellery
10%
Pharmacy
4%
Exhibit 86: Currently, companies are incurring almost 1.35X of their GMV as expenses,
driven by high discounting and promotions
Currentetailerrevenuesplit
160%
140%
120%
30.0%
100%
80%
12.0%
8.0%
7.0%
5.0%
3.0%
2.0%
3.0%
Payment
Gateways
Others
35.0%
65%
60%
40%
20%
0%
Vendors
Discounts
Marketing& Technology
Promotions
Logistics
Warehousing Packaging
Loss
50
May 4, 2015
Exhibit 87: We estimate that US$20bn of incremental cash burn is needed to sustain GMV
growth to US$47bn by FY20E
Etailing:Incrementalannualfundingneeded(US$bn)
$25
$20
$2.4
$1.5
$20
2019E
2020E
FY15EFY20E
$4.3
$15
$4.7
$10
$4.0
$5
$2.9
$0
2015E
2016E
2017E
2018E
Source: Company data (Flipkart, Snapdeal, Amazon), Goldman Sachs Global Investment Research.
Exhibit 88: E-tailers steady state margins will be reached in 5-6 years time provided
execution is reasonable
Steadystateetailerrevenuesplit
100%
3.0%
90%
2.0%
2.0%
2.0%
Packaging
Others
3.0%
6.0%
7.0%
80%
10.0%
70%
65%
60%
50%
40%
Vendors
Marketing&
Promotions
Technology
Logistics
Warehousing
Payment
Gateways
Margin
51
May 4, 2015
4T
(OTA) market to grow nearly 5X to US$40bn by FY30 from US$8bn in FY14 implying 11%
CAGR. The growth is likely to be driven by: 1) the shift of travel ticketing from offline to
online with online travel penetration growing from 41% in FY15 to 50% by FY30E, and 2)
9% CAGR in the travel market from US$22.8bn in FY15 to US$80bn by FY30E, largely linked
to GDP growth in India.
Exhibit 89: We estimate OTA penetration to reach c.50%
by FY30E
Totalonlinetravelmarket(US$bn)
Totaltravelmarket(US$bn)
Onlinepenetration(%)[RHS]
Airline market
79.5
50%
80.0
49%
70.0
60.0
50.0
41%
42%
43%
40%
30.0
20.4
22.8
20.0
10.0
India
China
US
FY30E
2014
2014
10.1
29.1
56.9
132.2
5.1
16.0
16.0
71.1
51%
55%
28%
54%
4.5
13.0
34.3
132.1
45.2
55%
90.0
40.0
India
FY15E
8.1
9.4
25.5
10.7
28.5
12.3
44%
31.9
14.1
45%
46%
50%
62.5
35.8
40.0
40.0
18.4
35%
30%
OTA market
Online penetration (%)
0.9
4.6
6.7
20%
35%
20%
34%
22.8
79.5
116.2
318.5
9.4
40.0
23.2
136.7
41%
50%
20%
43%
FY30E
FY25E
FY20E
FY19E
FY18E
FY17E
FY16E
FY15E
0.0
FY14
Hotel market
OTA hotel market
40%
30.5
16.2
4T
Online air ticketing business to reach US$16bn by 2030E: At present, the Indian OTA
4T
market is dominated by airlines which contribute 55% of the total revenues. This is despite
relatively low airline passenger traffic growth in India and can be attributed to: 1) higher
average ticket size, 2) higher online penetration among the target passenger segment, and
3) relatively low fragmentation of the airline industry in India. However, as online
penetration improves in other travel categories, we expect the airline contribution to OTA
market to decline to 40% by FY30E. As such, we estimate the online air travel market to
increase from US$5.1bn in FY15 to US$16bn by FY30E, a CAGR of 8% over 15 years.
Online railway bookings to reach US$18.6bn by 2030E: Although railways is under state
control and is the dominant source of transportation for the masses in India, the online
market is not as big due to the low level of internet penetration compounded by the limited
access to online payment options for the average Indian traveler. However, we believe that
the Indian governments Digital India initiative to provide broadband access to 250,000
village councils by 2016 combined with the permeation of digital wallets to the masses in
India is likely to drive growth in online rail travel penetration, in our view. As such, we
estimate the online rail market to increase from US$3.2bn in FY15 to US$18.6bn by FY30E,
a CAGR of 12% over 15 years.
4T
Online hotel market to reach US$4.6bn by 2030E: The other big piece of the travel
4T
4T
market pie, the hotel market, is highly fragmented in India. Further, most hotel operators in
India do not have the necessary systems in place to take an online reservation. As a result,
it is one of the least online penetrated markets among the travel categories with 17%
penetration in FY14. With Indian OTAs like Makemytrip, Yatra etc. beginning to aggregate
hotels and roll out real-time online hotel reservation systems, we believe online
penetration for the hotel market is likely to pick up in the medium term. By FY30E, we
52
May 4, 2015
estimate the online penetration in hotels to reach 35% with online hotel market reaching
US$4.6bn.
Online car rental market to reach US$1.4bn by 2030E: The car rental market is highly
4T
fragmented in India. Further, most car operators in India do not have the necessary
systems in place to take an online reservation or payment. However, multiple car rentals or
taxi hailing companies have emerged such as Olacabs, Uber, Carzonrent, Orix, Meru which
are rolling out real-time online car hailing or reservation systems. Hence, by FY30E, we
estimate the online car rental market to reach US$1.4bn growing at a CAGR of 18%.
Comparison to US and China: At US$40bn, the Indian OTA market in FY30E would still be
much smaller than the current US$137bn OTA market in the US but higher than the current
US$23bn market in China. The significant differential in per capita income between India
and US/China partly explains the relatively small size of the Indian market.
OnlineHotels(US$bn)
Airtravelmarket(US$bn)
Onlinepenetration(%)[RHS]
4.6
10.1
5.1
10.0
8.0
11.1
5.8
12.2
13.5
6.5
16.0
50%
6.0
13.1
2.0
5.0
24%
6.6
6.0
30%
25%
7.3
25%
20%
4.6
3.2
0.7
0.9
1.0
1.2
1.4
40%
35%
15%
10%
1.8
1.6
5%
0.0
FY30E
FY25E
FY20E
FY19E
FY18E
FY17E
FY16E
5.5
45%
40%
FY15E
4.5
23%
22%
4.0
0.0
FY14
20%
17%
4.1
8.9
8.1
7.3
16.3
14.8
21%
35%
45%
0%
FY30E
5.0
9.2
55%
23.9
10.7
30%
FY14
10.0
12.0
FY20E
15.0
54%
29.1
55%
FY19E
51%
53%
55%
FY18E
50%
52%
55%
FY17E
25.0
55%
13.0
FY16E
30.0
20.0
14.0
60%
FY25E
35.0
Hotelmarket(US$bn)
Onlinepenetration(%)[RHS]
FY15E
Onlineairtravel(US$bn)
6T
6T
FY15E
FY30E
Hotels
11%
Rail
34%
Carrental
3%
Rail
46%
Airline
55%
Hotels
10%
Airline
40%
Carrental
1%
Source: Goldman Sachs Global Investment Research.
53
May 4, 2015
PenetrationinIndia
Shareofminutesspentonline
Services
23%
Other
35%
Viber
4%
4%
5%
5%
6%
Google+
News
3%
Retail
3% Entertainment
Social
networking
25%
7%
Skype
8%
FB
8%
FBmessenger
9%
11%
0%
11%
2%
4%
6%
8%
10%
Source: comScore.
Source: Statista.
SocialmediaengagementbyIndiancompanies
Buildcommunity/advocates
Socialmediabudgetsofsocialmediasavvy
organizations
20%+marketingonsocial
media
76.2%
0%
Generateleads
42.9%
16%20%marketingon
socialmedia
5%
Customerservices
42.9%
11%15%marketingon
socialmedia
5%
Platformtohighlightbrand
Research
0.0%
95.2%
6%10%marketingon
socialmedia
48%
1%5%marketingonsocial
media
38.1%
50.0%
12%
100.0%
43%
0%
10%
20%
30%
40%
50%
54
May 4, 2015
Exhibit 99: Social network in India dominated by US based companies like Facebook, LinkedIn, Twitter. Hike is the only
Indian social network with decent scale
Competitive landscape for social networking sites, as of 2014
6T
US
Facebook
Tumblr
2001
1,189
2003
347
2004
284
2007
420
2010
300
$12,467
$2,219
$1,403
Usage
Founded
Registeredusers(mn)
Monthlyactiveusers(mn)
Monetization
2014Revenue($mn)
Usecases
Public
Privatemessage
Photo
Video
News
Predominant
Instagram Pinterest
RenRen
Kakao*
2010
70
2006
219
44
2009
600
2010
150
$83
$334
$203
Available
Asia
Pengyou
Hike
2010
260
2011
438
2012
35
Europe/Russia
VK
WhatsApp*
2006
280
2009
700
$10
Notavailable
*denotes2013revenue($mn)
Source: The Wall Street Journal, GigaOm, EY, TechCrunch, Company data, Goldman Sachs Global Investment Research.
FY14
Email
$14
3%
Totalonlineadspend
US$mn
Video
$54
12%
Onlineadas%oftotal[RHS]
US$mn
13%CAGR
14,000
Search
$136
30%
SocialMedia
$81
18%
Mobile
$63
14%
16,000
12,000
30%
24%CAGR
10,000
25%
19%
4,000
20%
15%
7%
8%
452
596
2,767
FY14
FY15E
FY20E
2,000
0
15,043
36%CAGR
6,000
40%
35%
31%
8,000
Display
$104
23%
37%
10%
8,093
5%
0%
FY25E
FY30E
55
May 4, 2015
Within the digital ad market, search currently dominates with 30% of revenue followed by
display at 23% in FY14. However, the growing relevance of mobile internet, social media
and improvement in internet speeds are resulting in ad spend shift towards these media.
We forecast digital ad spend market to grow to US$15bn by FY30E from c.US$0.5bn now.
We believe this will be driven by mobile advertising (US$4.6bn by FY30E) and social media
advertising (US$4.5bn) and the shift from offline to online advertising.
Key assumptions for our long-term estimates for ad-tech market are:
(1) Overall and online ad spend market in India: We forecast the overall ad-spend market
in India to reach US$40bn by FY30E assuming a CAGR of 12%, in line with the nominal
GDP growth as per our Global Macro Research team. Further, by FY30E, we estimate 37%
of advertising spend to be directed towards digital channels from 7% currently.
(2) Mobile and social media to garner highest share: We forecast mobile and social
media to garner almost 61% of the overall online ad-spend in India as of FY30E as we
believe that these media are going to be a lot more relevant and effective against the
backdrop of increasing data penetration in India.
Comparison to global ad-spend penetration: As per our US team, the global online ad
spend stands at 23% currently and is expected to go up to 36% over the next five years. We
also assume a similar online ad-spend penetration in India by FY30E.
6T
US$mn
Search
Display
Mobile
Social Media
Email
Video
Total online ad spend
Growth rate (%)
Totaladspend
Onlineadas%oftotal
FY14
$136
$104
$63
$81
$14
$54
452
9%
6,317
2%
7%
FY15E
$161
$110
$107
$125
$15
$77
596
32%
7,350
16%
8%
FY20E
$415
$208
$858
$830
$42
$415
2,767
36%
14,753
14%
19%
6T
FY25E
$1,214
$607
$2,509
$2,428
$121
$1,214
8,093
24%
26,468
11%
31%
FY30E
$2,256
$1,128
$4,663
$4,513
$226
$2,256
15,043
13%
40,177
8%
37%
FY30E
US$mn
Email
$226
1%
Video
$2,256
15%
SocialMedia
$4,513
30%
Search
$2,256
15%
Display
$1,128
8%
Mobile
$4,663
31%
56
May 4, 2015
Key assumptions for our long-term estimates for payments market are:
(1) Overall point of sales: We forecast the overall point of sales to grow from US$51bn in
FY15E to US$153bn by FY20E (25% CAGR) and US$510bn by FY30E (16% CAGR) largely
driven by increased adoption of electronic payment mechanisms and increasing
penetration of e-commerce transactions.
(2) Online point of sales: We forecast e-commerce transaction through online POS to
become 12%/17% of overall POS transactions in FY20E/FY30E vs. 1.5% in FY15E as the ecommerce market in India grows at 23% CAGR over FY15E-FY30E to US$282bn. We believe
this will be driven by: 1) shift of offline commerce to online, 2) shift of online transactions
from cash-on-delivery to an electronic payment system (wallets), and 3) increased velocity
of transactions due to ease of payments via electronic channels.
57
May 4, 2015
6T
20.0%
1%
EMI/3rdpartywallets
1%
12%
DebitCards
66%
Cashas%ofGDP
17.8%
13.8%
14.0%
12.0%
26%
30%
10.0%
8.7%
7.7%
8.0%
7.4%
6.4%
6.0%
0%
40%
16%
2%
18.0%
India
18%
12%
Cashondelivery
US
16.0%
NetBanking
CreditCards
China
10%
3.7%
3.7%
2.0%
8%
0.0%
60%
0%
3.8%
4.0%
20%
40%
60%
80%
Interchangefees(%)
3.5%
Creditcard
OfflineelectronicPaymentsrevenue(US$bn)
Debitcard
6.0
5.07
5.0
RevenueCAGR(20152030)
2.5% 2.5%
1.9%
2.0%
1.5%
1.5%
Totalpayment:13%
Onlinepayment:23%
Offline electronicpayment:11%
4.0
2.0%
1.5%
1.06
0.25
2.02
1.90
1.24
1.39
1.52
0.33
0.42
0.50
2020E
0.18
0.86
1.80
2019E
0.0
0.70
0.12
1.57
2018E
0.66
0.58
0.08
1.30
2017E
0.0%
1.0
2016E
0.7%
0.2%
1.04
0.83
2015E
0.7%
0.3%0.3%
2.0
0.9%
2014
1.0%
0.9%0.9%
1.0%
3.45
2.81
3.0
1.5%
1.62
0.92
2030E
2.3%2.3%
2025E
2.5%
0.5%
OnlinePaymentsrevenue(US$bn)
3.0%3.0%
3.0%
6T
OnlinePaymentsrevenue(US$bn)
6T
Growth(%)[RHS]
2015E
1.8
1.62
1.6
50%
1.4
80%
1.2
40%
62%
1.0
0.92
43%
0.8
26%
0.42
0.33
0.12
0.18
40%
0.50
0.25
13%
12%
20%
25%
17% 17%
13%13%15%
11%
10% 10%10%
20%
10%
15%
8%
1%1%1%
2030E
2025E
2020E
2019E
2018E
2017E
2016E
0%
2015E
35%
19%
0.0
2014
45%
30%
0.6
0.08
2030E
40%
33%
0.4
2020E
57%
60%
49%
0.2
100%
60%
0%
COD
Credit
Cards
DebitCards
Net
Banking
EMI/
Others
Wallets
58
May 4, 2015
59
May 4, 2015
Rise and rise of Alibaba: Alibaba, which originally began as a search engine in the ecommerce space, grew to displace eBay in China by starting a free C2C proposition that
appealed to small merchants. Alibaba then realized that the only way to get more
customers to transact on its platform was to have escrow accounts for payments until the
customer was happy with the products. And thats the genesis of Alipay, which has now
become an extremely prominent and critical part of Alibabas ecosystem. To monetize the
vast SME customer base, Alibaba has resorted to advertising, creating a differentiated
model vs US e-commerce companies such as Amazon which has not tried to monetize
search. Alibaba now has a widespread presence today: e-commerce, internet finance,
social network, mobile browser, maps and logistics.
Birth of the Freemium model: China has been extremely innovative in the gaming
industry aided in part by the Chinese government due to its ban on gaming consoles. The
ban on consoles pushed gaming online and the need to monetize online gaming led to
what is now called the freemium model. This is the model adopted by King.com and
Candy Crush wherein players pay for virtual items to improve their standing in a game.
This idea originated and evolved in China for a long time and then spread to the rest of the
world. Virtual identity or status is very important for the Chinese consumer and Chinese
online gaming companies capitalized on this trait, a pattern now being adopted around the
world.
Tencent - Messaging its way to success: Tencent started as a communications company
with a messaging service for PCs. Its free QQ messaging platform was quite early to move
from the consumer market to the enterprise space, and came at a time when younger
internet users preferred the less formal messaging tool to the relatively more formal email.
When the QQ customer base assumed significant mass, Tencent leveraged the platform to
enter the online games segment and has eventually become the pre-eminent gaming
platform in the world. Further, Tencent messaging dominance went mobile leading to
social and messaging products years before the likes of Facebook added messaging to
their platforms. Being the single most prominent messaging app in China allows Tencent
to always stay in touch with its users. We think this sticky user base and the ability to
control the user experience is what made Tencent so dominant on the mobile platform in
China.
Deeper monetization through vertical focus: Many Chinese internet companies have
been innovative in adapting their business models and coming up with alternative
monetization techniques by moving into more verticals rather than focusing on horizontal
expansion making them quite different from US internet companies. This has resulted in
Chinese internet companies developing much deeper monetization models and far richer
content. As a result, the competitive advantage of the Chinese companies has evolved such
that in the event that they have to compete with US firms, they would be able to maintain
their dominance on their customer base.
60
May 4, 2015
The impending rise of internet penetration in India and the rapid strides made by the ecommerce industry has caught the attention of most of the major global internet
companies including Google, Facebook, Amazon, Twitter, and Alibaba, along with handset
makers such as Samsung, Apple and Xiaomi. With higher entry barriers in China for
foreign companies and several domestic internet firms emerging in the past decade such
as Alibaba, Tencent, India is set to become the target for these global majors with its
potentially large internet population, dominated by users under the age of 35 years. While
US giants such as Google, Facebook, Apple, and Amazon are already making inroads and
count India as their second largest market by user base, the Asian companies such as
Samsung, Xiaomi, Alibaba, and Softbank are finding ways to grab a slice of the pie.
While Google, Facebook and Twitter may want to tap the ad revenue market as well as
online payments market, handset makers such as Samsung, Apple, Xiaomi and other
Chinese companies would be looking for the bigger pie of smartphone market in India.
Note: Size of bubble represents unique visitors from India for global websites
* For Samsung, Xiaomi and Apple: X-Axis = market positioning in India based on smartphone shipments in 4Q2014, Y-Axis =
Market share of smartphones in India in 4Q2014. Size of bubble represents smartphones shipments in India in 4Q2014.
Source: Alexa, comScore, Gartner, Goldman Sachs Global Investment Research.
61
May 4, 2015
45%
Restaurants
55%
USA
35%
%ofGlobalVisitors
DiscountonCPCratesforkeywordsinIndiavs.US
GoogleVisitors
40%
Movies
90%
35.9%
Mobile
98%
30%
Insurance
95%
25%
Hotels
65%
20%
Games
68%
15%
India
10%
9.6%
5%
Furniture
71%
Japan
Brazil
3.0%
Iran
2.9%
2.8%
Cars
77%
0%
5%
3
4
RankintheCountry
Apartments
18%
Airlinetickets
78%
6
120%
100%
80%
60%
40%
20%
0%
20%
40%
Source: Alexa.
Globaladvertisingrevenuesmarketshare
45%
40%
35%
34.3%
30%
15%
18%
23%
Paidclicks
26%
31%
12%
Costperclick[RHS]
26%
25%
8%
17%
14%
20%
4%
13%
0%
12%
18.6%
8.1%
11.8%
30%
24%
24.9%
20%
5%
41.7% 41.1%
38.1%
36.3% 37.0%
29.5%
25%
10%
Google(yoygrowth)
36%
10.1%
11.9%
5.8%
3.7% 4.2%
2.5%
2.0%
0.3% 0.5% 0.9% 1.3%
0.3% 0.5% 1.2%
0%
6%
4%
2%
0%
6%
12%
6%
6%
8%
4%
3%
7%
9%
11%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
8%
12%
62
May 4, 2015
Company
GooglePlaytop10countriesin2014
Rank
Downloads
Revenue
1
US
Japan
2
Brazil
US
3
India
S.Korea
4
Russia
Germany
5
S.Korea
Taiwan
6
Mexico
UK
7
Turkey
France
8
Indonesia
HongKong
9
Germany
Australia
10
Thailand
Russia
Micromax
Karbonn
Spice
Company
smartphone
marketshare
13%
11%
5%
Model
Price(Rs)
CanvasA1
SparkleV
DreamUNO
7,999
6,990
7,499
Source: AppAnnie.
Indexedmobileapprevenue
400
350
3.5x
GoogleIndia
Mobileapprevenuebycountry
35
300
Rsbn
Revenue(Rsbn)
30
250
25
200
70%
60%
21
47%
150
100
15
3.2x
50
3.5x
1.5x
3x
2.2x
8.7x
10
2.7x
Brazil
Russia
India
Canada
France
S.Korea
Germany
UK
Japan
US
50%
40%
12 36%
30%
20%
3.2x
80%
CAGR:41%
20
1.8x
90%
YoY(%)[RHS]31
79%
10%
9%
0%
0
FY10
FY11
FY12
FY13
FY14
63
May 4, 2015
35%
Facebookvisitors
IndiaFBmobileusers(mn)
225
30%
USA
%ofGlobalVisitors
25%
211
13.0%
Indiansas%ofmobileFBusers[RHS]
13%
185
12% 168
162
11%
11.0%
146
10%
136
9%
124
9.0%
109
102
8%
IndiaFBusers(mn)
200
24.7%
175
20%
150
15%
India
10%
125
8.5%
Germany
3.6%
5%
3.5%
0%
0
5%
100
Brazil
UK
78
4.3%
75
3
81
7.0%
58
50
5.0%
2013
RankintheCountry
2014
2015
2016
2017
2018
Source: eMarketer.
Facebook'sIndiaacquisition
Globaladvertisingmarket(US$bn)
$250
US$bn
Desktop
Mobile
$200
$150
$100
$50
$2
$60
$3
$72
$4
$82
$9
$17
$30
$46
$65
$85
$105
Who?
When?
What?
Acquisition#
Howmuch?
LittleEyeLabs
Feb,2014
Tooltomeasure,analyzeand
optimizeanapp'sperformance
43rdbyFacebook;1stinIndia
approx.$15mn
$132
$112 $117 $123 $128
$93 $104
$0
2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E
Source: MAGNA Global, Goldman Sachs Global Investment Research.
Source: Company data, News articles (including The Economic Times dated
Jan 8, 2014).
64
May 4, 2015
mn
180
TotalRevenue
FacebookusersinAsiaPacificregion(2014)
Users(mn)
35.3%
40.0%
%oftotal
160
2013
7,000
35.0%
29.1%
140
30.0%
120
25.0%
19.5%
100
80
60
8.6%
40
4.0%
3.5%
20
0
India
Indonesia Japan
YoY(%)[RHS]
80%
US$mn
5,865
6,000
72%
4,000
15.0%
3,000
10.0%
2,000
5.0%
1,000
0.0%
1,374
921
59%
3,695
55%
3,396
49%
1,831
50%
40%
30%
2,193
20%
1,063
10%
0%
ROW
AsiaPac
Europe
US&Canada
ARPU(2014)
Adrevenue
2013
6,000
US$mn
2014
8.0
YoY(%)[RHS]
79%
5,285
5,000
67%
60%
4,000
52%
3,131
3,173
3,000
2,000
1,000
1,741
1,335
881
1,958
80%
70%
Europe
US&Canada
7.2
6.0
5.0
50%
4.0
20%
US$
7.0
60%
30%
974
AsiaPac
90%
40%
0
ROW
70%
60%
5,000
20.0%
2014
2.9
3.0
2.4
2.0
10%
1.0
0%
0.0
0.8
ROW
1.1
AsiaPac
Europe
US&Canada Worldwide
65
May 4, 2015
6T
40%
6T
Twittervisitors
IndiaTwitterusers(mn)
35%
%ofGlobalVisitors
45
USA
30%
30.1%
40
25%
35
20%
30
15%
25
Japan
10.9%
10%
8.0%
UK
3.4%
5%
15
19%
19%
17%
16%
40
28
14%
17
12
34
15%
14%
22
13%
12%
2013
RankintheCountry
20%
18%
16%
10
10
19%
17%
15
4.2%
0%
0
18%
20
India
Spain
5%
as%ofsocialnetworkusers
2014
2015
2016
2017
2018
Source: eMarkerter.
6T
6T
Twitter'sIndiaacquisition
Twitteradvertisingmarketshare(%)
2.5%
2.0%
2.0%
Who?
When?
What?
ZipDial
Jan,2015
'Missedcall'marketingCustomer
callsandhangsupbeforeheis
charged.Companysendsinfotothe
'caller'.
Clients
Unilever,Disney,Gillette,Amazon,
Facebook,Twitteretc.
approx.$30mn
1.5%
1.3%
1.0%
0.9%
0.5%
0.5%
0.3%
Howmuch?
0.0%
2012
2013
2014E
2015E
2016E
Source: Company data, News articles (including LiveMint dated Jan 20, 2015).
66
May 4, 2015
Unique visitors
6T
70%
6T
Amazonvisitors
60%
UniquevisitorsinIndia(Oct14)inmn
USA
Bookmyshow
4.9
56.3%
%ofGlobalVisitors
50%
Homeshop18
6.0
Zovi
6.0
40%
Shopclues
30%
7.3
Myntra
20%
11.1
eBay
10%
India
S.Korea Canada
5.2%
China
3.6%
1.7%
5.3%
10
10%
20
21.0
Flipkart
0%
0
12.7
Snapdeal
30
40
22.4
Amazon
RankintheCountry
24.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Source: comScore.
6T
6T
Losstorevenueratio(FY14)
LargeetailersinIndia(FY14)
Revenue(Rsbn)
3.5
2.00x
Loss(Rsbn)
1.72x
1.60x
3.0
2.6
1.40x
2.5
2.0
1.76x
1.80x
3.2
3.2
1.90x
1.20x
1.8
1.7
1.00x
1.5
1.5
0.60x
1.1
0.8
1.0
0.77x
0.80x
0.40x
0.20x
0.5
0.00x
0.0
Flipkart
Amazon
Snapdeal
eBayIndia
Amazon
Flipkart
Snapdeal
eBayIndia
67
May 4, 2015
6T
70%
6T
InvesteeCompany
eBayvisitors
Bazee
USA
60%
2004
May,2011
54.8%
50%
%ofGlobalVisitors
InvestmentDate
May,2012
40%
QuikrIndia
30%
Mar,2014
20%
5.1%
0%
0
Russia
India
3.3%
2.6%
20
40
60
80
China
2.6%
100
120
Snapdeal
InvestedinUS$60mnSeriesGfunding
round
Apr,2013
InvestedinUS$75mnSeriesDfunding
round
ReportedlyinvestedUS$50mnin
US$134mnSeriesFfundinground
Feb,2014
140
AcquiredforUS$55mn
InvestedinUS$8mnSeriesDfunding
round
InvestedinUS$32mnSeriesEfunding
round
InvestedinUS$90mnSeriesFfunding
round
Sep,2014
S.Korea
10%
Comments
10%
RankintheCountry
6T
6T
Losstorevenueratio(FY14)
eBayIndia
1.2
1.0
Revenue(Rsbn)
YoY(%)
69%
0.8
0.6
33%
0.2
1.1
0.8
70%
1.80x
1.20x
1.00x
FY14
0.80x
0.77x
0.60x
0.0
FY13
1.76x
1.40x
40%
30%
1.90x
1.72x
1.60x
50%
20%
0.5
FY12
2.00x
60%
59%
0.4
80%
0.40x
10%
0.20x
0%
0.00x
eBayIndia
Snapdeal
Amazon
Flipkart
68
May 4, 2015
Samsung
000's
6,000 276%
SmartphoneShipments('000)
YoY(%)[RHS]
238%
5,000
203%
4,000
300%
60.0%
250%
50.0%
200%
40.0%
150%
3,000
89%
84%
59% 57%
58%
2,000
61%
100%
42%
23%
54.4%
50.8%49.2%
48.2%49.8%
39.2%
35.7%35.9%35.6%
28.1%
30.0%
21.9%
17.5%
20.0%
50%
3%
1,000
SamsungSmartphonemarketsharein
India
10.0%
0%
50%
0.0%
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Gartner.
Source: Gartner.
Rsbn
450
SamsungIndia
Mobilephonerev.(Rsbn)
Revenue(Rsbn) 404
400
350
300
250
198
279
42
11,500
17.0%
14%
13%
14.0%
11%
11.0%
8,500
110
107
Mobilephoneshipments('000s)
Marketshare(%)
23.0%
21% 22%
21%
21%
20%
18% 18%
20.0%
17% 17%
10,000
180
141
150
50
278
Mobilerev.:60%
200
100
13,000
CAGR
Revenue:39%
Samsung
000's
66
7,000
8.0%
5.0%
0
FY10
FY11
FY12
FY13
FY14
Source: Gartner.
69
May 4, 2015
Model
XiaomiinIndia
000's
SmartphoneShipments('000)
900
3.2%
800
700
Redmi1S
RedmiNote4G
Mi3
Mi416GB
Mi464GB
Mi4i16GB
3.5%
3.0%
2.5%
600
2.0%
500
400
779
1.5%
300
100
5,999
9,999
13,999
19,999
23,999
12,999
OnlinesalesviaFlipkart
SoldthroughBhartiAirtelstores
OnlinesalesviaFlipkart
OnlinesalesviaFlipkart
OnlinesalesviaFlipkart
OnlinesalesviaFlipkart
1.0%
0.8%
200
Price(Rs) InitialSalesstrategy
0.5%
164
0.0%
2014Q3
2014Q4
Source: Gartner.
Exhibit 145: Xiaomi phone features comparison with other similarly configured phones
Model
Z1
Redmi Note 4G
Canvas A1
One
Mi 4
Samsung
Xiaomi
Micromax
OnePlus
Xiaomi
Apple
Jan-15
Aug-14
Sep-14
Jun-14
Jul-14
Sep-14
OS
Tizen
Android
Adroid One
Oxygen OS
Android
iOS
Price (Rs)
5,999
9,999
9,999
17,999
19,999
53,500
Dual
Single
Dual
Single
Single
Single
Manufacturer
Launch
SIM
2G N/W
3G N/W
4G N/W
Display - Resolution
Camera
Video
Secondary Camera
Memory (Internal)
NFC
Battery Capacity
Talktime
iPhone 6
GSM 850 / 900 / 1800 / GSM 900 / 1800 / 1900 GSM 850 / 900 / 1800 / GSM 850 / 900 / 1800 / GSM 850 / 900 / 1800 / GSM 850 / 900 / 1800 /
1900
1900
1900
1900
1900
HSDPA 900 / 2100
TD-SCDMA 1900 /
HSDPA 2100
HSDPA 850 / 900 /
HSDPA 850 / 900 /
HSDPA 850 / 900 /
2000
1700 / 1900 / 2100
1900 / 2100
1700 / 1900 / 2100
na
TD-LTE 1900 / 2300 /
na
LTE 700 / 2600 / 2300 /
LTE
LTE
2600
2100 / 1800
480 x 800 pixels
720 x 1280 pixels (267
480 x 854 pixels
1080 x 1920 pixels
1080 x 1920 pixels
720 x 1334 pixels (326
(233 ppi)
ppi)
(218 ppi)
(401 ppi)
(441 ppi)
ppi)
3.15 MP, 2048 x 1536
pixels
Yes
5 MP, 2592x1944
pixels
Yes, 1080p
VGA
5 MP
8 GB, 2 GB RAM
4 GB, 1 GB RAM
No
No
No
Yes
16 GB, 3 GB RAM
Yes
16 GB, 1 GB RAM
Yes
1500 mAh
3200 mAh
1700 mAh
3100 mAh
3080 mAh
1810 mAh
Up to 8 hours (3G)
Up to 14 h (3G)
Up to 6 hours
na
na
Up to 14 h (3G)
70
May 4, 2015
Apple
000's
500
YoY(%)[RHS]
459
450
400
295 288
300
225
180
200
205
237
231
136
150
100
600%
500
500%
450
400%
350
250
75
33
SmartphoneShipments('000)
400
iPhone 5C,5S
models
launched
350
300%
300
200%
250
100%
200
0%
71
50
AppleIndia
000's
SmartphoneShipments('000)
iPhone 6,6
Pluslaunched
150
100
100%
50
200%
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
iPhone 5
launched
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Gartner.
AppleSmartphonemarketshareinIndia
4.5%
AppleIndia
3.9%
4.0%
3.5%
2.7%
3.0%
2.5%
2.0%
2.2%
2.2%
2.0%
1.7%
1.9%
2.1%
1.9%
1.7%
1.2%
1.5%
0.8%
1.0%
0.5%
0.0%
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source: Gartner.
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
Revenue(Rsbn)
YoY(%)[RHS]
250%
200%
150%
45.0
100%
30.6
50%
20.0
4.5
6.2
FY10
FY11
0%
FY12
FY13
FY14
71
May 4, 2015
Source: Crunchbase, News articles (including The Economic Times, Business Standard, VC Circle).
Exhibit 151: India is the 2nd highest source of traffic for Aliexpress (international arm of
Alibaba selling merchandise
P
35%
Aliexpressvisitors
%ofGlobalVisitors
30%
25%
20%
Brazil
15%
13.7%
10%
Russia
6.5%
5%
India
USA
6.9%
6.3%
S.Korea
6.1%
0%
50
50
100
RankintheCountry
150
200
72
May 4, 2015
73
May 4, 2015
Flipkart
Company description: Flipkart started operations in October 2007 selling books via internet. It is now Indias leading
4T
4T
e-commerce marketplace with over 20mn products across 70+ categories including electronics, apparels, baby care
products, home & kitchen appliances, books & media, fitness equipment, auto accessories etc. It also plans to enter
the hyper local grocery business in 2H2015 per media reports (The Economic Times, dated Apr 8 2015). We note that
grocery business constitutes nearly 65% of total retail sales in India, according to IBEF.
Flipkart has the unique distinction of being the first billion dollar Indian e-commerce company and is the first to offer
an annual subscription service called Flipkart First. The company operates exclusively in India.
4T
Key executives: Sachin Bansal (CEO), Binny Bansal (COO), Mukesh Bansal (CMO), Sanjay Baweja (CFO)
4T
4T
4T
Business Model: Hybrid of Inventory-based e-tailing and marketplace model. The company is currently focused on
4T
4T
expanding number of merchants on its marketplace platform, aiming to reach 50,000 sellers by 2HCY15.
Flipkart also does exclusive product launches, and branded stores. For example, when a Chinese smartphone
manufacturer entered India recently, it did so through an exclusive partnership with Flipkart.
Gross merchandize value (GMV): Estimated by management to reach US$3bn in FY15 and US$8bn in FY16. At
4T
present, 45% of units and 20% of the GMV is contributed by the marketplace channel.
Fulfilment: E-kart, owned by WS Retail, currently accounts for about 80% of Flipkart shipments. However, the
company is looking to partner with more 3rd party logistics companies to expand reach and scale.
Key metrics: Flipkart has about 60mn registered users and gets nearly 8mn page visits daily. It has 13 warehouses
4T
4T
and over 25,000 employees including contract employees mostly used for delivery.
Acquisitions: WeRead.com (2010), Mime360.com (2011), Chakpak.com (2011), Letsbuy.com (2012), Myntra.com
4T
4T
(2014)
Key investors: Accel Partners, Baillie Gifford, Dragoneer Investment Group, DST Global, Green oaks Capital
Management, Iconiq Capital, Morgan Stanley, Naspers, Qatar Investment Authority, Singapore GIC, Sofina,
Steadview Capital, Tiger Global Management, Vulcan Inc.
K
4T
4T
4T
Estimated market value: US$12.5bn, as per media reports such as The Economic Times (March 31, 2015)
4T
4T
Note: The above information has been sourced from various media reports and company websites, and may not be exhaustive.
Source: Company data, Crunchbase, Media reports (including The Economic Times, Business Standard)
74
May 4, 2015
Snapdeal
Company description: Snapdeal started operations in February 2010 as a daily deals platform inspired by US-based
4T
4T
Groupon. In September 2011, the company expanded to become an e-commerce company via the marketplace
model. The company has over 5mn unique products listed on its website across various categories like Mobiles &
Tablets, Home & Living, Apparel, Jewelry etc. The company also sells apartments, automobiles and yachts on its site.
Snapdeal has also recently helped over 150 sellers on its platform, raise over Rs500mn in loans through its capital
assist initiative (per company press release dated Mar 26, 2015).
4T
Key executives: Kunal Bahl (CEO), Rohit Bansal (COO), Abhishek Passi (CSO), Vivek Patnakar (Sr. VP Finance)
4T
4T
4T
Business Model: Snapdeal follows a marketplace only model and the company claims it is the largest online
4T
4T
marketplace in India.
Gross merchandize value (GMV): Estimated to be US$2bn in FY15 (as per Business Standard report dated Feb 18,
4T
4T
2015)
Key metrics: Snapdeal has over 40mn registered users, over 100,000 merchants on its platform selling goods and
4T
4T
products across 500+ categories. According to the company, over 65% of its orders come from outside of the top 10
Indian cities currently. The company has about 15-20 fulfilment centers across the country.
Acquisitions: Grabbon.com (2010), esportsbuy.com (2012), Shopo.in (2013), Doozton.com (2014), Wishpicker.com
4T
4T
Key investors: Bessemer Venture Partners, Blackrock, eBay, IndoUS Venture Partners, Intel Capital, Kalaari Capital,
4T
4T
Nexus Venture Partners, PremjiInvest, Ratan Tata, Ru-net, Saama Capital, Softbank Capital, Softbank Internet and
Media, Temasek Holdings, Tybourne Capital Management.
4T
4T
Estimated market value: US$5bn as per media reports (The Economic Times dated Feb 14, 2015)
4T
4T
Note: The above information has been sourced from various media reports and company websites, and may not be exhaustive.
Source: Company data, Crunchbase, Media reports (including The Economic Times, Business Standard)
75
May 4, 2015
OLA Cabs
Company description: Ola cabs (ANI Technologies Pvt Ltd) started operations in January 2011. It brings taxi/cab
4T
4T
services online by partnering with private taxi owners. It is Indias first aggregator of car rentals and point-to-point
cab services. Ola Cabs does not own or operate its own fleet, but aggregates small fleet operators and single vehicle
owners. Customers can access Ola services through the web, mobile app or through a customer service center. Cab
owners benefit from Ola Cabs network and technology platform which helps them procure customers.
The company recently launched Ola Caf, a mobile-only food delivery service where customers can order food
through their mobile app from restaurants in the near vicinity. However, this service is only available in 4 cities and
limited areas within those cities currently.
4T
Key executives: Bhavish Aggarwal (CEO), Ankit Bhati (CTO), Mitesh Shah (CFO)
4T
4T
4T
Business Model: Ola provides an online marketplace for valid permit holding drivers of rental cars and auto
4T
4T
Gross Transaction value (GTV): Estimated to be US$350mn in FY15 (VC Circle article dated Nov 19, 2014)
4T
4T
Key metrics: Ola operates in 67 cities across India and has over 60,000 cabs on its platform (as of Feb 2015). It has
4T
4T
about 3,000 employees. In addition it has 30,000 auto rickshaws on its platform.
Acquisitions: TaxiForSure (2015). Ola reportedly acquired TaxiForSure for US$200mn in a cash and stock (Source:
4T
4T
Livemint dated Mar 2, 2015). The deal reportedly adds c.15,000 cabs to its fleet. TaxiForSure is present in 47 cities
across India.
Key investors: DST Global, SoftBank Capital, Accel Partners, Matrix Partners India, Sequoia Capital, Steadview
4T
4T
4T
4T
Estimated market value: US$2.4bn as per media reports (VC Circle dated Apr 16, 2015)
4T
4T
Note: The above information has been sourced from various media reports and company websites, and may not be exhaustive.
Source: Company data, SoftBank, Crunchbase, Media reports (including The Economic Times, Business Standard, VC Circle, Livemint)
76
May 4, 2015
InMobi
Company description: InMobi began operations in 2007 as an SMS-based search platform and was then known as
4T
4T
mKhoj. Later it changed into a performance based mobile ad-network. It builds mobile-first customer engagement
platforms and operates from 17 offices across the globe with a nearly 1,000 strong employee base. It provides
advertising solutions, mobile app analytics, consumer insights to advertisers and other related services. It ties up
with web publishers to enable brands and app developers to seamlessly integrate their products into mobile content.
4T
Key executives: Naveen Tewari (CEO), Manish Dugar (VP of Finance & Legal), Anne Frisbie (VP, Global Alliances)
4T
4T
4T
Business Model: Proprietary cloud based technology enables remote deployment of mobile ads with the click of a
4T
4T
Key metrics: Inmobi has grown into the worlds largest independent ad network reaching 1bn unique mobile
4T
4T
devices, 30,000+ publishers across 200 countries and serves c.6bn daily ad impressions (as of Dec 2014). 43% of
unique mobile devices on InMobis network come from advanced markets in North America and Western Europe
while 38% come from Asia-Pac. InMobi employs over 800 people.
Competition: In the global mobile advertising market, InMobi competes directly against Googles AdMob and
Apples iAd.
Acquisitions: Sprout (2011), MMTG Labs (2012), Metaflow Solutions (2012), and Overlay Media (2013)
4T
4T
Key investors: Mumbai Angels, Kleiner Perkins Caufield Byers (KPCB), Sherpalo and Softbank
4T
4T
4T
4T
Estimated market value: US$2bn as per media reports (Economic Times dated Mar 11,2015)
4T
4T
Note: The above information has been sourced from various media reports and company websites, and may not be exhaustive.
Source: Company data, Softbank, Crunchbase, Media reports (including The Economic Times, Business Standard)
77
May 4, 2015
Paytm
Company description: Paytm started by offering mobile recharge and utility bill payments. It has now transformed
4T
4T
itself into a digital goods and mobile commerce platform. It is run by One97 Communications, a firm that delivers
mobile content and commerce services to mobile consumers through its cloud platforms. Paytm also offers mobile
wallet solutions and has an exclusive tie up with the taxi hailing app Uber in India. It has over 1,200 employees and
has offices in Mumbai, Pune, Chennai, Bangalore and Kolkata with global presence in Africa, Europe, Middle East and
Southeast Asia. Paytm has recently (Apr, 2015) entered the typically hyper local grocery segment and plans to launch
in 10 cities in 2015.
In February, Alibaba Group through its affiliate Ant Financial bought a 25% stake in One97 Communications.
4T
4T
4T
Business Model: Paytm offers a mobile marketplace for digital goods and an electronic wallet offering payment
4T
4T
services. In April 2015, Paytm has tied up with Axis Bank and Yes Bank enabling its customers to load their Paytm
wallets by depositing cash. However, customers are limited to depositing a minimum of Rs2,000 and a maximum of
Rs10,000 in cash at a banks cash counter.
Key metrics: Paytm has about 50mn Paytm wallets and about a 1/3rd of them transact on Paytm in a month on
4T
4T
average. Paytm expects to increase the number of wallet users to 100mn by the end of 2015. The company clocks
over 60mn transactions every month with an average user transacting four times in a month on its platform. (Source:
Livemint dated Apr 13, 2015).
Paytm mobile marketplace has about 33,000 merchants on its platform and it reportedly expects to increase it to
100,000 merchants by the end of 2015. Similarly, it expects to increase the number of units sold on its commerce
platform to 100mn a day by the end of 2015 from 8.5mn currently. (Source: Business Insider dated Apr 24, 2015)
Annualized GMV: Estimated by management to cross US$4bn by Dec 2015 (Livemint dated Apr 25, 2015)
4T
4T
Key investors: Alibaba Group, Intel Capital, Reliance Capital, SAIF Partners, Sapphire Ventures, Silicon Valley Bank
4T
4T
4T
4T
Estimated market value: US$1.5bn as per media reports (Business Standard dated Jan 16, 2015)
4T
4T
Note: The above information has been sourced from various media reports and company websites, and may not be exhaustive.
Source: Company data, Softbank, Crunchbase, Media reports (including VC Circle, The Economic Times, Business Standard, Livemint, Business Line)
78
May 4, 2015
Housing.com
Company description: Housing.com is an online real estate platform started in June 2012. It was launched as a
4T
4T
rental service finder in Mumbai. Since then it has expanded presence to 60 major cities in India and offers an online
real estate platform which allows customers to search for housing based on geography, number of rooms and
various other filters.
In November 2014, Housing launched an interactive home booking platform called Slice View and partnered with
Tata Value Homes (TVH) to launch an exclusively online-only inventory across four of TVHs projects. Slice View
enables users to take a virtual walk through houses, by providing 3-D renderings of apartments. Further, it allows
customers to book their homes online.
Founders: Rahul Yadav, Advitiya Sharma, Abhishek Anand, Snehil Buxy, Ravish Naresh, Sanat Ghosh, Abhimanyu
4T
4T
Dhamija, Jaspreet Saluja, Rishabh Agarwal, Neeraj Bhunwal, Amrit Raj, Vaibhav Tolia
4T
4T
USP: The company states that its site contains 100% verified listings. It is looking to provide respite to home-seekers
4T
4T
and home-owners from endless site visits to explore properties by providing genuine pictures of properties. It also
provides several additional features such as CFI (Child friendly index) heat maps, demand flux maps.
Acquisition: Indian real estate forum (2015). Housing acquired Indian real estate forum, an online discussion site for
a reported US$1.2mn (Source: VC Circle, March 26, 2015).
4T
4T
4T
Funds raised in latest round: US$100mn from Softbank Capital in Nov 2014
4T
4T
Estimated market value: US$250mn as per media reports (Times of India dated Dec 17, 2014)
4T
4T
Note: The above information has been sourced from various media reports and company websites, and may not be exhaustive.
Source: Company data, Softbank, Crunchbase, Media reports (including VCCircle, The Economic Times, Business Standard)
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May 4, 2015
Appendix
Exhibit 152: Transaction map for an airline ticket issuance via an OTA
OnlineTravelAgent(OTA)
SourceofrevenueforOTA
1.ConvenienceorserviceFee
2.FeefromGDSpartner
3.Airlinecommission+volumeincentives
C.Fee+Commissions+
volumeincentive +GDS
Rs98.5
Global distribution
system(GDS)like
Amadeus/Sabre
Listingfee
Rs6
Rs98.5
Rs5
GDSFee(dependsonvolume)
Rs3
SG&A
Rs100+C.Fee
Customer confirmsa
purchase
Rs2
Grossbookingamount
Rs100
+conveniencefee(C.Fee)
Rs2
Rs98.5
Directroute
Airline
Marketing
Rs0.25
Personnel
D&A
Payment
Gateway
Rs1.5
1%commission+volumeincentives
Rs5
*ConvenienceFeeindependentofgrossbookingamount
Note: This is for illustration purpose only assuming a gross booking value of Rs100; all numbers are indicative.
Source: Goldman Sachs Global Investment Research.
80
May 4, 2015
Exhibit 153: Transaction map for hotel booking via the agency/ merchant model through an OTA
SourceofrevenueforOTA
AgencymodelviaTravelaggregator:Aggregatortakesinventoryfromhotels;
OTAtakescommissionforbookingsmade
AgencymodelviaGDS:HotellistswithGDSandpayslistingfee;Hotelsetsitsownprice;
OTAgetspaidinGDSfee(volumedependent)
Merchantmodel:OTAgetspreferredrateandrooms;OTAsetspriceandmakesthemargin
1)Agencymodel
Rs85
Rs100+C.Fee
Rs100
Customer confirmsa
purchase
OnlineTravelAgent(OTA)
Hotel 1
Inventory
OfflineTravel
agents/
aggregators
Hotel n
Global
distribution
system(GDS)
HotelChains
Listingfee
Rs15
Bookingamount
Rs100
+conveniencefee(C.Fee)
2)GDSFee(volumedependent)
Rs10
Hotel1
Hotel
Payment
Gateway
3)Merchantmodel
Rs80
Hoteln
Rs1.5
*ConvenienceFeeindependentofgrossbookingamount
Note: This is for illustration purpose only assuming a gross booking value of Rs100; all numbers are indicative.
Source: Goldman Sachs Global Investment Research.
Consumer
Merchant
Card payment
Customer pays
Rs100
CC = Credit Card
DC = Debit Card
Merchant Receives
Rs98(CC)/
Rs99(DC)
Merchant
service charge
Interchange fee
Rs1.50 (CC)
Rs0.65 (DC)
Network fee
Rs0.10
Transaction
processing fee
Rs0.15 (CC)
Rs0.10 (DC)
Issuing banks
HDBK, ICBK,
SBI, BOB
Acquiring fee
Rs0.25 (CC)
Rs0.15 (DC)
Payment network
Visa, Mastercard,
Rupay
Payment
aggregator
Billdesk,
CCavenue, Citrus
Acquiring banks
Transaction amount
(minus interchange fees)
Note: This is for illustration purpose only assuming a gross booking value of Rs100; all numbers are indicative.
Source: Goldman Sachs Global Investment Research.
81
May 4, 2015
Exhibit 155: Most Indian e-tailers are running the marketplace model, with some like Flipkart preferring a hybrid model
CustomerordersRs100
Inventorymodel
Onlinestore
Customer
OnlinestoredeliversRs90
CustomerordersRs100
Onlinestore
Customer
Orderconfirmation
toshiptocustomerRs95
Marketplacemodel
Productinformation
Offlinesellerdelivers
tocustomerRs90
Offlineseller1
Offlineseller2
Offlinesellern
CustomerordersRs100
Onlinestore
Customer
1.OnlinestoredeliversRs90
Hybridmodel
Orderconfirmation
toshiptocustomerRs95
Productinformation
2.Offlinesellerdelivers
tocustomerRs90
Offlineseller1
Offlineseller2
Offlinesellern
Note: This is for illustration purpose only assuming a gross booking value of Rs100; all numbers are indicative.
Source: Goldman Sachs Global Investment Research.
82
May 4, 2015
Disclosure Appendix
Reg AC
We, Rishi Jhunjhunwala, Piyush Mubayi and Venkat Surapaneni, hereby certify that all of the views expressed in this report accurately reflect our
personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be,
directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and
market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites
of several methodologies to determine the stocks percentile ranking within the region's coverage universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate
of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend
yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list
includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and
superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate
performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Rishi Jhunjhunwala: Asia Pacific Media, Indian IT Services. Piyush Mubayi: Asia Pacific Media, Asia Pacific Telecoms.
Asia Pacific Media: 58.com Inc., Alibaba Group Holding, Astro Malaysia Holdings, Autohome Inc., Baidu.com Inc., Changyou.com, Ctrip.com
International, Info Edge India Ltd., Jumei International Holding, Just Dial Ltd., Makemytrip Ltd., New Oriental Education & Technology, Qihoo 360
Technology Co., Qunar.com, SINA Corp., Sohu.com, SouFun Holdings, TAL Education Group, Tarena International Inc., Television Broadcasts,
Tencent Holdings, Vipshop Holdings, Weibo Corp., Youku Tudou Inc..
Asia Pacific Telecoms: Axiata Group, Bharti Airtel, Bharti Infratel Ltd., Chunghwa Telecom, Digi.com, Dish TV India, Far EasTone, HKT Trust, Hong
Kong Broadband Network Ltd., Hutchison Telecommunications HK, Idea Cellular, Indosat, KT Corp., KT Corp. (ADR), LG UPlus, M1 Ltd., Maxis Bhd,
PCCW Ltd., PT Link Net Tbk, PT XL Axiata, Reliance Communications, Singapore Telecommunications, SK Telecom, SK Telecom (ADR), SmarTone,
StarHub, Taiwan Mobile, Telekom Malaysia, Telekomunikasi Indonesia.
Indian IT Services: HCL Technologies Ltd., Infosys Ltd., Infosys Ltd. (ADR), Mindtree Ltd., Mphasis, Tata Consultancy Services Ltd., Tech Mahindra
Ltd., Wipro Ltd., Wipro Ltd. (ADR).
Buy
Hold
Sell
Buy
Hold
Sell
Global
32%
54%
14%
46%
37%
32%
As of April 1, 2015, Goldman Sachs Global Investment Research had investment ratings on 3,356 equity securities. Goldman Sachs assigns stocks as
Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.
83
May 4, 2015
1,000
1630
27,000
1,700
27,000
25,000
1,500
25,000
600
23,000
1,300
23,000
500
21,000
1,100
21,000
19,000
900
19,000
300
17,000
700
200
15,000
500
785
800
700
835
900
Stock Price
400
Apr 14
B
M J J A S O N D J F MA MJ J A S O N D J F MA MJ J A S O N D J F M
2012
2013
2014
2015
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2015.
Rating
Covered by Rishi Jhunjhunw ala,
as of Sep 15, 2014
Price target
17,000
May 23
15,000
B
M J J A S O N D J F MA MJ J A S O N D J F MA MJ J A S O N D J F M
2012
2013
2014
2015
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2015.
Rating
Covered by Rishi Jhunjhunw ala,
Apr 14, 2014 N
as of Sep 15, 2014
Price target
29,000
Index Price
900
Stock Price
1,900
Index Price
29,000
The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or
may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or
may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
28
35
6,000
5,500
5,000
27
30
4,500
4,000
25
3,500
20
3,000
15
2,500
Apr 14
N
M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F M
2012
2013
2014
2015
2,000
Index Price
Stock Price
10
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2015.
Rating
Covered by Rishi Jhunjhunw ala,
Price target
Price target at removal
NASDAQ Composite
The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or
may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
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84
May 4, 2015
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May 4, 2015
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