Thematic | November 2014
E-commerce
Fast and furious
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora
(Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585

Thematic | E-commerce
INDEX: Fast and furious; Just the beginning of multi-year explosive growth
SUMMARY
STORY IN CHARTS
SECTION-1
E-commerce in India set to explode
Size of India's e-commerce market to reach USD20b by 2015
Growth drivers similar to those in China
China's Alibaba makes history
Sizing up Indian e-commerce market
Online Travel
E-tailing
Classifieds
Financial Services
All about share gains
Additional factors challenging profit generation
Competitive forces: ‘Red ocean’ at large
The conundrum of business model
Why Snapdeal’s marketplace and strategy will likely work
Jabong – Key player in the fashion e-tailing segment
Allied industries stand to benefit in equal measure
Online coupons / discount marketing
Digital advertising
Logistics, warehouses and payment gateways
Companies
Info Edge - Initiating coverage with a buy
Just Dial - Company Update
3
7
9
SECTION-II
19
SECTION-III
30
SECTION-IV
39
SECTION-V
46
CLASSIFIEDS
59
69
73
88
90
94
100
6
27
40
54
57
COMPANY PROFILES:
E-TAIL
Flipkart, Jabong, Snapdeal, Shopclues, Infibeam, Myntra, Fashion And
You, Zivame, Healthkart, Bigbasket, Bluestone, UrbanLadder
TRAVEL
MakeMyTrip, Yatra
CLASSIFIEDS
Bharat Matrimony, People Group, Zomato, Quikr
ALLIED/ECOSYSTEM Mydala, Pay Point India, DTDC, PAYU, Hungama
APPENDIX
EXPERT SPEAK
Mr Rajan Anandan, Head – Google India
Mr Nitin Bawankule, Industry Director – Google India
Mr Kunal Bahl – Co-founder and CEO, Snapdeal
Mr Sanjiv Kathuria, Director & CEO, DotZot
Mr Nitin Gupta, Co-founder and CEO, PayU India
November 2014
3

Thematic | E-commerce
Thematic | E-commerce
E-commerce
Fast and furious
Just the beginning of multi-year explosive growth
n
Online shopping of physical goods alone in India is estimated to reach USD4b in 2014,
and multiply by over 11x to USD45b by 2020 – that is CAGR of 50%.
Indian Retail is ~USD600b, of which only 0.3% was online sales in 2013. Even as a % of
Organized Retail, online sales are <4%.
In China, E-tailing grew at a CAGR of 76% over CY08-CY13 to USD306b, and is expected
to grow at a CAGR of 31% till 2017, to a staggering USD893b. The drivers –
demography, internet user base, smartphones, physical retail limitations.
n
n
n
India’s 213m strong internet population as on 2013 is seeing 5m additions every
month, driven by the rapid growth in Smartphones. Drivers are identical.
The wave of online shopping will also drive other industries like logistics,
warehousing, coupons and payment gateways. Among other winners, we see
following players with strong edge – Snapdeal.com, Jabong.com, Mydala.com, DotZot.
n
This is just the beginning
Source: Mysay.in
Summarizing competition
§
“We watch our competitors, learn from them. See the things that they were
doing for customers and copy those things as much as we can.”
– Jeff B ezioz,
Founder and CEO,
Amazon
“You should learn from your competitor, but never copy. Copy and you die.”
Jack Ma, Executive Chairman,
Alibaba Group
“Some will call us a success and we are worth billions (because of this fundraise).
And, of course, there are some who will call it a bubble. We know that raising
money is not success. It is a responsibility that opens up new opportunities.”
Jason Goldberg, Founder,
Fab.com
“In the future, instead of buying bananas, you could go pick them off a tree in a
virtual jungle.”
– Yasuhiro Fukushima, Honorary Chairman,
Square Enix
3
§
Summarizing latency
§
§
November 2014

Thematic | E-commerce
Online Retail penetration (%)
10.0
6.0
0.3
India
China
Korea
US
10.0
Capital + Ecosystem + Small base
à
Soaring growth over multiple years
Expect ~30% CAGR over 2013-20:
E-commerce in India is a ~USD11b market, and is
estimated t o r each U SD20b b y 20 15, g rowing a t a C AGR of ~ 37% over 2013-15.
Google estimates this to further propel to USD70b by 2020 (30% CAGR), of which e-
tailing (online shopping of physical goods), which is only ~USD2b in size today, will
grow to become a USD45b industry.
On a low base, multiple enablers of this explosive growth include: (1) Increase in the
number o f i nternet u sers (5m b eing a dded e very month t o the b ase of 2 13m i n
2013), (2) Increase i n t he p roportion o f o nline s hoppers w ithin those u sers, (3)
Growth i n the p er-shopper transaction v alue, an d ( 4) C ontinued flo w of capital b y
willing investors, arming firms with ammunition to woo consumers online.
Huge money fuelling rapid growth, getting invested across the value chain
~USD1.75b
Pricing discounts
India's Digital commerce (USD b)
~USD2b
commitment
9.7
CY12
13.0
CY13
18.2
CY14E
24.8
CY15E
Branding / Marketing
INVESTMENTS
~USD300m
Technology platform
Logistics / Other
infrastructure
USD110m+
Source: MOSL
E-commerce market (USD b)
260
13
India
US
China
295
Drivers of growth are similar to those in China, the biggest global e-tailing market:
China’s e-commerce market to day i s es timated t o be at par with o r even s lightly
ahead of the US. It reached its inflection point in 2005, when the size was similar to
India’s c urrent e -tail m arket. Also, t he k ey e nablers fo r ~ 120% C AGR since 2 003
were v ery similar t o t he I ndian m arket: ( 1) i ncreasing b roadband p enetration, ( 2)
acceptance o f marketplaces, an d ( 3) lac k of o ffline re tail in frastructure in m any
regions. Cash-on-delivery (COD) has gained popularity as a mode of payment.
Travel dominates Indian market, but e-tailing will drive future growth
Online travel constituted ~71% o f the e-commerce market in India, fo llowed by e-
tailing ( 16%). T ravel h as g rown at a C AGR o f 3 2% o ver 2009-13. Ho wever, g oing
forward, e-tailing will be the biggest growth driver, with expected CAGR of 60%+ to
USD7b i n 2016 f rom USD1.7b i n 2013. W ithin e-tailing, Fashion i s l ikely to b e the
driving s egment. F ashion was US D559m in 2013, a nd e stimates peg th e g rowth i n
Fashion e-tailing to anywhere between USD3b and USD6b by 2016.
Competitive intensity running high; road to profitability long-winded
n
Heavy discount on online sales is a direct reflection of the industry’s competitive
intensity. T he a mount o f money raised by F lipkart, lately S napdeal, a nd t hat
committed by Amazon is all y et to be invested, indicating that we may not be
anywhere near the end of round-the-clock discount seasons at online stores.
November 2014
4

Thematic | E-commerce
n
n
Leading Indian players are not thinking of profitability just yet, and compeition is
causing all s erious participants to have a r eady warchest for the splurge which
will happen further, as the industry scales multiple times.
On an average, the e-commerce ecosystems in both China and the US make 8-
10% E BITDA m argins (Alibaba is an exception at 40%+). Amazon, t he i ndustry
pioneer, is yet to achieve healthy profitability, after two decades of dominance.
Model conundrum: Inventory or marketplace? Single or multi-category?
A m arketplace s imply provides a p latform for s ellers t o s ell t heir own products. In
inventory-led models, th e e -tailer o wns t he p roduct. H ybrid m odel is where th e
seller sells his own labels and also provides a platform for merchants and sellers to
sell t heir p roducts. Conflict o f in terest in h ybrid model i s th at th e p latform o wner
may p ush h is/her o wn inventory v/s the m erchants’, gi ven t he information e dge.
While that is eliminated in the marketplace, controlling product quality is a problem
in the latter. It is not feasible to keep a check on the millions of products.
Why Snapdeal’s marketplace and strategy will likely work:
Snapdeal’s investment
requirements h ave b een l imited g iven its focus on being th e b est marketplace. I ts
sales h ave significantly o utgrown the i ndustry i n F Y14, gi ven i ts f ocus o n a dding
more sellers. Through initiatives like Safeship, it has also made noteworthy effort to
overcome p roduct q uality uncertainties th at p ose a c hallenge to th e marketplace
model.
Fashion category GMV (USD m)
2811
278
CY12
559
CY13
CY16E
Room for single-category players in select segments, most prominently, Fashion:
While there could be space for 3-4 horizontal (multi-category) players to co-exist in
the m arket, w e s ee enough r oom f or category-focused players in s egments t hat
require a d ifferentiated approach. O nline Fashion s elling requires initiatives an d
forays unique to the industry. Jabong’s recent merger with four other global entities
in the Fashion category is a potential masterstroke that offers the new entity (GFG)
potential of attracting more brands, large investors and talent, and offering the best
technology platform, thereby gaining clear competitive advantage.
Ensuing opportunity for allied industries – Logistics, Payment, Coupons
For e very I NR100 s pent o n e -commerce, i t i s es timated th at ~I NR35 i s s pent o n
supporting services like Warehousing, Payment Gateways, Logistics, among others.
Ø
Supporting services:
While 50-60% of the delivery logistics today are handled by
the large e-tailers themselves, this proportion may reduce as the proportion of
sales t o l ower-tier c ities in creases an d e -tailers’ f ocus o n b ottomline p icks u p.
Delivery costs a platform owner 8-10%, implying significant burn for firms today.
Segments like Logistics, Warehousing, a nd Payment Gateways stand to benefit
directly and immensely from digital commerce.
Ø
Online
coupons / d iscount m arketing is a fl ourishing g lobal in dustry, with
multiple USD1b+ value companies in the US, and the Chinese market pegged to
be even bigger. Value proposition to SMBs, especially in lower tier cities, should
drive rap id growth in t his s egment. M ydala, w ith its h yper l ocal marketing
platform, reach in over 200 cities and focus on lower-tier cities is best placed.
November 2014
5

Thematic | E-commerce
Expert Speak: Mr Rajan Anandan, Head–Google India
Product commerce to grow by 10x from 2014 to 2020
Era of connectivity explosion
n
n
It took 110 years for the number of land-line consumers to reach 1b, 14 years
for 1 b c ellular users an d 8 y ears f or 1 b in ternet users. T he n ext disruption is
coming f rom s martphones. O ne n eeds t o w atch o ut for t he f uture f or d evices
like Google Glass and Google Watch.
In 2 014, th ere will b e ~2 .8b p eople on the i nternet, wi th ~1 .75b s martphone
users. By 2020, this number will increase to 5b people, and there will be 40-50b
connected devices.
India h ad 2 13m i nternet users i n 2 013, a nd i s c urrently a dding ~ 5m e very
month.
In the next one year, India will be the second largest population on the internet,
greater t han the U S, a nd only b ehind C hina. C hina today h as 5 80m i nternet
users. By 2018, India should have 500m internet.
~50% o f th e mobile u sers u se i nternet o n th eir phones. T his n umber w ill
increase to ~65% by 2015.
By t he e nd o f 2 014, p roduct c ommerce will b e a US D4.5b market in I ndia
(excludes travel). Th is n umber i s set to i ncrease t o U SD45b b y 2020. Other
segments i ncluding travel w ill ad d an other US D25b. T he t otal s ize o f I ndian
Retail is estimated at USD450b.
GMV at F lipkart is USD1.5b-2b. Th e c ompany i s s eeing 1 00,000+ tr ansactions
daily. T otal n umber of t ransactions of electronic g oods at F lipkart exceeds t he
cumulative t ransactions a cross t he t op-3 offline e lectronics re tailers in t he
country.
India has 47m small businesses with <2% of them having web presence. Today,
50% o f t he car b uyers research o nline before g oing t o d ealers. 7 0% o f u rban
teenagers buy online and 69% of users decide which mobile phone to purchase
using online information.
Classifieds a USD350m industry today, set to grow to USD850m in the next 3-4
years. Today, ~100% of the jobs classifieds online, 50% of matrimony classifieds,
10% of Real Estate classifieds, and 10-15% of Education classifieds are online.
The Internet is also a USD8b opportunity for Telcos – USD6.2b in media content
and services, US D1.2b in mobile ap plications, and U SD0.4b i n e-stores a nd e -
cares.
~USD2.5b h as b een i nvested i n t he e -commerce c ompanies i n t he c ountry
across 54 companies. There will be further USD4b-5b worth of capital needed to
achieve t he scale an ticipated. H owever, regulatory measures lik e F DI in e-
commerce are essential to sustain the inflow and fuel growth.
Amazon, the global leader in e-commerce, made no money for the first 10 years
and h as b een making v ery l ittle money since. I n I ndia, e ven f or m arketplace
models, the c apital in tensity is lik ely t o b e h igher, mainly d ue t o the li mited
infrastructure, requiring i nvestments in t he e cosystem lik e lo gistics. 25-30% o f
the o rders h ave t o b e r ejected today d ue to n o r each i n t he r espective p in
codes.
India is adding ~5m internet
users every month – will
overtake US in a year
Disruption in India to be brought about by Mobile Internet
n
n
n
India e-tailing to grow 10x by 2020 to USD45b
n
n
n
n
n
Capital intensity will be
high, and regulators will
have to be enablers for the
opportunity
Capital intensity will be higher for Indian e-commerce players
n
n
November 2014
6

Thematic | E-commerce
Story in charts
Exhibit 1: Digital commerce in India scaled to
USD11b in CY13…
Exhibit 2: … but is still well below that at China or US
Source: IAMAI, MOSL
Source: Industry sources
Exhibit 3: Penetration of online medium for
Retail is still miniscule…
Exhibit 4: … and projected to grow multiple
times in few years time
Source: Industry research, MOSL
Source: Industry estimates
Exhibit 5: Drivers for growth will be increase in
internet users…
Exhibit 6: … and consequent increase in number of
internet shoppers
Source: Industry estimates
Source: Accel estimates
November 2014
7

Thematic | E-commerce
Story in charts
Exhibit 7: E-tailing is expected to be the fastest
growing segment…
Exhibit 8: … which should be driven by fashion segment
Source: Accel estimates and industry sources
Source: Accel estimates and industry sources
Exhibit 9: Intense competition has already driven multiple acquisitions in the segment
Date
2014 May
Target
Myntra.com
Acquirer
Flipkart
Description
Myntra.com gets acquired by poster boy of Indian e-commerce, Flipkart. The deal
values Myntra reportedly at Rs. 2,000 crores and is a 100% acquisition in cash and
stock. After the acquisition, Myntra will continue to operate as a seperate entity
with the CEO of Myntra heading the fashion business.
redBus.in acquired by Ibibo group backed by Naspers group reportedly for Rs. 800
crores.
Mumbai based Inkfruit.com (a community based customized fashion and accessories
retailer) was acquired by Bangalore based online fashion retailer Zovi.com.
Letsbuy.com got acquired by Flipkart for cash and equity. The Letsbuy team of 350+
was expected to continue to function independently with access to Flipkart’s
technology platform and supply chain capabilities.
Source: News Articles, MOSL
2013 June
2013 February
2012 February
Redbus.in
Inkfruit.com
Letsbuy.com
Ibibo
Zovi
Flipkart
Exhibit 10: ..and also aggressive pricing has meant losses
Exhibit 11: Few will emerge as winners in their segments
Source: Sequoia Capital, News articles
Source: MOSL
November 2014
8

Thematic | E-commerce
SECTION-I
E-commerce in India set to explode
Indian beginnings suggest similar drivers as in China
n
n
n
India’s USD11b Indian e-commerce market is expected to grow to ~USD20b by 2015
(37% CAGR) and Google expects it to grow to USD70b by 2020 (30% CAGR).
Growth in e-commerce will be led by e-tailing (online shopping for physical goods),
which is projected to grow from ~USD2b to USD7b+ in three years and USD45b by
2020. Within e-tailing, fashion is set to grow the fastest.
Growing internet population, limitations of physical retail beyond large cities, and
well-funded ecosystem players are all drivers. These are similar to those in China,
where e-commerce grew at a CAGR of 76% since 2003 to USD306b.
Just the beginning of solving a core demand-supply need
Retailing is a ~USD600b i ndustry i n I ndia, o f w hich e-tailing ( online shopping f or
physical go ods) accounts f or j ust 0.3%. O ffline organized re tail accounts f or 8.7%.
91% of the market is still unorganized. E-tailing, a ~USD2b market in 2013, is likely to
grow at 63% CAGR to USD7.2b by 2016.
Exhibit 12: Online shopping of physical goods in India a USD2b market in 2013…
Indian Retail
market=
USD600b
Offline
organized
market=
USD52.2b
Online
Retail=USD1
.98b
Source: Industry research, MOSL
Exhibit 13: …set to grow at a CAGR of 63% over 2013-2016
Source: Industry estimates, Accel, Deloitte
November 2014
9

Thematic | E-commerce
Demand in India e xists ac ross 4 ,000-5,000 towns and c ities, and in ~ 95% o f t hese,
there is n o s ignificant p resence of o ffline re tailers. As e -commerce e volves, i t i s
addressing a core need of connecting demand to supply.
Penetration of physical
retail, especially organized
retail is constrained by high
costs and low density
Offline re tail h as n ot b een ab le t o e xpand, as re al e state c ost as a p ercentage o f
retail sales in India is as high as 14x that in the US. Real estate cost for large retailers
in India is ~7% of sales against 0.5% for companies like Wal-Mart in the US.
India d oes n ot h ave too many fas hion o r lif estyle b rands t hat are b igger t han
~USD200m in annual sales. There is huge fragmentation not only on the supply side,
but a lso on t he d istribution s ide. B eyond t he top 10-15 cities, there is not enough
selection or distribution available through offline retailers for consumers.
Size of India’s e-commerce market to reach USD20b by 2015
The size o f I ndia’s digital commerce market, a s d efined b y I AMAI, was USD11b i n
2013. Growth in 2013 was 34%, and the industry is expected to grow faster in 2014,
with th e a dvent of m ultiple en abling f actors. W e e xpect th e s ize o f I ndia’s digital
commerce market to grow to USD20b by 2015, clocking a CAGR of 37%.
Exhibit 14: Expect Indian e-commerce industry to grow to USD20b by 2015
Source: IAMAI, MOSL
Various sources peg growth in the industry in the years to come at extremely high
rates, given the multiple enabling factors and an extremely low base.
Exhibit 15: Market extremely small v/s other large
internet populations
Exhibit 16: Various sources peg extremely high growth
rates over years
Source: Industry estimates
Source: Industry estimates
November 2014
10

Thematic | E-commerce
E-tailing will be the fastest growing segment:
As at th e en d o f 2 013, e-tailing
constituted only ~16% of the Indian e-commerce industry. However, as predicted by
Google I ndia, t his w ill b e t he b iggest c omponent o f I ndian e-commerce in a fe w
years. By 2020, e-tailing is p rojected to g row to U SD45b, u p from ~USD2b in 2013
and ~ USD4b i n 2014. Th is wo uld th en b e th e l argest s egment i n th e es timated
USD70b e-commerce industry by then.
Apparels is the largest e-
tailing segment in China,
and the fastest growing in
India
Within e-tailing, fashion & apparel will grow fastest:
2013 saw a steep rise in the
fashion category, w here e -commerce GMV d oubled from USD278m t o U SD559m.
Fashion is likely to be a key driver of growth, going forward. It contributed 28% to
overall GMV of E-tailing, but is expected to contribute 35% to incremental market,
and grow to USD2.8b by CY16 (33% share v/s 28% in CY13).
Exhibit 17: Fashion is the fastest growing category in the Indian e-tailing market
Source: Accel estimates and industry sources
Exhibit 18: From content to buying fashion – the evolution of internet usage
Travel
Electronics
Content
Books
Fashion
Source: MOSL
Exhibit 19: Industry leaders now focusing on fashion & apparel
n
In April 2014, Amazon India started selling apparel on its India website, entering a fast-
growing and higher-margin category. This increased competition for Myntra and Jabong,
the top firms in the category.
n
Flipkart and rival, Snapdeal, had also been trying to build their apparel business. Flipkart
eventually bo ught o ut M yntra i n M ay 2 014, a month a fter A mazon’s e ntering t he
apparel market.
November 2014
11

Thematic | E-commerce
Growth drivers similar to those in China
E-commerce in
China is estimated to be
more than the combined e-
commerce in the US, UK,
Japan, Germany and
France by 2015
China i s e xperiencing h uge gr owth i n e -commerce. A s o f M arch 2 013, C hina
surpassed all c ountries, e xcept the US , in o nline retailing t o b ecome t he w orld’s
second larg est e -tailing m arket. I n 2 012, C hinese e -tailing h ad re venues o f
~USD210b and had experienced compounded growth of 120% since 2003. E-tailing
accounted for 5-6% of 2012 retail sales in China v/s ~5% in the US, confirming that
e-tailing already had marginally higher penetration in China.
It is estimated that e-commerce in China (including e-tailing) will be worth USD540b
by 2015 and worth more than the e-commerce in the US, the UK, Japan, Germany
and France combined by 2020. This is linked with the number of people connected
to the internet in China, be it via computers or smartphones. There are over 600m
internet u sers a nd o ver 5 00m m obile i nternet u sers i n C hina. T he C hinese
government has a target to connect 1.2b people (85% of the population) to 3G or 4G
mobile internet by 2020.
Exhibit 20: E-tailing in China exceeded US, and there is yet no sign of scale impact
on USD306b base
Source: CNNIC, Estin & Co company analysis, MOSL
The thrust to China’s e-commerce came from multiple factors:
Enablers for e-commerce in
China: Broadband
penetration | limitation of
offline Retail |Attractive
discounts | Flourishing
online marketplace
Physical retailers co-exist
with marketplaces in the
US; China’s online shopping
dominated by marketplaces
Broadband population the fundamental driver:
Underpinning t he gr owth o f e -
commerce in C hina is t he w orld’s larg est o nline p opulation. C hina h ad 1 29m
broadband a ccounts i n 2011 and h as o ver 600m i nternet u sers, dwarfing t he 8 1m
accounts and ~2 80 i nternet u sers in the U S. O ther en ablers l ike exp anded 3G+
coverage and wider card usage are just gaining traction.
Filling a need gap:
China’s n ew c onsuming c lass i ncreasingly h as m oney to s pend,
but in m any re gions, t he offline ( brick-and-mortar) r etail in dustry is
underdeveloped. E
-tailing
h as p roduced s uper-charged g rowth b ecause i t is
successfully targeting and fulfilling this previously unmet consumer demand.
Marketplace-driven:
Large B2C (business-to-consumer) sites are the clear leaders in
other countries, but not in China, where nearly 90% of the industry is marketplace
based. This compares with a m arketplace share of just 23-24% in the US. With only
few major p hysical re tailers d eveloping a s uccessful m ulti-channel a pproach,
marketplace o perators h ave consolidated a h uge m arket s hare. The larg est online
marketplace o perators – Taobao, T mall, an d Paipai – account fo r ~ 90% o f t he
November 2014
12

Thematic | E-commerce
Chinese e-tailing market. Taobao alone had more than six million registered sellers
by th e l atest c ount. M arketplace o perators g enerate r evenue th rough o nline
advertising and, in some cases, charging sellers transaction fees.
C2C (consumer-to-consumer) refers to e
-
commerce activities between individuals
and includes transactions between micro-businesses that do not have company
registration or between micro-businesses and individuals. Micro-businesses and
SMEs are the sellers in most C2C transactions in China. In most other countries, most
C2C sales are secondary market transactions between individuals.
Exhibit 21: Marketplace drives e-commerce in China
Alibaba enjoys lion’s share
of the marketplace in China
Source: McKinsey Global Institute Report on China’s e-tail revolution
Share of mobile internet
commerce up 10x from
1.9% in 2011 to 19% in
2014E
Mobility:
Mobile c ommerce ( purchasing via mobile phone) is n ot y et a s ignificant
phenomenon in China. As of 2011, it accounted for only 1.9% of the e-tailing market
(USD2.2b). This increased to USD27b in 2013 and, in 2014, the share is estimated to
grow 10 -fold t o 1 9% ( to USD51.6b). T here i s g reat p otential f or th is s egment to
continue after the take-off. T he p enetration of smartphones i n C hina h as gone up
from 24% in 2011 to 40% in 2013, and expected to grow to ~50% by 2018.
Exhibit 22: China's mobile commerce to grow rapidly with smartphone penetration
69% of Chinese consumers
have purchased through
their smartphones at least
once, compared to 46% in
the US
Source: www.techinasia.com
Aggression towards end
customer satisfaction is
seen to be much higher in
the Chinese
market v/s the US
Difference v/s US:
Chinese a nd U S c onsumers h ave d ifferent expectations a bout
how their purchases should be delivered. US consumers do not expect one or two-
day d elivery fro m all e -merchants ( although t hat is a fe ature o ffered b y s ome
leading n ames), b ut t hey alm ost alw ays h ave t he o ption t o p ay extra f or fas ter
delivery, w hich is av ailable ac ross m ost of t he n ation. C hinese consumers i n t he
largest c ities e xpect n ext-day d elivery, but that l evel o f service is n ot available in
November 2014
13

Thematic | E-commerce
small cities. Cash-on-delivery (COD) has become a thing of the past in the US, but it
remains common among many independent B2C merchants in China.
Exhibit 23: Difference between Chinese and US e-commerce industries
Parameter
E-tailing Market Size
E-tailing as a % of Retail
Marketplace share
C2C share
Biggest product category
Average EBITDA in the ecosystem
Share of Mobile commerce
Smartphone penetration
Payment
China
USD190-210b
5-6%
90%
70%+
Apparel
8-10%
2%
10%
COD
US
USD220-230b
5%
23-24%
<10%
Travel
8-10%
5%
42%
Cards
Source: McKinsey Global Institute Report on China’s e-tail revolution
China’s Alibaba makes history
Biggest IPO ever in US market
n
Alibaba made a smashing
debut on the US bourse, up
~40% on the listing day
n
n
Chinese e-commerce giant Alibaba sold ~USD25b in stock, making it the biggest
US initial public offering (IPO) ever, followed by Visa, ENEL SpA, and Facebook.
Alibaba ac counts fo r ~ 80% o f all o nline re tail s ales in C hina, w here ris ing
internet u sage a nd a n expanding m iddle-class h elped t he company ge nerate
gross m erchandise v olume (GMV) of U SD296b i n t he 1 2 months e nded Ju ne
2014.
For the fiscal year ended March 2014, Allibaba saw its revenue rise more than
50% to USD8.45b. Its profits, meanwhile, nearly tripled to USD3.75b.
November 2014
14

Thematic | E-commerce
Exhibit 24: GMV grows as market defies impact from scale
GMV continues to increase
on a high base
Source: Company, MOSL
Smartphones driving internet population in India
~200m Indians will come online over the next three years, and majority of the new
additions w ill b e o n s martphones. T he n umber of I ndians o nline i ncreased f rom
140m in CY12 to 213m in CY13. India’s Internet population is set to grow to 342m by
2015, and 400m+ by 2016; making it the second largest in the world.
Exhibit 25: Internet population in India
Source: Dart Consulting, MOSL
Mobile will b e a c hief c ontributor t o t hat t rend – 70% o f t he g rowth in I ndian
internet users is mobile-only. Mobile shopping grew 8x in CY13, and is expected to
grow at a CAGR of 150% over CY13-16. Having said that, mobile revenue share is still
lagging mobile traffic share in India. This is because of the following reasons:
n
n
Most e-retailers do not have mobile optimized sites.
Though overall a d s pends have grown 20% YoY a nd mobile marketing b udgets
have d oubled YoY, mobile m arketing b udgets are still le ss than 10% o f o verall
digital marketing budgets.
This is s et t o c hange. T here is in creasing focus on m obile a s t he m ost i mportant
channel, given the increasing traffic share from mobile devices.
November 2014
15

Thematic | E-commerce
Exhibit 26: Mobile internet users in India
Smartphones will more
likely drive penetration of
internet in India
Source: IAMAI, MOSL
Number of online shoppers surging
The number of online shoppers in India is expected to increase from 20m in 2013 to
~40m in 2016 – a CAGR of 25%.
n
Young population driving sales:
The y oung g eneration h as em erged a s th e
driving fo rce behind t he g rowth of e -commerce in I ndia. N early 9 0% of o nline
shoppers in India belong to the 18-35 year age group, while 8% fall in the 36-45
year age group.
n
Male-skewed thus far:
While c lassifying t he o nline s hoppers b ased u pon
gender, men contribute more to online shopping revenue. Nearly 65% of online
shoppers in India are male.
n
Security concerns:
Around 3 0% of t he people who b uy f rom r etail s tores
actually r esearch t he p roduct o nline. H owever, 25% people are still s keptical
about online security and do not share their financial information online.
n
Shipping resistance:
20% people blame high shipping costs as the main reason
for this, while 15% are unsure about the handling of the product during transit
and receiving the product in good condition.
According to a ComScore report, three out of every five internet users in India are
shopping online.
Exhibit 27: Three out of every five internet users in India shopping online
Increase in internet
population will be
accompanied with surge in
online buyers
Source: IAMAI
November 2014
16

Thematic | E-commerce
Young population is at the
heart of the increasing
spending for online
shopping
Based on the above facts, demographics suggest a definite surge in growth as:
n
The age group o f 1 8-35 will o nly k eep spending h igher as t he years p ass b y,
increasing the per consumer spend on online shopping.
n
With ap parel g rowing t he fastest in t he e-tailing s egment, th e gender s kew of
shoppers towards male will also likely correct itself.
n
Concerns l ike doubts o n online transactions would g et a ttended t o, as sellers
mature on o ne s ide a nd o n th e o ther, u sers exp erience th e c onvenience b y
transacting smaller values to start with, which should gradually grow.
n
According to a Forrester Research report, social networks play an important role
in driving consumers online and getting them to engage with brands. This would
gain s pecific s ignificance in lig ht o f fac ts s uch as I ndia b eing ran ked a s
Facebook’s third largest audience after the US and Brazil.
Exhibit 29: Number of mobile shoppers should
double in three years
Exhibit 28: 19-24 year olds the potential catchment
for online stores
Source: Accel estimates, NSSO, Facebook
Source: Accel estimates
Exhibit 30: Growth in internet user base accelerating
Internet User (m)
Electronic Cards (m)
Broadband Subscriber (m)
228
121
5.5
0.03
0.05
150
12.9
3
12.8
Till 2010
By 2015
2006
2011
2015
Avg time (hrs)
350.4
300
17.4
11
21
No of users (m)
38
2000
November 2014
17

Thematic | E-commerce
Average order value trending up
The average order value in 2012 was INR1,080, which increased by 67% in 2013 to
INR1,860. Two factors attributable to this are: [1] penetration of new categories like
jewelry, h ome d écor, etc, an d [ 2] in creasing u ser c omfort in b uying h igher v alue
items o nline. Th e a verage o rder v alue i s exp ected to nearly d ouble a nd reach
INR3,600 by 2016.
Exhibit 31: With new categories, average order value
should go up…
Exhibit 32: … and so should the number of orders per month
Source: Accel estimates and industry sources
Source: Accel, Comscore and IAMAI
November 2014
18

Thematic | E-commerce
SECTION-II
Sizing up Indian e-commerce market
Dominated by travel; non-travel categories picking up
n
n
Digital commerce in India is a ~USD11b (INR630b) market, and online travel accounts
for 71% (INR449b) of this market.
Over CY09-13, the industry has grown at a CAGR of ~35%. E-tailing has led growth,
with a CAGR of ~59%, doubling its share from 8% to 16%.
Travel the largest segment; e-tailing the fastest growing
India’s ~USD11b ( INR630b) e-commerce market is s plit in to t wo main segments –
online travel and non-travel. Over 20 09-13, the industry grew at a C AGR of 34.5%.
Growth in 2014 is likely to be higher than the 33% growth witnessed in 2013. This is
mainly due to sustenance of high growth in the e-tailing segment, whose share in e-
commerce c ontinues t o i nch u p. In 2 009, o nline t ravel w as ~ 78% o f t he in dustry,
which d eclined t o 7 1% i n 2 013. O ver 2009-13, e -tailing d oubled i ts s hare i n the
industry from 8% to 16%, growing at a CAGR of 59%, well above the industry.
Exhibit 33: Segmentation of digital commerce market in India
Source: IAMAI,
Exhibit 34: Digital commerce market in India
Digital commerce market by segment (INR b)
Online travel industry
E-tailing
Financial Services
Classifieds
Other online services
Online non-travel industry
Total
CY09
149.53
15.50
15.40
7.75
4.31
42.96
192.49
CY10
204.4
23.72
18.48
10.85
5.18
58.23
262.63
CY11
265.72
38.42
22.55
16.82
7.92
85.71
351.42
CY12
345.44
64.54
28.86
23.54
11.10
128.04
473.49
CY13E
449.07
100.04
36.07
30.61
13.88
180.60
629.67
Source: IAMAI, MOSL
November 2014
19

Thematic | E-commerce
ONLINE TRAVEL
The entry of low cost carriers (LCCs) in the Indian aviation sector in 2005 marked the
beginning of the second wave of e-commerce in India. Their decision to sell tickets
online a nd t hrough t hird p arties e nabled t he d evelopment o f online t ravel a gents
(OTAs). They developed their own websites and partnered with OTAs to distribute
their t ickets online. T he I ndian R ailways had a lready i mplemented t he e-ticket
booking initiative by the time LCCs started their online ticket booking schemes.
On an average, the online travel industry has grown 32% from INR149.5b in 2009 to
INR345b in 2012; it is likely to grow 30% in 2013 to INR449b. Currently, of the total
online t ravel market, d omestic ai r ti ckets c ontribute 5 0% ( INR173b), f ollowed b y
railway t ickets, w hich c ontribute 3 9% ( INR136b). O thers s uch as in ternational air
travel (INR19.26b), hotel bookings (INR7b), bus tickets (INR6.41b), tour packages &
travel insurance (INR3.03b) contribute the balance 10%.
Exhibit 35: Online travel Industry (INR b)
Online travel is ~71% of
digital commerce in India –
expected to grow at a CAGR
of 20% over 2013-15
Source: IAMAI, MOSL
Exhibit 36: Domestic air tickets dominate the segment; increasing focus on hotel bookings
Source: IAMAI, MOSL
November 2014
20

Thematic | E-commerce
A look at operating and financial metrics – makemytrip.com
Makemytrip (MMYT) is the largest online travel company in India. MMYT
commenced operations in 2000.
Exhibit 38: Hotel packages a nascent business, surging on
small base
Exhibit 37: Growth in air ticket transactions has softened
Source: Company, MOSL
Source: Company, MOSL
Exhibit 39: Gross bookings in hotels & packages
growing impressively
Exhibit 40: Higher net revenue margin in hotels
justifies the focus
Source: Company, MOSL
Source: Company, MOSL
Exhibit 41: Growth in hotels & packages is driving more investments, causing losses
Source: Company, MOSL
November 2014
21

Thematic | E-commerce
E-TAILING
E-tailing c omprises of b uying c onsumer it ems s uch a s b ooks, ap parel & f ootwear,
jewelry, mobiles, c ameras, c omputers (desktops/laptops/net b ooks/tablets), h ome
& kitchen a ppliances, h ome f urnishings, vouchers/coupons, f lowers and t oys, a nd
gifts online. The e-tailing category has grown from INR15.5b in 2009 to INR64.54b in
2012. This category is estimated to cross the INR100b mark in the year 2013.
At present, laptops/netbooks/tablets contribute the most, i.e., 24.5% (INR15.79b) to
the e -tailing s egment, fo llowed b y ap parel & fo otwear, w hich c ontribute 2 0.6%
(INR13.31b). Mobile p hones, c ameras, and mobile & camera ac cessories together
contribute another 33%. In all, these four categories form nearly 80% of the e-tailing
pie. O f the r emaining 2 0%, c onsumer d urables & kitchen ap pliances, b ooks, an d
home f urnishings c ontribute a nother I NR5b, I NR2.9b, a nd I NR2b, r espectively.
Emerging c ategories, comprising products l ike d eals/coupons, t oys, gi fts,
handicrafts, flowers, etc, contribute just about 3% of the e-tailing pie.
Exhibit 42: E-tailing is the fastest growing category in the Indian e-commerce market
E-tailing is currently ~16%
of digital commerce in
India, but expected to grow
the fastest
Exhibit 43: E-tailing market segmentation: Electronics lead by value
Source: IAMAI, MOSL
Exhibit 44: Top e-tailing sites in India
Source: Company
November 2014
22

Thematic | E-commerce
CLASSIFIEDS
Classifieds, t he e arliest e ntrant in t he e -commerce s pace in I ndia, is u ndergoing a
shift in o perational model from v ertical t o h orizontal o ffering. Players now o ffer a
gamut o f s ervices ran ging fro m b uying/selling c ars t o fin ding d omestic
help/babysitters. E-commerce is set to continue on its growth path on the back of
stabilization of t he e cosystem an d in terest d emonstrated b y V C p layers, c oupled
with support from the Government of India (GoI).
The classifieds market, estimated at INR23.54b in 2012, has seen significant growth.
The segment includes services like online jobs, which contribute a huge 60%, valued
at I NR13.8b, o nline matrimony, w hich c onstitutes 22% ( INR5.08b), a nd o ther B2C
classifieds ( cars, re al estate, e tc), w hich contribute ~7% ( INR1.66b). B2 B c lassifieds
comprise 1 3% of t he overall c lassifieds m arket. C lassifieds as a c ategory h as s een
45% CAGR from 2009, and is likely to grow 30% in 2013 to reach INR30.6b.
Exhibit 45: Classifieds, one of the oldest segments to go online, growing slower
than other segments
Google estimates that
classifieds is a USD350m
industry today, set to grow
to USD850m in the next 3-4
years
Source: IAMAI, MOSL
Exhibit 46: Components of classifieds (2012)
Online Jobs
Online Matrimony
Other B2C Classifieds (Car, Real Estate etc.)
B2B Classifieds
%
INR b
58.6
13.8
21.6
5.1
7.1
1.7
12.7
3.0
Source: IAMAI, MOSL
A look at operating and financial metrics – Info Edge (India)
Info Edge (India) Limited (Info Edge) is India’s premier online classifieds company in
recruitment, matrimony, real estate, education, and related services.
Recruitment:
This c omprises o nline r ecruitment classifieds ( www.naukri.com,
India’s leading job site, and www.naukrigulf.com, a job site focused on the Middle
November 2014
23

Thematic | E-commerce
East job market) and offline executive search (www.quadranglesearch.com). Related
sites in t his b usiness are a p rofessional n etworking s ite ( www.brijj.com) an d a
fresher hiring site (www.firstnaukri.com).
Exhibit 47: Steady growth in resumes on Naukri.com
Exhibit 48: Unique customers have grown even in
tough macro
Source: Company, MOSL
Source: Company, MOSL
Exhibit 49: Naukri.com has been the company’s
key revenue driver
Exhibit 50: Recruitment is the only profitable segment
for the company
Source: Company, MOSL
Source: Company, MOSL
Real estate:
This comprises online real estate classifieds (www.99acres.com) and a
real e state b rokerage b usiness ( www.allcheckdeals.com) h oused in s ubsidiary,
Allcheckdeals.com India Private Limited.
Exhibit 51: Listings on 99acres are growing at a rapid rate
Exhibit 52: Paid transactions growth is marginally
behind listings
Source: Company, MOSL
Source: Company, MOSL
November 2014
24

Thematic | E-commerce
Exhibit 53: 99acres is evolving nicely in terms of scale
Exhibit 54: The business remains in investment mode for now
Source: Company, MOSL
Source: Company, MOSL
Matrimony:
This c omprises o nline m atrimony c lassifieds ( www.jeevansathi.com)
and 14 offline Jeevansathi Match Points.
Exhibit 55: Demographics drive bookings growth
at Jeevansathi
Exhibit 56: Re-strategizing the model has helped
increase paid clients
Source: Company, MOSL
Source: Company, MOSL
Exhibit 57: Revenue growth remains relatively subdued
Exhibit 58: Continuing to make losses amid
management tinkering
Source: Company, MOSL
Source: Company, MOSL
November 2014
25

Thematic | E-commerce
A look at operating and financial metrics – Just Dial
Just D ial L imited p rovides lo cal search re lated s ervices t o u sers in I ndia t hrough
multiple platforms such as the internet, mobile internet, over the telephone (voice)
and text (SMS).
Exhibit 59: Number of listings continue to grow,
given strong proposition
No of business listings (m)
9.1
6.0
4.5
7.2
1.4
11.8
Exhibit 60: So do the number of campaigns
No of campaigns (in 000s)
Paid campaigns as % of total listings
2.3
2.4
2.0
2.2
62
FY10
FY11
FY12
FY13
FY14
FY10
120
FY11
171
FY12
207
FY13
262
FY14
Source: Company, MOSL
Source: Company, MOSL
Exhibit 61: Revenue growth remains high in a
fledgling industry
52.4
Sales (INR m)
40.5
23.5
2,621
3,628
4,613
42.5
38.4
Exhibit 62: Network effect in classifieds helps profitability,
as with INFOE
EBITDA (INR m)
23.5
24.7
25.7
27.8
30.8
27.2
8.8
76
1,422
1,008
308
FY10
454
FY11
672
859
FY09
1,309
FY10
1,839
FY11
FY12
FY13
FY14
FY09
FY12
FY13
FY14
Source: Company, MOSL
Source: Company, MOSL
Exhibit 63: Net income and cash metrics strong
PAT
139
79
Free cash flows / PAT (%)
144
97
359
260
329
FY10
295
FY11
504
FY12
685
FY13
1,206
FY14
FY10
FY11
FY12
FY13
FY14
601
409
136
957
726
1,023
662
Cash flow from operations
Free cash flows
1,719 1,641
Source: Company, MOSL
Source: Company, MOSL
November 2014
26

Thematic | E-commerce
EXPERT SPEAK: Google India on their play in classifieds market
We interacted with Mr Nitin Baw ankule, Industry Director at Google I ndia – E-
commerce, Classifieds, and Media. Our key takeaways:
Google India is not direct competition in most of the existing classifieds
market
n
n
n
n
Google India’s play in the classifieds space:
Search is c onstantly e volving a nd
Google makes about 500 changes every year to its search product alone. Google
Search is f ocused o n h elping u sers f ind t he m ost r elevant a nswers to their
queries, and is not direct competition in most of the existing classifieds market.
The classifieds market is broadly divided into four categories – jobs, matrimony,
real estate, and local vendors’ information. The segment where Google provides
relevant information to a consumer or end user directly is the local information
space. E xample: s earching fo r a lo cal re staurant i n M umbai. OLX, Quikr, and
JustDial n ot only p rovide local in formation, b ut als o g et in to t he transaction
mode – Google is not a p layer in t hat. Go ogle’s ro le fo r now is p roviding p aid
links and organic results in the form of information to the customer.
Co-existence of paid links with classifieds players like Info Edge, JustDial:
These
models w ere f ollowed b y search e ngines and d irectory kind o f services. When
Google launched Search, it was clear that it will only surface advertisements that
will be c learly d emarcated as advertisements and als o show o rganic results.
Even the ads Google surfaces have to be relevant to the search query, so t hat
users find the information useful. Google is very different from these services.
On the possibility of mobile being a threat to search:
Google has been focused
on being a mobile-first company. Every product Google makes, it first makes for
mobile. Google is very p leased th at u sers enjoy using G oogle Search even o n
mobile p hones. S earch h as e volved a l ot a nd today Google offers services lik e
Google Now, which provides information to users even without search queries.
Mobile is an exciting space and Google continues to innovate rapidly to benefit
both u sers a nd a dvertisers. Google recently l aunched the deep l inking f eature
for mobile phones. If a user searches for ‘Flipkart’ on his mobile, and the app is
installed, Google directs the user to the ‘Flipkart’ app on the mobile and not to
the website.
Monetization:
Even a d eep lin king fe ature is monetized. I f a u ser is d irectly
taken to any app through a Google Search, it is counted as directing the user to
the client.
November 2014
27

Thematic | E-commerce
FINANCIAL SERVICES
The financial services market, valued at INR28.86b in 2012, is likely to grow 25% in
2013 to INR36.07b. Online financial services include applying for insurance or paying
insurance p remiums/renewals ( 29%; I NR8.5b), p ayment of u tility/mobile b ills an d
mobile b ills ( 40%; I NR11.5b), an d t rading in s hares and o ther fin ancial s ecurities
(31%; INR8.9b).
Exhibit 64: The allied industry is growing in tandem with overall growth in
digital commerce
Low credit and debit card
penetration limits the
expansion of online
financial services
Source: IAMAI, MOSL
Exhibit 65: Components of financial services (2012)
%
Insurance Related Services
Utility Bill Payments including Mobile Bill Payments
Online transactions for financial services like Shares & Securities Trading
29.4
39.8
30.8
INR b
8.48
11.48
8.9
Source: IAMAI, MOSL
Other online services
The o ther o nline s ervices market is e stimated to g row 2 5% in 2013 t o INR13.88b.
Online services such as buying entertainment tickets and food & grocery online fall
under th is section. The market f or b uying online tickets f or movies, s ports events,
concerts, etc, is v alued at I NR7.95b, and fo rms ~75% of t he online s ervices pie.
Online delivery of food (INR2.5b) and grocery (INR0.65b) constitutes ~25%.
Exhibit 66: Other segments could grow to substantial scale, as the industry matures
Source: IAMAI, MOSL
November 2014
28

Thematic | E-commerce
Exhibit 67: Components of other online services (2012)
Online Entertainment Ticketing (Tickets for Movies + Sports + Shows/Concerts)
Online Food Delivery
Online Grocery Delivery
%
INR b
71.6
7.95
22.5
2.5
5.9
0.65
Source: IAMAI, MOSL
Digital advertising market growing in sync with e-commerce
Digital advertising has been witnessing steady growth. The online advertising market
in I ndia i s p rojected t o r each I NR29.4b b y March 2 014; i n 2012, th e m arket h ad
grown 40%, followed by 30% growth in 2013.
Exhibit 68: Digital advertising market growing in sync with overall digital commerce
Source: IAMAI, MOSL
November 2014
29

Thematic | E-commerce
SECTION-III
All about share gains
Discounts, acquisitions to continue; profits elusive
n
n
n
n
Competitive intensity is running high in the Indian e-commerce industry. In their quest
to gain market share, all the big players are investing aggressively.
Flipkart’s acquisition of Myntra and Zovi’s acquisition of Inkfruit are just two examples
of recent acquisitions in the industry. Appointment of leaders for acquisitions at
Flipkart and Amazon (India) suggest there are more in the pipeline.
Also, most of the amount of money raised by Flipkart, lately Snapdeal, and that
committed by Amazon is yet to be invested, indicating that we may not be anywhere
near the end of round-the-clock discount seasons at online stores.
Applying the five competitive forces model to the industry, we find a ‘red ocean’ at
large. Profitability could be a few years away.
Apart from discounts,
money is aggressively being
invested towards mobile
platforms, logistics services
and hiring talent / strategic
acquisitions
Aggressive investment spree, as war for share gain heats up
Deep d iscounts f or c ustomers a nd b ig incentives f or merchants w ho s ell on t heir
marketplace ar e d riving in vestments fo r all t he online b iggies. Other th an th ese,
spends are directed at: [1] capacity enhancement by building warehouses, [2] hiring
in larg e n umbers, [ 3] s trategic ac quisitions, an d [ 4] e xclusive t ie-ups w ith select
brands.
Exhibit 69: Round-the-clock discounts on online stores
Source: Company, MOSL
Acquisitions on the rise
As the race to lead share gains in the industry heats up, acquisitions will be key to
expansion into new categories and to gain new technologies.
n
Flipkart h ired a fo rmer v enture c apitalist to l ead it s m ergers an d ac quisitions
(M&A) t eam. Nishant Verman, an as sociate in t he Delhi o ffice of Silicon Valley
November 2014
30

Thematic | E-commerce
n
n
venture firm, C anaan P artners, w ill n ow l ead t he c harge at F lipkart to ac quire
companies and invest in startups.
Amazon I ndia h as r oped i n A bhijeet M uzumdar, f ormer v ice-president at
Bessemer Venture Partners, to lead its corporate development function.
Snapdeal chose Abhishek Kumar, head of investments at venture firm, Palaash
Ventures, for a similar role.
Exhibit 70: E-commerce acquisitions
Date
2014 May
Target
Myntra.com
Acquirer
Flipkart
Description
Myntra.com gets acquired by poster boy of Indian e-commerce, Flipkart. The deal
values Myntra reportedly at INR20b and is a 100% acquisition in cash and stock. After
the acquisition, Myntra will continue to operate as a separate entity, with the CEO of
Myntra heading the fashion business.
redBus.in acquired by Ibibo group backed by Naspers group reportedly for INR8b.
Mumbai based Inkfruit.com (a community based customized fashion and accessories
retailer) was acquired by Bangalore based online fashion retailer Zovi.com.
Letsbuy.com got acquired by Flipkart for cash and equity. The Letsbuy team of 350+
was expected to continue to function independently with access to Flipkart’s
technology platform and supply chain capabilities.
Source: News articles, MOSL
2013 June
2013 February
Redbus.in
Inkfruit.com
Ibibo
Zovi
2012 February
Letsbuy.com
Flipkart
Chasing sales exclusivity in select brands
Snapdeal took exclusivity to
another level, becoming
exclusive e-commerce
sponsor of the latest edition
of reality TV show ‘Big Boss’
n
n
n
n
Flipkart, which created a t rend among e-commerce players for exclusive online
launches, h as u nveiled o ver h alf a d ozen b rands, in cluding A sus, A lcatel,
BlackBerry, Motorola, and Xiaomi through its portal.
Amazon l aunched s ales of a S amsung p hone a nd S wipe's S lice tablets,
exclusively. Besides, companies such as Snapdeal, Jabong and Pepperfry are also
ramping up exclusive online launches.
The t rend h as p icked u p, a nd p layers a re n ow l ooking to extend th ese w eb
launches to other categories, such as sunglasses, watches, books, apparel, and
other non-electronic categories.
Motorola h as s old o ver o ne m illion Moto G u nits t hrough F lipkart. Motorola’s
ranking in India went up from zero to fourth in just four months of its launch on
Flipkart.
A win-win-win model:
Such l aunches r educe the d ependency of b rands o n offline
channels while cutting margins of distributors and intermediaries. Besides, this helps
in cutting down the huge marketing budget. As a result, they are able to pass on the
benefits to consumers. It also helps the brands scale up fast.
War for talent
Hiring activity in e-commerce is likely to grow by over 30%, which may help create
up to 50,000 jobs in the next one year
(Source: Randstad India).
Some other analysts
anticipate that the number may go up to 80,000-100,000 jobs this year alone, given
the rate at which the sector has been growing in recent months.
Hiring had been rather slow in the e-commerce space in the last couple of years, but
recruitments may grow rapidly now by 33% over the previous year, as various retail
brands are also bringing their business online.
November 2014
31

Thematic | E-commerce
Employers a re c urrently t argeting F MCG and Telecom c ompanies. B etween them,
the 10 top e-commerce firms plan to hire 60,000 people for the year ending March
2015, the highest in a year for the fledgling industry. The job creation data is for the
entire ecosystem: ancillary u nits, s upply c hain a nd lo gistics, an d t emporary
employees. The main factors revving up the numbers is geographical expansion and
competition.
n
n
n
n
n
n
n
n
n
Flipkart
will d ouble h eadcount t o 2 6,000 t his fis cal. O f t hese, 1 ,200 w ill b e
engineers.
Amazon
too is expanding and pays two-year joining bonuses of over INR4m a t
the top levels.
Myntra
plans to double its headcount this fiscal from a team of 500 employees.
Snapdeal
intends t o d ouble h eadcount to 2 ,600 f rom 1 ,300 c urrently, a nd
increase the number of engineers from 250 to 500.
Zomato,
the o nline food a nd restaurant l istings startup, i ntends t o double i ts
numbers f rom 650 i n core f unctions s uch as t echnology, s ales, content, and
operations because of its expansion in various countries.
Yatra,
the o nline ti cket b ooking s ite wi ll add 200 to i ts e mployee strength of
1,000, against 150 last year. This excludes the addition of third-party workers.
Jabong
will hire 750 employees this fiscal. Although the number is similar to last
year, full-time hiring will be 150 compared with 300 in FY14, while the rest will
be in the supply chain.
Ola cabs
will hire 300 employees this year and 10,000-15,000 drivers, compared
with 150 permanent employees and 5,000 drivers last year.
TaxiforSure
will e xpand t o 1 5 l ocations b y 2 015, an d as a re sult, o verall
headcount will rise from 435 to 1,500.
November 2014
32

Thematic | E-commerce
Bringing more merchants, spending on warehouses
Flipkart, which adopted a marketplace model last year, aims to increase the number
of sellers to 50,000 in the next year from the current 4,000+. It runs six warehouses
and intends to open 50 more in the next three years. Amazon is also increasing its
warehouse c ount t o 10, w ith t hree n ew o nes c oming u p i n B hadarpur
(Maharashtra), Manesar (Haryana), and Ghaziabad (Uttar Pradesh).
Segmental approach to growth
New horizontal players have typically been more focused on electronics and books.
Presumably, this brings scale and helps them show customers that they can provide
products at lo wer c osts q uickly. T his is h ow F lipkart s caled u p too, by f ocusing o n
books initially, and then on electronics. Amazon is following a similar route in India
currently. F or F lipkart, fa shion h as n ow b ecome i ts most i mportant c ategory,
especially after it acquired fashion portal, Myntra in May 2014, contributing to one-
third of the company's sales.
Profits elusive amid fierce competition
With t he industry j ust about t aking o ff for a m ulti-year m ultiplicative j ourney, and
limited moats to business inviting significant financial muscle to outdo competition,
it is u nderstandable that the fo cus on p rofitability i s o ff the rad ar f or n ow. As a
result, online channels are currently making losses at the gross profit level as well,
owing t o h efty d iscounts o n t he C ost of G oods s old ( COGS), a dditional c harges
incurred o n s hipping, p ackaging etc. Losses v ary from c ategory t o c ategory,
depending upon the level of discounting, inventory handling among other factors.
Exhibit 71: Loss at the gross margin level across categories
Given little differentiation in
the product offering, brand
recall and share gain are
primary endeavors, driving
investments to lure
consumers
Source: Sequoia Capital, News articles
Burn is currently at multiple levels that drive loss at the gross margin levels:
ü
Discount to attract consumer
ü
Free Shipping
ü
Cost of Delivery
ü
Warehousing
ü
Inventory and Write-offs
ü
Manpower
ü
Packaging
While some of these are here to stay despite the effect of increasing scale, pressure
on profits from others should come down gradually. Discounts are the primary burn
that one would expect to reduce once the market consolidates or growth begins to
November 2014
33

Thematic | E-commerce
taper. O ther c osts p er s hipment that will r educe w ith s cale i nclude w arehousing,
shipping and packaging.
Fierce competition:
T he i ndustry l argely r emains i n i nvestment p hase, a nd t he
greatest h urdle i s f ierce c ompetition, s purred b y th e glut o f i nvestments o ver th e
last fe w years. There c ould b e as m any five well-funded p layers b attling it out fo r
the s ame small n iche. F or exa mple, the market f or b aby p roducts i n th e U nited
States is owned by diapers.com. Three different Indian companies are fighting it out:
Firstcry, Hushbabies, and Babyoye that had raised a combined USD30m as of 2012.
The c ompanies h ave b een fig hting a p rice w ar t hat h as p ushed m argins t o almost
nothing on the most basic orders, like those for diapers and soap.
Limited brand recognition:
T he p roblem of competition i s c ompounded b y very
little b rand re cognition, b arring s elect le ading n ames. T his im plies h eavy c ost o f
customer acquisition. As a result, even sales of high margin goods struggle to cover
the c ost of r eferred customer acquisitions t hrough discounts o r ad w ords—
marketing has been a huge bleed for e-commerce companies.
Too much money too early:
W hat a lso i s o f l ittle h elp to en trepreneurs i s
unreasonable investor pressure. Too much money too early in the game is going to
make in vestors g o af ter metrics t hat w ill n ot b e p rofitable in t he l ong ru n. T his is
driving p ractices l ike f ocusing o n t he n umber of n ew a ccount s ign u ps r ather than
the number of customers who become habitual customers.
Profit h istory of lar ge e -commerce c ase s tudies outside h as b een mixed. G lobally,
Amazon, t he w orld's larg est o nline re tailer, fo unded in 1 994, h as n ever b een
profitable s ince in ception. I n c ontrast, C hina's A libaba, t he w orld's larg est online
marketplace, has had a far smoother road to profitability, given that it does not own
any of the products sold on its flagship websites, Taobao and Tmall.
Exhibit 72: Despite two decades of leadership, Amazon is just about profitable
Source: Company, MOSL
Aiming to turn profits, but may have to wait
The nascent e -commerce i ndustry h as b een pursuing gr owth a t the expense o f
profits. Towards the end of 2013, leading Indian online retailers, including Snapdeal
and f ashion p ortal M yntra, c ited th at th ey expected to tu rn p rofitable i n the next
two years.
November 2014
34

Thematic | E-commerce
Some leaders aspire to turn profitable in two years…
“We want to be India's first profitable e-commerce company and its
largest mobile commerce company.”
Kunal Bahl
[In f iscal 2 013, Ja sper I nfotech, S napdeal’s p arent, p osted losses o f I NR1.2b, wider
than the INR812m loss in fiscal 2012, according to data filed with the RoC.]
“Only at scale can you amortize technology and marketing costs.
Without scale, profits might be possible but are meaningless”
Mukesh Bansal
[In FY13, the company had sales of INR2.1b and a loss of INR1.3b, according to data
from the Ministry of Corporate Affairs.]
…but this cannot come at the expense of significant share
loss
While t he r equisite s cale t o f ocus o n p rofitability m ay b e on t he h orizon,
competition will likely determine how soon the leading players can turn profitable.
While t he c hoice is b etween s ales at an y c ost or s ustainable g rowth, e -commerce
companies cannot afford to take their foot off the accelerator any time soon.
Flipkart h as rais ed an other US D1b, S napdeal rais ed US D627m+ and A mazon h as
committed U SD2b t owards gr owing e-commerce i n I ndia, and majority o f t his
amount i s y et to s ee i nvestment – more discounts w ill b e a larg e p art of t he
allocation. These are worrisome trends for players hoping to cut down discounts in
the near future.
The m ain r eason fo r t his fo cus on p rofits i s t he push fro m ris k-capital fu nds.
However, the larger investors seem to be patient and encouraging of the aggressive
approach to grow sales and build market leadership.
Flipkart:
“Our
focus right now is still on investing in our growth story. Currently, our
business is growing at 100% (annually) and till this growth slows down, we will not
be looking at profitability as a factor.”
– Binny Bansal, Co-Founder.
November 2014
35

Thematic | E-commerce
Additional factors challenging profit generation
Problem of logistics has led some to incur more costs
n
n
n
Indian e -commerce c ompanies h ave h ad to overcome s erious h urdles. A mong
the largest of them is logistics. While major multinationals like DHL and Fed-Ex
operate in India, goods are normally shipped through smaller and cheaper third-
party carriers.
Different carriers have to be used for different regions of the country. For orders
sourced o utside t he major c ities, in dividual c ouriers often h ave t o b e h ired to
make last mile deliveries from drop-off points by bicycle.
The d ifficulties an d u nreliability o f the c arriers h as fo rced s ome o f t he larg est
and b est-funded p layers, l ike F lipkart, t o d evelop t heir o wn l ogistics ar ms t o
deliver their packages. The decision, however, carries massive capital expenses
in a n i ndustry t hat i s s till not s tanding o n i ts own feet. I t a lso means a h uge
increase i n exposure, and a b usiness t hat i s n ow s eeking s uccess i n two
industries instead of one.
Exhibit 73: Shipping costs are a drain on profitability, a silver bullet for customer
experience
Source: Company, MOSL
Cash-on-delivery adds on to the challenge
While cash-on-delivery is a
challenge, it is here to stay,
being a key enabler of
industry growth
n
n
Another difficult problem is that the Indian market demands a cash-on-delivery
(COD) o ption, where t he c onsumer pays t he c ourier on r eceiving the p roduct.
This is a d ifficult p roblem t o g et a round b ecause c redit c ard p enetration is
relatively low in India.
The p roblem i s th at the C OD system d elays r eceipt o f p ayment. C ourier
companies g enerally h old the m oney f or two we eks, wh ich m eans th at th e e -
commerce company has to replenish inventory before cash from its last sale has
arrived. I t is als o e xpensive; s ome c ourier c ompanies c harge o ver 3 % fo r t he
service.
High return rates
Presumably the biggest hit comes from the much higher return rate—sometimes up
to 10%—by consumers who simply changed their mind or could not be reached at
home. These goods cycle back into inventory after weeks, and carry a h igh cost of
re-stocking and re-listing, and sometimes have to be written off altogether.
November 2014
36

Thematic | E-commerce
Competitive forces:
‘Red ocean’
at large
Profitability may be few years away
n
E-commerce companies are trying to outperform their rivals to grab greater share.
With the market space getting crowded, prospects for profit are low.
Products are becoming commodities, and cutthroat competition is turning the market
into a ‘red ocean’.
n
Intensely competed space, where customer retention is a costly affair
Threat of new
entrants
HIGH
Bargaining
power of buyers
HIGH
Rivalry among
existing firms
HIGH
Bargaining
power of
suppliers
Threat of
substitutes
LOW
HIGH
Source: MOSL
Threat of new entrants: HIGH
Threat of
new entrants
n
HIGH
n
n
Typically, barriers to entry in any industry are capital, knowledge, or skill. Some
models in e-commerce, like inventory-led, are highly capital intensive which act
as g reater e ntry b arriers. Marketplaces offer f ew b arriers t o entry, a s d o t he
skill-sets, which are acquirable.
Additionally, technology can be a b arrier for new entrants, for instance, where
competing businesses have heavily invested. Their investment would act as an
entry barrier for new players. However, advancements in technology have given
rise to new ideas, providing opportunities for new entrants without the need to
build similar IT infrastructure.
While a vast network of suppliers is difficult to replicate for a new entrant, there
remains r oom fo r c ategory-focused p layers, w ith s trong backing o f f unds, t o
compete a ggressively i n the m arket. A s a r esult, i n m ost models f or e -
commerce, the threat of new entrants is high.
November 2014
37

Thematic | E-commerce
Threat of substitution: HIGH
Threat of
substitutes
HIGH
It is easy to sell on the internet, so, at the moment; E-commerce is acting as a threat
to other channels of selling. However, products sold on one platform can be sold by
others firms that are inside or outside the industry. For example, if the buyer is not
sure about the product quality that will be delivered through an online order, he can
buy from a competing offline seller. Given the multitude of options available, there
looms a threat from substitution for the industry.
Rivalry among existing firms: HIGH
n
Rivalry
among existing
firms:
HIGH
n
The i ndustry i s gr owing, a nd t he p roducts on s ale a re n ot v ery d ifferentiated.
Some firm s t ry t o d ifferentiate t hemselves b y ad ding v alue t hrough ad ditional
information f or c ustomers in c ase o f c ategory-specific portals; o thers are
striving t o differentiate by in vesting in b etter o verall s hopping experience for
the customers. Some others are devising ways to encourage customers to spend
more time at their site.
However, above all these, the competitive intensity is being manifested in fierce
price w ar, d riving h igher losses. T his is c lear s ubstantiation o f s trong riv alry
among existing firms.
Bargaining power of buyers: HIGH
With the location proximity being least o f buyer’s concerns, they can easily switch
their seller, w ithout an y lo yalty. Bu yers h ave h igh b argaining p ower; it is e asy fo r
them to find another s upplier in t he industry. T hey have no loyalty t o a p articular
brand. They look for cheaper and better products. They also have plenty of options.
Bargaining power of suppliers: LOW
Bargaining
power of
buyers
HIGH
In g eneral, s uppliers h ave lo w b argaining p ower. O nline is b ecoming a p opular
medium for the buying community, and the seller has little choice but to adapt to
the changing consumer attitudes. There are multiple suppliers of the products that
e-commerce companies sell through their websites. Hence, staying on the fence is
not an option. T his is especially the case fo r p roducts lik e b ooks, electronics an d
apparels.
Regulatory enablers will be key
n
Bargaining
power of
suppliers
LOW
n
There are no existing policies that govern FDI in e-commerce; they are clubbed
under the general rules for FDI in retail. As per extant FDI policy, FDI up to 100%
is p ermitted i n B 2B e-commerce a ctivities u nder the a utomatic r oute. Th e
regulation h as d riven t he choice of m arketplace m odel b y multiple c ompanies
like Amazon and Flipkart.
The ris e o f e -commerce has p osed n ew q uestions f or t axation p olicies a nd
administration. E-commerce blurs the distinction between the sale of goods, the
provision of services, and licensing of intangible assets. Each of these is subject
to some fo rm o f t axation. A ccording t o media r eports, t ax au thorities in
Bangalore, are looking into why Amazon India does not pay VAT on goods stored
in its warehouses. (More details appear in APPENDIX – III).
November 2014
38

Thematic | E-commerce
SECTION-IV
The conundrum of business model
Snapdeal appears to have the most optimal strategy
n
n
n
n
The juggle between marketplace and inventory-led business models has been
going on for a long time now.
E-commerce in India is gradually shifting to the marketplace-led model from
the inventory-led business model.
We like Snapdeal. It is focusing on providing the best marketplace and
attracting the maximum number of merchants.
The fashion segment provides room for category-focused players. Jabong’s
combination with four other global entities is a unique development with rich
potential.
Four d istinct fe atures s et ap art an in ventory-led e-commerce m odel f rom a
marketplace model:
Opinion remains divided on
the best model; but FDI
regulations currently limit
Flipkart and Amazon to
marketplaces
n
n
n
n
The value proposition to a customer for the inventory-led e-commerce models is
that whatever a customer buys, is from the seller’s own inventory.
Second, t here i s o nly o ne s eller f or e ach p roduct s old b y t hese c ompanies –
usually, the companies themselves.
Third, these companies are merchants of record for the products sold by them.
Finally, these companies issue invoices to the customers in their names.
All these f our d istinctions are n ot applicable o n a marketplace model. Multiple
models are in place today. We discuss below the merits of each.
Hybrid marketplace-led model
Hybrid model is where the seller sells his own labels and also provides a platform for
merchants and sellers to sell their products. However, in the hybrid model, there is a
conflict of interest from the merchant’s viewpoint, as he sees the platform provider
selling his own goods as well. This may lead to a situation where the platform owner
uses t he i nformation edge t o h is advantage, b y pricing his o wn i nventory of t he
same brand marginally below the merchants to prioritize his/her inventory.
Inventory-led model
For a market lik e I ndia, where c ustomers h ave l ow fait h in s hopping o nline,
customer s atisfaction is of p rime i mportance. The i nventory-led m odel e nsures
quicker deliveries, coherent quality checks, and better customer experience. That is
how Amazon operates i n the U S, a nd w ith regulators p ermitting, i t would want t o
replicate in India. This is a capital-intensive model, but with greater barriers to entry.
The i nventory l ed e -commerce m odels h ave almost th e s ame ec onomic
characteristics as the traditional brick-and-mortar model when it comes to inventory
risk e xposure, w arehousing, a nd s ourcing. I t i s h ighly u nlikely t o a chieve good
profitability – with n o n otable i nstances to s ubstantiate. F or a 3 0% g ross margin
business, t he i nventory-led m odel i nvolves s pends o f 45-50% o n operating
expenses.
November 2014
39

Thematic | E-commerce
Why Snapdeal’s marketplace and strategy will likely work
Snapdeal significantly outgrew the industry in FY14, growing its GMV by over 500%
compared t o the industry’s g rowth o f 8 8%. T his is at tributed t o multiple fa cets o f
the company’s strategy, which has helped it to create ground to continue delivering
rapid and capital-efficient growth over multiple years:
n
Focus on building the best marketplace:
Snapdeal has kept its goal very simple
– to b uild th e b est ec ommerce m arketplace i n th e c ountry fo r b uyers, s ellers
and logistics systems, without competing with them.
n
Rapidly building the supply side:
S napdeal alre ady h as ~ 50,000 s ellers on it s
platform. I n t he n ext 1 2 m onths, this c ould e xceed 1 00,000. U nlike h ybrid
models o r in ventory-led pl atforms, t here is n o c onflict o f in terest at a p ure
marketplace. Snapdeal is not competing with the vendor or the logistics player.
This makes the model amenable for more vendors to join the platform.
n
Strong thrust on driving mobile traffic:
M obile t raffic for S napdeal in creased
from 5% to 50% last year. It expects this proportion to go up to 75% in a year. In
many tier-II towns, it is already seeing 70%+ traffic on select days.
n
Investment in facilitating logistics through Safeship:
Snapdeal is not directly in
the logistics business. Its logistics requirements are met by over 20 companies,
for a majority of whom Snapdeal is a m ajor driver of volumes. I t manages
deliveries through a p roprietary s ystem called ‘ Safeship'. S afeship p rovides a
single w indow fu lfillment service t o s ellers, t aking c are o f all ac tivities c arried
out aft er b ooking an o rder t o s uccessfully an d s afely d elivering it to t he
customer's satisfaction.
EXPERT SPEAK: Mr Kunal Bahl – Co-founder and CEO, Snapdeal
Marketplace a proven model globally, will drive capital-efficient growth
E-commerce: USD50b opportunity in 10 years
Though e -commerce h as been p resent i n I ndia f or th e l ast 1 5 y ears, th e l ast 2 -3
years h ave b een a p eriod o f h ypergrowth, le d b y g rowing u sage o f social m edia
platforms like Facebook. Indians are increasingly shopping online and this is getting
reflected in s tronger e -commerce. Th e m arket s ize f or e -commerce in I ndia is
currently US D1.5b, w hich is j ust 0 .25% of t he t otal I ndian re tail m arket. In
comparison, o nline retail penetration is ~10% in the US , 6% in C hina and 1 0% in
Korea. O nline re tailing in India presents a h uge o pportunity – a 5 % penetration o f
online r etailing i n I ndia w ould m ean a n opportunity s ize of USD50b, a ssuming a
USD1t re tailing m arket in t he n ext 1 0 y ears ( current s ize is US D600b; as sume
modest 5% CAGR over the next 10 years).
Offline retailing: Indian prices but European costs
Offline re tailing in I ndia is at a c ompetitive d isadvantage. R eal e state re ntals
comprise 7% of revenues for brick-and-mortar retailers in India, 14x Walmart's 0.5%.
Further, t here ar e significant p hysical b arriers t o s et u p s hops in I ndia, w hich
encourages organized retailing to skip the physical format and move directly to the
online format.
November 2014
40

Thematic | E-commerce
Exhibit 74:
“Our focus at Snapdeal has
been just build the best
marketplace that you can.
There is an enormous
amount of opportunity in
the market largely because
you are solving a core
need.”
Marketplace: Globally proven model
The model of marketplace being the best option has proven true time and again in
multiple markets. Snapdeal’s model is most similar to China’s Alibaba. At USD250b+
annual GMV, Alibaba has not had to own a single product. There is no real need for
a rush to own inventory in India either.
Marketplace models enjoy an edge when it comes to profitability
E-commerce is a 100-year play. Commerce is increasingly going to get digital. As the
companies scale, the e conomics o f the business w ill o nly ge t b etter. Focusing o n
profitability too soon by lowering marketing spend will be short-sighted. Having said
that, a s th e a ttention i ncreasingly s hifts to profitability, m arketplace m odels will
have a n ed ge. In i nventory-led m odels, business economics tend to get w orse as
companies get bigger.
Snapdeal is fo cused on p roviding t he b est marketplace, w ith it s fu lfillment c enter
trying to keep a check on q uality to the extent p ossible. The c lear b enefit of the
model is that it is likely to attract the maximum number of merchants, and that is
also S napdeal’s e ndeavor. O ur b elief i s that i f a nd when t he i ndustry’s d iscounts
start m atching p hysical s tores o ffline, the c onvenience o f online s hopping will
continue to draw consumers. At that point, the platform offering maximum choices
will gain popularity over others, keeping Snapdeal well placed. Flipkart is targeting
10,000 merchants by FY15. Snapdeal currently has ~50,000 merchants.
November 2014
41

Thematic | E-commerce
The value chain for Snapdeal platform
1. The customer purchases the product.
2. The seller packs it and informs the courier agency.
3. The courier agency collects the parcel, delivers to the customer and collects the
money.
4. S napdeal r eceives th e money f rom th e c ourier agency, d educts i ts s hare a nd
sends t he balance t o t he seller after a t ime gap. This ensures t hat S napdeal is not
exposed t o d ebtors' r isk. H owever, S napdeal h as no d irect c ontrol on p roduct
quality and if a sub-standard product is delivered, it runs the risk of customer loss.
Sellers see the benefit of
Safeship as the pricing for
logistics is far more
attractive since it happens
through Snapdeal, which is
the largest e-customer for
most of the third party
logistics companies in India
Safeship benefits the seller and the consumer
n
n
n
n
n
Faster shipping through real-time order visibility:
'Safeship' o ffers a
technology-based platform through which sellers can view orders real-time. This
helps in s treamlining t he b ack-end o perations o f t he s ellers s uch a s
procurement, storage, and packing to service customer orders.
On time and safe deliveries:
'Safeship' p lays a k ey role i n e nsuring p roduct
delivery in a timely and safe manner by arranging pick-ups through empanelled
third-party logistics providers authorized by Snapdeal with clear standard policy
and standard shipping rates. Snapdeal manages the entire delivery logistics and
engages the customer throughout the process.
Wider reach:
'Safeship' provides wider pan India reach by giving a chance to the
seller t o s ell through a n ational c ourier n etwork. The s eller can w ork with
multiple courier partners without the hassles of management overheads.
Optimized cost:
'Safeship' technology optimizes between cost and service levels
through proprietary algorithm to route shipments and ensures that the product
reaches the customer at the best shipping cost without making any compromise
on service levels.
Shipment tracking:
From c onsumers’ p erspective, 'Safeship' p rovides 1 00%
tracking fo r s hipments fr om t he time o f o rder b ooking t o d elivery. I t als o
ensures safe deliveries and offers free transit insurance.
Room for single-category players in fashion segment
Online fas hion s elling re quires in itiatives an d fo rays u nique t o t he in dustry, t han
merely c onnecting b uyers wi th s ellers. Some instances f ocusing o n t he d ifferent
aspects that need to be tinkered with in selling fashion:
n
Jabong launched the monthly fashion magazine,
Juice,
targeted at young Indian
e-shoppers looking f or a guide t hat fu lfills t heir aspirations, m aking fashion
accessible, affo rdable an d at tainable.
Juice
also h as ac cess t o 8 00 of
Jabong.com’s brands, including
Vero Moda, ONLY, Jack & Jones, Steve Madden,
Dorothy Perkins, GAS, Rohit Bal, Wendell Rodricks,
and more.
Juice
is a part of
Jabong.com’s e xpansion p lans a nd f oray i nto f ashion c ontent p ublishing. T his
fashion and lifestyle magazine is complimentary for Jabong’s customers.
n
Myntra.com lau nched a L ook Go od H elpline, allo wing c ustomers t o t alk to a
stylist f or p ersonalized ad vice either b y p hone or e mail. I t h as b ecome a h it
among y oung s hoppers a nd p eers l ike Ja bong h ave a lso r olled o ut s imilar
services. Jabong.com, Like Myntra, has added stylists on call to help consumers
and plans to offer live chats with its advisors in the coming weeks. Both Jabong
and Myntra have lined up more than 20 stylists each to help consumers. Many
42
“The market opportunity
for e-commerce stands at
USD16b by 2017, with the
fashion e-commerce market
dominating at USD6b” –
Praveen Sinha, Founder and
MD, Jabong
November 2014

Thematic | E-commerce
n
n
people hired have worked with top models. Others are professionals who have
worked as magazine stylists.
Jabong has stayed at the forefront of leveraging high-end technology to create
incredible customer experience. It is one of the first e-commerce companies to
launch product videos. Customers are able to see models walking on the ramp
LIVE w ith the chosen p roduct. T his c reates an in -store l ike exp erience on th e
website.
Jabong l aunched t he Ja bong O nline F ashion W eek i n 2 014. B ridging t he ga p
between aspiring artists and the dynamic fashion industry, it invited applications
from brilliant fashion designers from across India.
Given these specific needs, the segment requires focused attention and innovative
strategies that are unique to fashion sales alone, and hence, it is not surprising that
focused segment players like Jabong and Myntra score over others.
Jabong – Key player in the fashion e-tailing segment
Flipkart, Amazon a nd S napdeal h ave b ecome h ousehold n ames a s f ar a s o nline
buying ac ross m ultiple c ategories is c oncerned. A mong fo cused c ategory p layers,
the only prominent names in the fashion segment include Jabong and Myntra (now
bought o ut b y F lipkart). Ja bong has s eized t he f ashion opportunity with a s trong
focus on c reating the b est i n c lass c ustomer exp erience, exclusive ti e-ups w ith
known global brands like
River Island, Mango, Dorothy Perkins,
and
Miss Selfridge.
Formation of GFG by combining 5 global entities could be a masterstroke
Jabong’s i nvestors r ecently a nnounced the entering i nto a d efinitive a greement t o
combine five leading fashion e-commerce businesses, namely Dafiti (Latin America),
Jabong (India), Lamoda (Russia & CIS), Namshi (Middle East) and Zalora (South East
Asia & Australia) to create a new global fashion e-commerce group (“GFG”). GFG will
operate ac ross t he fiv e c ontinents w ith a fo cus o n g rowth m arkets, c overing 2 3
countries with a E UR330b fashion market and population of over 2.5b people who
continue t o move r apidly online a nd p urchase v ia e-commerce. GFG w ill market a
wide assortment of leading international apparel and accessories brands, a t ailored
selection of engaging internally developed brands, and local assortments developed
for specific ethnic markets, notably India, Indonesia, and the Middle East.
As at June 2014, GFG had 4.6m active customers and over 7,000 employees. For the
first s ix m onths of 2 014, GFG w ebsites h ad 3 53m u nique v isitors, r eceived 8 .4m
orders, and generated E UR436m of gross merchandise volume (GMV). I n 2 013,
GFG’s IFRS revenues amounted to EUR406m.
In th e i ntensely competed e -commerce s pace, especially in m arkets lik e I ndia, t he
move comes across as a potential masterstroke to gain an edge over competition,
with the following potential synergies that seem possible from the move:
n
The sourcing advantage:
Combined, there i s greater lik elihood of at tracting
more global brands to the platform. As opposed to providing brands entry into
the Indian market alone, the proposition now is of facilitating access to multiple
global markets, e ach o ffering ric h p otential f or g rowth. I t al so p lays to GF G’s
advantage as far as its bargaining power with existing brands is concerned. GFG
will be a buyer of significant magnitude, and the volumes lend an opportunity to
negotiate the best price. The access to a wide market provides a strong platform
to sell its private labels too.
November 2014
43
Mr Praveen Sinha
Founder and MD, Jabong
“We can rely on common
sourcing, outstanding IT
competencies, and our
experience with private
labels.”

Thematic | E-commerce
n
n
n
n
Access to global talent pool:
GFG becomes an attractive proposition for the best
talent in the industry, offering the prospect to ply their trade on a t ruly global
platform.
Access to funds:
Investors b ehind t he c reation of t his gr oup h ave b et b ig a nd
invested h undreds o f million d ollars ac ross the five companies. Th e entity i s
already multi-billion dollar in terms of valuation (going by the valuation implied
in l ast f unding r ounds of in dividual c ompanies), an d w ill at tract t he b iggest
funds, should there arise a need for capital in the future.
Sharing of a strong base platform:
The c ombination w ill ac celerate
development o f t echnology p latforms, w ith a c ommon c ore more advanced
than peers.
Cross learning:
The move will enhance c apabilities a nd i mprove c ompetencies
through c ross le arning ac ross b usinesses, w hile r eaping t he b enefits fro m
economies of scale.
Tier-2 and tier-3 cities are underserved by traditional retail. E-tailers are poised
to tap the pent-up demand in these cities. Internet on the mobile is increasingly
acting as a c hannel fo r d riving g reater d emand fr om these re gions v/s t ier-I
cities, which is already the case today.
Jabong lau nched n ative a pps ac ross all s martphone p latforms, A ndroid, i OS,
Windows P hone, and ta blets. I t i s th e f ashion e -tailer t o b uild a n ative
experience for the windows phone. Its Android app garnered 20,000 downloads
in t he firs t three hours o f launch. T he a pp n ow i s c lose to 5m downloads. T he
iOS ap p s aw a s imilar u ptake, w hen t he ap p w as fe atured in t he A pp store,
becoming one of the only e-commerce apps to be featured by iOS.
Strong focus on mobile platform to extend its reach, sustain leadership
n
n
November 2014
44

Thematic | E-commerce
Payment mode: COD here to stay
Credit card
penetration
is low
Building
the trust
factor
Prevalence of
black money
As far as p ayments ar e c oncerned, c ash-on-delivery (COD), a m odel in novated fo r
the I ndian m ass, h as s een im pressive ac ceptance an d d rove 6 0% o f s ales in 2013.
While o ther modes may pick up o ver t ime, C OD is lik ely to continue p laying a k ey
role as a p referred mode o f p ayment f or online t ransactions in t he I ndian e -
commerce landscape. We believe there are multiple reasons for this:
n
Credit card penetration is low:
In A ugust 2 012, f ormer R eserve B ank o f I ndia
governor, D Subbarao noted that in comparison to other emerging markets such
as Brazil, Mexico, and Russia, at 12% of GDP, the value of banknotes and coins in
circulation i n I ndia i s h igh. T he n umber o f n on-cash transactions p er p erson i n
India is six per year, lower than in other emerging economies. Many cardholders
avoid paying with plastic because of security concerns.
n
Prevalence of black money:
Another reason for the popularity of COD is black
money. People prefer to use cash for high value transactions. Many want to pay
by cash in tier-II areas. Aspirational purchases are a trigger for COD.
n
Building the trust factor:
E-commerce companies also use COD to build trust. E-
commerce is young in India, and COD bridges the gap between online and brick-
and-mortar retail, by allowing consumers to touch and feel the product before
they pay up.
Exhibit 75: Transaction value of cards remains relatively
low in India
Source: RBI, MOSL
Source: RBI, MOSL
However, with order values increasing, the trend is being corroborated by an uptick
in EMI as a mode of payment. A relatively new concept in India, third-party wallet
offers a strong value proposition and could quickly become popular.
November 2014
45

Thematic | E-commerce
SECTION-V
Allied industries stand to benefit in equal measure
Coupons I Digital ads I Logistics, warehouses and payment gateways
n
n
n
According to industry estimates, for every INR100 spent towards e-commerce,
~INR35 is spent towards accompanying services. The surge in e-commerce
spells abundant opportunity for companies involved in the enabling ecosystem
– third-party logistics, warehouses, and payments.
Equal beneficiaries will be segments like digital coupons and digital
advertising. Digital marketing coupons could be a huge market, especially
outside tier-I cities, as witnessed in China and in Mydala’s early success.
Given the nascent stage in India, many e-commerce players have adopted the
do-it-yourself approach towards logistics, warehouses, and even payments. As
the industry matures, these activities are likely to be outsourced.
Allied and Ecosystem
Online coupons / discount marketing | Digital advertising / content | Logistics, warehouses and payment gateways
Online coupons /
discount marketing
Digital advertising
/ content
Travel Logistics,
warehouses
and payment gateways
November 2014
46

Thematic | E-commerce
Online coupons / discount marketing
Online coupons / discount marketing is a flourishing global industry, with multiple
USD1b+ value companies in the US, and the Chinese market pegged to be even
bigger. Value proposition to SMBs, especially in tier-II-IV cities, surging mobile
internet population, and lack of any other platform for effective marketing are all
significant drivers. Mydala leads the segment, with its hyper local marketing
platform, reach in over 200 cities, and focus on lower-tier cities.
Players:
Mydala, Groupon, Freekaamaal, Coupondunia, CupoNation
Online coupon / discount
marketing segment has
flourished alongside the
surge in e-commerce in
both US and China
The business
n
n
Online gr oup b uying r efers t o a gr oup o f p eople who w ant t o b uy the s ame
product o r service and c ome together through a group b uying w ebsite t o
achieve certain discounts. Independent third-party group buying websites act as
the middlemen between companies and customers.
Deals sites make money either through a fixed commission for every sale or by
getting a p ercentage c ut f rom the merchants. Physical e stablishments s uch a s
spas, hotels and restaurants are also turning to deals websites to reach a w ide
customer base without any upfront payment for advertisement.
Group buying or online coupons: A flourishing global market…
n
In the US, Groupon’s gross billings in 2013 were USD2.85b, and considering its
market s hare, i t p egs th e size o f the i ndustry s lightly b elow USD6b. G roupon
enjoys a v aluation of US D4.5b+, an d t here e xist an other fiv e c ompanies w ith
over a b illion d ollar in market cap. I n ad dition t o t hese, there are an other 7-8
large players that are not listed.
Exhibit 76: Groupon revenue and gross billings growth
Source: Company, MOSL
November 2014
47

Thematic | E-commerce
n
n
China’s third-party group buying industry reached USD5.8b in CY13, growing at a
CAGR o f 8 0% over 2011-13. Li ke e -tailing, t he coupons / d iscount m arketing
segment in C hina is b igger t han t hat in the US. A handful of players, le d by
Juhuasuan (33.6% share) and Meituan (17.8% market share) dominate.
Meituan.com, a C hinese group d iscount w ebsite backed b y A libaba G roup
Holding Limited, is considering a US IPO. The company offers discounts similar to
Groupon, expects t o m ore th an d ouble t ransactions t o USD6.4b this y ear
(USD2.6b last year). Revenue should triple to ~USD300m.
…and also impacting USD55b-60b sales in India
Sales, even in the physical
market in India, are heavily
discounted, making a case
for online coupon industry
n
n
~7% of the total retail sales in India are impacted by coupons, pegging the goods
impacted by coupons at USD42b. Besides, discounted offerings on services such
as c abs, s alon / w ellness, h otels an d re staurants constitute ~1 5% o f th e
industry’s s ales, p egging th at a t another U SD11b+. The o verall re tail an d
consumer services industry targeted by coupons stands at ~USD53b.
Typically, sellers s pend 7-15% t owards t he c ost of m arketing d iscounts /
promotions. If we p eg the same at ~10%, the effective addressable market for
discount marketing platforms today is ~USD5.5b.
Proliferating due to mobile internet and value proposition to SMBs
n
n
n
n
Globally, the major d river fo r t he scale in t he in dustry s egment is t he v alue
proposition f or t he s mall a nd m edium b usinesses (SMBs), f or w hom RoI of
marketing efforts is paramount to the choice of channel.
India’s g rowing internet p opulation is in creasingly going o nline t o s cout f or
discounts for a lmost everything fro m b aby d iapers a nd t elevision s ets t o body
massages and five star hotel stays. E-coupons are gaining traction as they can be
easily targeted and are cheaper compared to distributing physical coupons.
As the usage of smartphones increases rapidly, couponing as an activity should
gain much more traction.
In China, tier-3 and 4 cities account for 53.5% of total market share. Tier-2 cities
account for a further 22.67% of the national total market.
November 2014
48

Thematic | E-commerce
Findings of a study by Forrester on impact of online coupons
n
n
n
n
Online coupons and promotion codes drive incremental business.
Online coupons and promotion codes positively influence the purchase cycle.
Visitors to coupon websites are an especially valuable segment of shoppers.
Customers continue to believe that coupons do not dilute brand perceptions; in
fact, they strengthen loyalty.
The two problems facing localized SMBs today in their discount promotions are:
1. Reach: Lack of an effective medium, with the plausible options being pamphlets
or newspapers being circulated locally
2. Relatively lower RoI on the invested efforts
Online discount marketing sites are an effective answer to both the problems:
1. If p owered t hrough m obile, t he u se of i nformation specific t o individuals can
help target the right individual for the message, solving the problem of reach
2. Also, b y s haring a s mall commission of t he s ale made t hrough t he o nline
platform, the costs of such marketing are truly variabilized, ensuring higher RoI
Published numbers
n
n
n
n
Mydala
sells 150,000+ coupons daily.
It is estimated that deals sites contribute 10-15% of e-commerce traffic in India.
This is expected to increase to 30-35%.
Groupon
India stated it sells a voucher every 23 seconds.
Freekaamaal
gets c lose to 3 ,500 tr ansactions p er d ay wo rth I NR3m-5m
(USD49,000-82,000).
Mydala – unique provider of a channel for discount marketing
n
n
n
Mr Arjun Basu
Founder, Mydala
Mydala is the larg est p latform for S MEs and b rands to market t heir d iscounts
and p romotions i n I ndia. I t h as p artnered w ith over 120,000 merchants a cross
200+ c ities. O ffers r each 3 5m u nique u sers m onthly t hrough t he i nternet,
mobile devices, and TV.
It p rovides small b usinesses an d n ational/international b rands with a
comprehensive h yper l ocal m arketing p latform, allo wing t hem t o re ach their
target au dience through attractive d eals, in novative b randing, v isibility, and
promotional campaigns.
It has tie-ups with major telecom service providers like Vodafone, Idea, and Tata
DOCOMO b y offering c ouponing an d lo yalty s ervices o n t heir n etwork. T hese
coupons a re b ased o n the user's d ynamic u sage p attern, lo cation, mobile
credit/bill, and buying preferences.
Low cost customer
acquisition for local
merchants through a
hyper local mobile-focused
targeted advertising
approach has been
Mydala's USP
Largest play on coupon / discount marketing, expect continued leadership
Today, Mydala is t he s ole player in India offering such services in more t han 200
cities. I t cl ocks a monthly G MV e stimated a t ~ INR3b, a nd 1 50k+ t ransactions p er
day. We see Mydala continuing to consolidate its leadership position in the market,
giving it significant reach in segments like FMCG and BFSI:
n
Any F MCG p layer l ooking t o p romote and m arket-test a n ew p roduct i n a
specific t erritory h as lim ited o ptions t o c ommunicate t he p romotional o ffer,
with t he e xception of d isplay o utside ar eas with l arge fo otfalls o f t argeted
49
November 2014

Thematic | E-commerce
n
audience. M ydala’s h yper lo cal mobile-focused a pproach enables i t to target
specific c ustomer s egments th at a n a dvertiser wi shes to r each. I t i s a ble to
deliver advertisement material t o p eople w ith a particular p repaid b alance
within a particular location.
Within BFSI too, Mydala is helping to increase t ransactions from c lients’ credit
cards. I nformation o n w hich o utlets h ave offers f or a p articular b ank’s c redit
card is limited. Such information can be pushed to credit card holders through
Mydala’s analytics engine.
Mydala provides the best
option for SMEs that wish
to market to a limited
target audience, based on
market segmentation of
location and spending
power
Focus on tier-II, III, IV cities should prove to be rewarding
n
While Groupon is another large name, it is more oriented towards tier-I cities.
Mydala h as a wide r each across t he masses in t ier-II a nd t ier-III c ities. It h as
presence in over 200 cities, offering extensive reach. We believe that Mydala’s
approach of focusing on lower tier cities will prove to be rewarding; such cities
could see disproportionately higher demand compared to the metros.
n
Tier-III and IV cities ac count fo r 5 3.5% o f the total m arket s hare in digital
coupons. Tier-II cities account for a further 22.67% of the total national market,
while tier-I cities account for ~20%.
Exhibit 77: Smaller cities dominate share in digital coupons in China
Source: daxueconsulting.com
November 2014
50

Thematic | E-commerce
Digital
advertising
Increasing penetration of the internet is driving digital advertising in India. India is
the fourth largest audience of searchers in the world and the online advertising
market in India was estimated at INR2b in FY14. Digital advertising is growing at a
CAGR of 31%, making it the fastest growing segment in Indian media.
Fastest growing ad media
Digital media advertising revenue in 2013 was estimated at INR25.2b (~USD405m),
up 3 0% f rom I NR19.4b i n 2012, a ccording t o the a nnual a dvertising expenditure
report fr om Gr oupM. Digital c ontributed 6 .5% of t he t otal media ad vertising
expenditure i n 2013, u p f rom 5 .5% i n 2012. Digital m edia ad vertising re venue is
estimated to reach INR34b (USD546m) in 2014, up 35%. This will represent 7.9% of
the t otal m edia ad vertising e xpenditure in 2014, w hich i s e stimated a t I NR431b.
Greater in ternet penetration has b een t he s ingle lar gest d river o f t his t rend, with
India set to be the second-largest internet population, globally.
Exhibit 78: India to be second-largest internet population globally
Source: IAMAI, Internet World Stats, Comscore
Exhibit 79: Ad revenue in India by media
INR b
Print
TV
Out-of-home
Digital
Radio
2011
139
116
18
15
12
2012
154
130
20
20
13
2013
172
148
22
26
16
2014
193
170
24
34
20
2015
215
197
26
44
24
2016 CAGR (%)
241
230
29
57
30
11.5
14.7
10.0
29.9
20.7
Source: Indian Online Advertising revenues Forecast 2014, emarketer, Magna Global
India by the numbers
n
130m: Current estimate of mobile internet users in India
n
250m: Expected number of Indian mobile internet users by 2015
n
861m: Total number of mobile phones in India (second-highest in the world,
behind China)
n
10%: Percentage of Indian mobile users, who now have smartphones
November 2014
51

Thematic | E-commerce
Exhibit 80:
Top di
splay advertisers in India
Source: Company, MOSL
Exhibit 81: Digital spend categories
Source: IAMAI, IMRB Report
Source: IAMAI, IMRB Report
With growth of the Indian mobile market, the mobile internet advertising segment
has als o s een s ignificant augmentation. Owing t o an i ncrease i n t he n umber o f
feature phone and smartphone users, there is an upsurge in mobile internet usage
by consumers, especially from tier-II and III t owns. Mobile devices being a p rimary
digital access point for several consumers, marketers have a range of opportunities,
particularly when it comes to reaching traditionally difficult-to-reach consumers.
Exhibit 82: Mobile internet users in India
TOTAL 110 MILLION USERS
Exhibit 83: Share of time spent on mobile
Text Messaging
Social Networking
45%
26%
15%
13%
Source: Nielson Report 2013
85 million
URBAN
25
million
RURAL
Web Browsing
Applications
Source: IAMAI
9/10 MOBILE INTERNET USERS ARE MEN
November 2014
52

Thematic | E-commerce
Logistics, warehouses and payment gateways
Given the nascence of e-commerce in India and dominance of cash-on-delivery
(COD), many online players set up their own logistics infrastructure. Third-party
logistics providers (3PLs) have matured to the delivery mechanisms for e-
commerce, and as e-commerce players attune to focusing on their core business,
growth in delivering products bought online should be disproportionate for 3PLs.
Logistics has been thwarting a burgeoning opportunity
Logistics companies will
stand to gain massively, as
the larger companies phase
out such operations in
majority cities, barring few,
over time
While e-tailing does not require the opening of physical stores to capture consumer
demand, it needs an effective website through which customers can access product
information an d p lace o rders. O nce t he order is p laced, it p asses t hrough an other
set o f stakeholders wh o bring th e o rdered p roduct to th e c ustomer’s d oorstep.
Most e -tailers v iew themselves as s upply c hain an d t echnology in tegrators who
manage a complex web of stakeholders.
Given t he g eographical complexity, s uboptimal i nfrastructure an d r egulatory
variations ac ross t he c ountry, lo gistics in I ndia h as alw ays b een c hallenging. I t h as
also been m ore o f a B2B s ervice; the B 2C l ogistics ecosystem ( requires c ustomer
interaction, cash handling – COD ~60% of all deliveries, and returns handling) is still
a new and underdeveloped capability for 3PLs.
Up t o 9 0% of go ods ordered o nline i n I ndia a re m oved b y a ir, w hich p ushes u p
delivery c osts b y ar ound half, ac cording to s everal o nline re tailers an d lo gistics
companies. Road and rail t ransport networks remain woefully underdeveloped and
entangled in graft and bureaucracy.
Doing it on their own
Some of th e m ore es tablished e -tailers h ave i nvested i n s etting u p t heir o wn
delivery n etworks, as: [ 1] this enables them t o h ave a ‘tangible’ c ustomer
interaction through which they can get feedback and tailor services accordingly, and
[2] m ost 3 PLs are s till in t he p rocess o f d eveloping e fficient an d c omprehensive
logistics networks.
n
n
n
Flipkart created a separate brand for its logistics arm in April 2013 and has so far
used e Kart only f or in -house d eliveries. I n F ebruary 2 014, i t opened e Kart
logistics services for other e-tail ventures too.
Amazon too is pumping up capacities at Amazon logistics. That is in addition to
existing partnerships w ith 3PLs like GATI, Blu e D art, and F edEx Corp. A mazon
also started a p ilot project wi th India P ost to tes t th e s ystem a nd use the
channel to c ollect COD payments as w ell. T his c ould h elp it re ach d eep in to
India's h interland. I ndia P ost h as over 150,000 p ost o ffices in I ndia, o f w hich
89% are in rural areas.
In 2012, Jabong helped design the process for JaVAS, a lo gistics solution similar
to Amazon fulfillment services so that other e-commerce players can outsource
their logistics to Jabong on a contract basis.
November 2014
53

Thematic | E-commerce
India has ~21,000 pin codes and most 3PL players are able to reach 8,000-10,000 pin
codes at best. India Post, with its formidable network across urban and rural India,
and it s alre ady e stablished m echanism t o h andle m oney orders, c an h arness t his
opportunity in a big way.
As p er r esearch b y Tec hnoPak, c ase s tudies of th e U S P ostal S ervice (US) and
Deutsche Post (Germany) demonstrate that these organizations have attempted to
remain relevant i n the changing t imes by tapping into and b enefiting f rom the
growth o f e-tailing in t heir re spective countries. Bo th t he organizations are
significant in delivering parcels to e-tailing customers.
Exhibit 84: Share of revenues from e-commerce is significant
Exhibit 85:
US Postal Services, US (15%)
Deutsche Post , Germany (41%)
Source: Company Reports, Secondary Sources
Source: Company Reports, Secondary Sources
EXPERT SPEAK: Mr Sanjiv Kathuria, Director & CEO, DotZot
Simply put, growth in logistics will be as exponential as e-commerce
n
n
Launched i n m id-2013, D otZoT is t he firs t p an I ndia d elivery n etwork, fo cused
exclusively on the e-commerce/e-retail space. It is backed by DTDC's size, scale
and reach, and covers 8,000 plus pin codes and 2,300 cities across India.
DotZot aims t o bridge t he g ap faced in logistics in frastructure b y p roviding
superior logistics solutions to e-tailers, who are increasingly looking to enhance
customer shopping experience. DotZot ensures constant visibility of shipments
and re al-time fl ow of in formation. I t o ffers s uperior v alue an d re liability to e -
retailers.
Massive opportunity
There i s n o e -tail wi thout d elivery. D elivery a t th e d oorstep i s a p re-requisite.
Logistics requirement for e-commerce will grow as exponentially as e-commerce.
Sizing the market today:
The current m arket s ize o f e-tail in I ndia is estimated at
USD3b. I f t he a verage shipment value i s o f I NR2,000, that p uts the n umber o f
shipments per y ear at 9 0m. E-tailers c ater t o ~50% o f t he shipment d eliveries o n
their o wn. 90m a nnual e-commerce-driven s hipments as explained ab ove im ply
0.3m d eliveries p er d ay only f or e-commerce p arcels e ven today. Th at i mplies
~0.15m d aily s hipments of 4 .5m a nnual s hipments through 3 PLs ( assuming 5 0% i s
catered t o b y th e p latform o wners th emselves). T his p egs t he o verall c ost o f
November 2014
54

Thematic | E-commerce
delivering the e -commerce p arcels at I NR8b-9b, o ut o f which t he r evenue
opportunity for 3PLs in e-commerce delivery alone is INR4b-5b.
Why growth should surpass growth in e-commerce:
Traditionally, documents have
comprised 75-80% o f t he v olumes for the c ourier market in I ndia. E -commerce
deliveries are c hanging t his s cenario, as e very s hipment t o b e d elivered i n e-
commerce is a parcel. 1m+ per day of ~1kg per parcel implies huge tonnage for the
market from e-commerce alone. Platform owners like Flipkart and Amazon are likely
focusing o n t he b igger c ities, where d ensity i s h igh. However, increasingly t he
growth opportunity in e-tailing is tilting towards smaller cities and tier-III/IV towns.
This im plies t hat the p lay for e ven 3PLs i s massive. The U SD3b m arket i s likely to
grow multi-fold, a nd daily shipments from e -commerce alo ne should e asily reach
1m in a few years.
Greater share for 3PLs over time
Cost o f d elivery fo r e-commerce companies is h uge at 8 -10%. This i s c entered o n
brand-building and giving customers an excellent delivery experience. However, as
profitability assumes g reater i mportance, t here will b e g reater p ropensity t o
outsource fu nctions lik e l ogistics t o s pecialist p layers. T hey m ay n ot p hase i t o ut
entirely, g iven th e i nvestments i n th e p latform, but m ay s tart p runing th eir
networks. They may restrict themselves to select cities with the highest density.
Also, managing day-to-day aspects of the logistics business at higher scale may be a
problem – take fo r example, managing at trition ac ross t housands o f delivery boys
needed to deliver 1m+ parcels every day.
Why separate focus on e-commerce
An increasing number of e-tailers are shifting to the marketplace model. Parcels are
being p icked u p from s ellers l ocated all over. T his requires a d ifferent p iece o f
technology and control on the pick-up process.
Once the parcel reaches the destination, there is a requirement for a parcel network
for r esidences – earlier only documents g ot majorly delivered a t r esidences. C OD
adds to the c omplexity, making lo gistics a quasi c ash m anagement service. For
DotZot, the COD remittance cycle post delivery is down from 15-20 days a year ago
to less than 7.
Secondly, the return-to-origin percentage is also in double-digits; parcels have to be
delivered back to the o riginating merchants. E -commerce als o d emands r everse
pick-up of e xchange and returned s hipments i n l arge n umbers, and that is als o a
change that logistics companies have adapted to.
DotZot’s advantage lies in pre-established DTDC network that it can use
The pre-requisite for rolling out any delivery service is setting up a network. It is also
the b iggest c ost an d takes s everal years t o h ave a p an-country network. D otZot
comes w ith an established network and the l argest p an-India network outside of
India Post, through DTDC. DotZot will ride on that network rather than duplicating
the network. This not only makes the business viable right from the beginning it also
allows DotZot to offer a country-wide delivery service from day-1.
November 2014
55

Thematic | E-commerce
The costs incurred in setting up of shipment network are significant. Also, many of
such n etworks th at exi st i n th e s maller c ities m ay e nd u p b ecoming c ost c enters,
where deliveries of products happen from higher tier cities, and the reverse traffic is
virtually n on-existent. However, that i s n ot a significant c oncern f or DotZot, g iven
DTDC’s already established network that it can ride on.
Warehousing:
Potential shot in the arm of land owners, at last
E-commerce has given a fresh lease of life to hundreds of land owners. They bought
land t o b uild w arehouses a fe w y ears ag o b ut w ere d isappointed aft er a much-
touted policy of FDI in multi-brand retail became a non-starter.
While Amazon is planning to lease over a million square feet of warehousing space
within t his c alendar y ear to s et u p what it c alls fu lfillment centers, F lipkart has
recently le ased 5 00,000sf of s pace ac ross t he c ountry an d is fit ting t hem o ut t o
commission before this Diwali.
Exhibit 86: Demand for warehousing will be significant as the scale of goods shipped
multiples
Source: Economic times
China’s surge in demand for warehouses is a case in point
How e -commerce has driven a s urge in demand fo r w arehouses is aptly explained
through the China scenario. To cope with the China surge, as much as USD2.5t may
be needed to invest in buying land and constructing warehouses alone over the next
decade-and-a-half, according to a realty developer.
"Over the next 15 to 20 years, the real cost of building warehouses is going to be
staggering," says Jeff S chwarz, Co-founder o f Glo bal L ogistic Properties Limited
(GLP), the biggest foreign builder of logistics facilities in China.
With each new facility being the size of several large sports stadiums, it translates to
~2.4b s quare meters of n ew wa rehouses, an are a c lose t o t wo-thirds o f t he t otal
land mass of Taiwan. GLP estimates that the USD2.5t needed over the next 15 years
will only increase the per capita fully automated modern warehouse space to just a
third of that of the US. Alibaba controls 80% of the entire online retail in China and
its logistics partners delivered 5b packages last year from deals struck on its internet
marketplaces.
November 2014
56

Thematic | E-commerce
Payment gateways will see increased transactions
While some companies have tinkered with the idea of launching their own payment
gateways ( famous example b eing F lipkart’s P ayZippy), m ost h ave p artnered with
select payment gateway service providers. A lit tle over a year s ince it launched it s
payment g ateway b usiness, P ayzippy, F lipkart is p hasing it o ut. I t h as made a
strategic investment in mobile payment company, Ngpay.
EXPERT SPEAK: Mr Nitin Gupta, Co-founder and CEO, PayU India
The choice of a payment gateway provider is based on four parameters:
n
Range of payment options:
M ultiple-company c redit/debit c ards, n et b anking,
cash cards, EMI, mWallets, etc.
n
Technology:
T echnology d eals with m ultiple fac ets. F actors im portant t o a
merchant i n c hoosing a payment g ateway are b etter c onversion rat es, fas ter
transaction completion, better end-user experience, and more analytics.
n
Quality of service:
Payment gateway providers are partners to their merchants
on a n o ngoing b asis, p roviding s upport a nd m aintenance. T here a re i nstances
when p roblems occur in t he s ervices at various le vels; the tea m’s
responsiveness and quality of service is a factor.
n
Pricing:
Payment g ateways c harge a t ake rat e on e very t ransaction, which is
called transaction discount rate or TDR.
Size and growth of payment gateway market
n
n
n
n
The entire payments m arket is m uch higher than the e -commerce market and
pegged at USD30b today.
Total r evenue o pportunity f rom U SD30b o f p ayment m arket i s ~1 %, which
translates to ~USD300m.
The payment market is growing in early double digits (10-15% YoY). E-commerce
is growing very fast, but the other segments are not.
While th ere a re m ore p eople on th e i nternet, a l imited p ercentage transact
online.
Payment service providers
ü
PayU India
ü
CCAvenue
ü
Ngpay
ü
Citrus
ü
EBS
ü
DirecPay
ü
ZaakPay
November 2014
57

Thematic | E-commerce
Companies
E-tailing | Classifieds | Travel | Allied & Ecosystem
E-tailing
Classified
Travel
Allied &
Ecosystem
Digital
Content
November 2014
58

Initiating Coverage | Sector: Technology
Thematic | E-commerce
Info Edge
BSE Sensex
27,860
S&P CNX
8,3244
CMP: INR854
TP: INR1100
Buy
Cementing early mover advantage with scale
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
Preferred play on digital commerce, given network effect
INFO IN
113.8
976 / 377
-6/28/88
97.2
1.6
Financial Snapshot (INR b)
Y/E Mar
2015E 2016E 2017E
6.1
7.3
8.7
Sales
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
EV/EBITDA (x)
EV/Sales (x)
1.8
15.0
27.1
138.6
14.8
14.8
57.1
47.9
15.6
2.5
20.9
39.6
14.2
13.3
40.9
36.0
12.8
3.1
25.7
23.1
15.6
15.5
33.2
27.1
10.3
Early entrant into Indian online industry:
Info Edge (INFOE) is in the business of
creating and developing domain-specific communities and information
exchanges on the World Wide Web. It owns and manages India’s premier job
portal (Naukri.com), third-largest matrimonial portal (Jeevansathi.com), leading
real estate portal (99acres.com), education portal (Shiksha.com), and related
services. Further, to tap into the growing Indian internet market, INFOE invests
in early-stage companies / start-up ventures. As at the end of 1QFY15, INFOE
had invested in six such ventures for a total payout of INR3.5b.
Using network effect to its advantage:
With all enablers falling in place, the e-
commerce industry is set to witness exponential growth over the next decade.
INFOE has had an early lead in the classifieds business, which is dominated by
recruitment, real estate, and matrimony. In addition, it continues to invest in
other assets, some of which are leaders in their domain – notably Zomato.com
and Mydala.com. Management understanding of internet businesses is not only
driving INFOE’s in-house businesses, but also helping identify and invest in
potential winning models at very early stages in their life cycle.
Revival of GDP growth to help flagship recruitment segment:
INFOE’s
recruitment business has a strong correlation with GDP growth, which has been
substantiated in the past linkage of the recruitment portal’s revenues with GDP.
Given the revival in the economy, its recruitment portal, Naukri.com, which
enjoys clear market leadership, should benefit from the growth revival. Healthy
demand for IT Services has led to pick-up in IT hiring, which too should benefit
the segment. We expect revenue CAGR of 16% over FY14-17 in flagship
Naukri.com’s revenues. We expect 99acres.com to continue doing well too, and
expect revenue CAGR of 33% over FY14-17 on a small base.
Direct and high quality play on exploding e-commerce opportunity; Buy:
We
value the company using SOTP valuation method. While recruitment business
remains the cash cow, we see the real estate portal, 99acres.com, along with
holdings in restaurants classifieds, Zomato.com, and online coupons and
discount marketing platform, Mydala.com, driving significant value for the
company, going forward. Recruitment contributes ~50% to our target price of
INR1,100. We see INFOE as a direct and preferred play on the fast expanding e-
commerce opportunity, and initiate coverage with a
Buy
rating.
154.7 173.8
Shareholding pattern (%)
As on
Sep-14
Promoter
44.5
DII
14.4
FII
31.2
Others
9.9
Jun-14 Sep-13
44.5
52.2
14.4
11.4
31.3
30.8
9.9
5.6
Note: FII Includes depository receipts
Stock Performance (1-year)
Info Edge India
Sensex - Rebased
925
775
625
475
325
November 2014
59

Thematic | E-commerce
Story in charts
Exhibit 87: Recruitment segment dominated the standalone Exhibit 88: … and is the only profit making business in the
business…
group
Source: Company, MOSL
Source: Company, MOSL
Exhibit 89: Recruitment business is closely linked to GDP Exhibit 90: … but leadership position to sustain on network
growth…
effect
Recruitment revenue growth (%)
8.6
6.7
7.8
24.1
8.9
25.4
6.7
11.3
4.5
-7.7
4.7
9.8
GDP Growth (%)
Exhibit 91: Investee company details
Company
Zomato.com
Meritnation.com
Policybazaar.com
Mydala.com
Canvera.com
Happily Unmarried.com
Written off / provisioned for
Studyplaces.com
99labels.com
Floost.com
Amt. Invested
(INR m)
1441
718
325
270
571
54
45
285
26
holding
%
50
56
23
47
32
27
13
47
31
Source: Company, MOSL
FY14 summary (INR m)
Revenue
EBITDA
306
-414
203
-285
1399
-461.5
November 2014
60

Thematic | E-commerce
Early entrant into Indian online industry
Classifieds leader; invested in multiple leading online ventures
n
n
n
n
INFOE is o ne of the larg est in ternet c ompanies in I ndia. It owns and m anages
Naukri.com (India’s n umber-1 jo b si te), Je evansathi.com (India’s third-largest
matrimonial p ortal), 9 9acres.com (India’s number-1 re al estate p ortal), an d
Shiksha.com (India’s only established education portal).
It raised I NR1.7b through a n I PO i n N ovember 2 006 and a f urther I NR7.5b
through a Q IP i n S eptember 2 014. W ith i ts h eadquarters i n N oida (NCR), the
company employs 3,681 people and operates through 58 offices in 42 cities in
India. ~73% of its total employees (2,680 people) are in sales/client facing roles.
INFOE i s i n t he b usiness o f c reating a nd d eveloping d omain-specific
communities a nd i nformation e xchanges on the World W ide Web. I t i s I ndia’s
leading o nline classifieds c ompany in re cruitment, m atrimony, re al e state,
education and related services.
Further, t o t ap i nto t he growing I ndian i nternet m arket, I NFOE u ndertakes
investments in e arly s tage c ompanies / s tart-up ventures. A s at t he end o f
1QFY15, INFOE had invested in six such ventures for a total payout of INR3.5b.
Exhibit 92: Info Edge – Evolution
Source: Company, MOSL
November 2014
61

Thematic | E-commerce
Businesses
From a n i ndustry p erspective, INFOE’s o fferings c an b e c lassified in to f our b road
verticals in different stages of their life cycle:
n
Recruitment:
The r ecruitment p ortal is a re latively m ature b usiness an d t he
primary s ource o f re venue an d p rofits. It comprises o nline re cruitment
classifieds –
Naukri.com
(India’s leading job site), and
Naukrigulf.com
(a job site
focused at the Middle East job market), and offline e xecutive search,
Quadranglesearch.com.
n
Matrimony:
This includes the matrimony portal
www.jeevansaathi.com
and 14
offline Jeevansaathi Match Points.
n
Real Estate:
This c omprises o f o nline re al e state c lassifieds
www.99acres.com,
and a re al estate brokerage business hived off as a s eparate subsidiary named
Allcheckdeals.com India Private Limited.
n
Education:
This comprises o f online education c lassifieds
www.shiksha.com,
a
marketplace that connects education seekers to providers.
Exhibit 93: Recruitments services are matured and major revenue driver for the company
Source: Company, MOSL
In i ts p ursuit t o b e a n e stablished p layer i n t he rapidly g rowing Indian i nternet
market, INFOE undertakes s trategic investments in ea rly stage companies/startup
ventures and may be evaluated as pilot initiatives.
November 2014
62

Thematic | E-commerce
Exhibit 94:
As
of
30 March 2014, INFOE has made the following strategic investments
Investee Company
Active
Zomato Media Pvt. Ltd.
Applect Learning Systems Pvt Ltd.
Etechaces Marketing and Consukting Pvt Ltd.
Kinobeo Software Pvt. Ltd.
Canvera Digital Technologies Pvt Ltd.
Happily Unmarried Marketing Pvt Ltd.
Sub Total
Written off/ exited
Studyplaces, Inc.
Ninety Nine Labels Pvt Ltd.
Nogle Technologies Pvt Ltd.
Subtotal
Total
Website
Total Amount
invested (INR m)
Approx. diluted &
converted
shareholding %
50.0%
56.0%
23.0%
47.0%
32.0%
27.0%
% of Total
Zomato.com
Meritnation.com
Policybazaar.com
Mydala.com
Canvera.com
Happilyunmarried.com
1441
718
325
270
571
54
3379
45
285
26
356
3735
38.6%
19.2%
8.7%
7.2%
15.3%
1.4%
90%
1.2%
7.6%
0.7%
10%
100%
Source: MOSL, Company
Studyplaces.com
99labels.com
Floost.com
13.0%
47.0%
31.0%
November 2014
63

Thematic | E-commerce
Using network effect to its advantage
Intent to stay competitive reflected in war chest created by recent QIP
Success driven by integration of two critical factors
1.
Increased use of the internet as a medium of interaction:
INFOE has been using
technology t o p rovide s uperior o nline experience. I ts p ortals p rovide e ffective
tools f or c ommunity in teraction. Leading market s hares in N aukri.com an d
99acres.com are testimony to its technological capabilities. This, in our opinion,
is a s trong fo undation fo r m any o f it s p ortals t hat are s till in t he
incubation/development phase.
2.
In-depth understanding of different domains:
INFOE studies t he p revailing
structures and e conomics o f offline transactions an d c ommunities, and
leverages the understanding gained to create enhanced online solutions. Thus, it
is able to bring about a migration of offline transactions and communities to the
internet. Not o nly h as that manifested in I NFOE’s in -house b usinesses
(Naukri.com, 9 9acres.com, J eevansathi.com, S hiksha.com), but a lso i n p rudent
stake buys in other businesses.
Creating network effect imperative to success of online business
Most o f th e b usinesses I NFOE o perates i n h ave s trong n etwork effects. W hile
barriers to entry may be few, garnering a s trong network is imperative to success.
The power of the network effect only grows stronger with time, thereby making it
an effective entry barrier. In the case of Naukri.com, the more customers get views
of its interface, the better it bodes for license sales at Naukri.com as customers start
hiring. More customers imply more and more job-seekers start with Naukri.com. So,
the network effect only increases with time, unless there is a loss of share.
Exhibit 95: Naukri.com’s virtuous cycle of self-sustenance
Source: Company, MOSL
QIP states intent to match competition and sustain leadership
Fast changing customer expectations and intense competition make it imperative to
continuously invest to upgrade existing offerings and develop new ones, warranting
a constant stream of internal investments. The unparalleled pace at which start-ups
in t his business are rai sing m oney h as necessitated c ompetition t o m atch
investments o r lo se o ut on s hare. I NFOE h as h istorically b een am ong t he m ore
November 2014
64

Thematic | E-commerce
prudent businesses when it comes to allocating capital, with a strong focus on RoI
and profitability. However, we are encouraged by the company’s readiness to match
the spending prowess of its peers, to try and ward off competition and stay ahead in
the game. Its recent QIP to raise the funds highlights the very fact – providing it with
a war chest, if needed, in the future.
Revival of GDP growth will help flagship recruitment segment
Success in I NFOE’s re cruitment s egment is larg ely a fu nction of an d is h ighly
sensitive t o e conomic p rogress. W hen hiring ac tivity s ees a s lowdown d uring an y
downturn, r ecruitment s pends a re th e f irst of th e b udgets th at wi tness a cut,
directly im pacting t he b usiness of N aukri.com. T his i s w itnessed in the correlation
between G DP g rowth a nd th e g rowth i n revenues o f the r ecruitment segment.
India’s GDP growth in FY13 and FY14 fell below 5%, and that had an impact on the
growth in revenues in INFOE’s recruitment segment, as did the global meltdown in
FY09-10. With the expectations a round G DP gr owth r evival r unning h igh, t he
segment a gain w ould b e expected t o p ost h ealthy growth r ates t hrough t he u p
cycle.
Exhibit 96: Growth in the recruitment segment correlated to the country’s GDP growth
Source: Company, MOSL
Potential threat from LinkedIn.com not playing out yet
LinkedIn h as m anaged t o garner a v ast n umber o f p rofiles, an d is t he le ading
website today in the professional networking space. Rich database of potential job
seekers, w ho c an possibly re ach out directly t o their preferred employers t hrough
the site, gives LinkedIn some potential to take away some market from Naukri.com.
However, L inkedIn o ffers a p assive en vironment, where the member m ay n ot
necessarily b e s eeking a j ob; v is-à-vis t he a ctive j ob-seeking e nvironment at
Naukri.com. T he im pact to N aukri.com is n ot y et v isible, b ut will o nly g et c learer
over t ime, as t he f ormer’s s ales efforts s tart b earing fru its. W hile we d o not deny
the th reat, we would a lso l ike to state h ere th at th ere i s a s tructural d ifference
between th e two models and th e two m ay n ot be strictly c omparable. On t he
contrary, t hey may b e complementary. T he d atabase o f p rofessionals a t LinkedIn
will b e m ore s uited t o s earch fo r s enior t alent, w hich w e b elieve is only a s mall
proportion of Naukri.com’s job seekers.
November 2014
65

Thematic | E-commerce
Initiating coverage with a Buy rating
Direct and high quality play on the exploding e-commerce opportunity
We adopt sum-of-the-parts (SOTP) methodology to value INFOE. We have valued
the following entities separately to arrive at our target price: [1] Naukri.com
(recruitment segment), [2] 99acres.com (real estate), [3] Zomato.com, [4]
Meritnation.com, [5] Mydala.com, [6] Jeevanthi.com, and [7] Canvera.com.
While the recruitment business remains the cash cow, we see the real estate portal
(99acres.com), along with holdings in restaurants classifieds (Zomato.com), and
online coupons and discount marketing platform (Mydala.com) driving significant
value for the company, going forward. Recruitment contributes ~50% to our target
price of INR1,100. We see INFOE as a direct and preferred play on the fast
expanding e-commerce opportunity, and initiate coverage with a
Buy
rating.
Exhibit 97: SOTP valuation for INFOE
Segment
Naukri
Methodology
20x forward earnings
Methodology
description
We treat INFOE's forward standalone earnings to be coming
entirely from Naukri. Though in reality, more than 100% if
earnings is recruitment as other segments are making losses.
We value the earnings at 20x
Median sales multiple of peers such as rightmove.co.uk,
realestate.com.au, zillow.com, zoopla.co.uk
All trade in a tight sales band of 10-13x
Growth in 99acres.com is expected to be higher than peers
Valuation
(INR b)
68.4
Contribution
(INR per share)
570
99acres.com
14x forward sales
24.6
205
Zomato.com
Meritnation
Assumed at USD500m Talks are on of Zomato raising next round of funding, valuing
the company anywhere between USD500 million to USD1
billion
Valuation ascribed in Meritnation raised INR100m from INFOE, which increased
the latest round of
the company's stake in FY13 from 54% to 55.81%
funding
This implies valuation of INR6b, of which 55.81% is ascribed
to INFOE
3x forward sales
Based on strong growth prospects, and already INR3b
monthly GMV, we estimate Mydala's revenue at USD40m by
FY17
While the company could easily enjoy a multiple on the
higher side, we ascribe 3x forward sales.
INFOE's 46% ownership in the same implies valuation
contribution of INR3.3b
JS is the 3rd biggest player in the online matrimony market.
We assume 15% CAGR in revenues and value the franchise
at 3x forward revenues
Canvera raised INR45m from INFOE in latest round of
funding, which increased INFOE's stake from 23% to26%,
effectively pegging the company's value at INR1500m
15.6
130
3.1
26
Mydala.com
3.8
32
Jeevansathi.com
3x forward sales
1.6
14
Canvera
Valuation ascribed in
the latest round of
funding
1.0
8
Cash On books
Total
12.9
107
1092
Source: MOSL
November 2014
66

Thematic | E-commerce
Financials and valuations
Income Statement
Y/E March
Sales
Change (%)
Employee benefit expense
Advertising and promotion cost
Other expense
EBITDA
% of Net Sales
Depreciation
Interest
Other Income
PBT
Tax
Rate (%)
Reported PAT
Extraordinary Items
Adjusted PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Loans
Capital Employed
Gross Block
Less : Depreciation
Net Block
CWIP
Investments
Curr. Assets
Current Investments
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov
Current Liabilities
Provisions
Net Current Assets
Application of Funds
2012
3,771
28.3
1,370
516
442
1,442
38.3
77
20
395
1,740
511
29.3
1,230
0
1,230
46.4
2013
4,372
16.0
1,672
577
626
1,498
34.3
94
25
465
1,844
528
28.7
1,315
-293
1,022
-16.9
2014
5,059
15.7
1,968
662
761
1,668
33.0
174
51
432
1,876
591
31.5
1,285
0
1,285
25.7
2015E
6,080
20.2
2,436
778
883
1,982
32.6
189
14
797
2,575
781
30.3
1,794
0
1,794
39.6
(INR Million)
2016E
2017E
7,262
8,717
19.4
20.0
2,779
3,149
890
1,068
1,021
1,184
2,573
3,317
35.4
38.1
227
266
0
0
1,244
1,367
3,591
4,419
1,087
1,337
30.3
30.3
2,504
3,081
0
0
2,504
3,081
39.6
23.1
(INR Million)
2016E
2017E
1,199
1,199
17,352
19,642
18,551
20,841
4.7
4.7
18,556
20,846
2,051
2,391
1,061
1,327
990
1,064
98
98
3,882
3,882
16,441
19,203
10,173
10,173
85
102
5,790
8,487
242
290
151
151
2,855
3,402
2,750
3,297
105
105
13,586
15,801
18,556
20,846
2012
546
5,198
5,744
2.8
5,747
908
376
531
94
3,666
3,183
0
36
2,985
62
99
1,728
1,496
231
1,456
5,747
2013
1,092
5,563
6,654
4.8
6,659
1,378
471
908
98
3,233
4,267
1,293
45
2,710
103
117
1,847
1,606
241
2,420
6,659
2014
1,092
6,530
7,622
4.4
7,626
1,501
645
857
95
3,775
5,088
2,531
50
2,311
69
127
2,189
1,865
324
2,899
7,626
2015E
1,199
15,424
16,623
4.7
16,628
1,731
834
897
98
3,882
14,139
10,173
71
3,542
201
153
2,388
2,283
105
11,751
16,628
November 2014
67

Thematic | E-commerce
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout % (excl.div.taxes)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Fixed Asset Turnover (x)
2012
11.3
12.0
52.6
1.0
10.4
2013
12.0
12.9
60.9
1.0
9.7
2014
11.8
13.4
69.8
2.5
23.4
72.6
63.9
52.3
17.2
12.2
0.0
23.7
26.3
3
6.0
21.2
22.6
4
4.3
18.0
20.9
4
5.3
2015E
15.0
16.5
138.6
3.0
24.1
57.1
51.6
47.9
15.6
6.2
0.0
14.8
14.8
4
6.1
2016E
20.9
22.8
154.7
4.0
23.0
40.9
37.5
36.0
12.8
5.5
0.0
14.2
13.3
4
6.7
2017E
25.7
27.9
173.8
5.5
25.7
33.2
30.6
27.1
10.3
4.9
0.0
15.6
15.5
4
7.5
Cash Flow Statement
Y/E March
CF from Operations
Cash for Working Capital
Net Operating CF
Net Purchase of FA
Net Purchase of Invest.
Net Cash from Invest.
Proceeds from Equity
Proceeds from LTB/STB
Dividend Payments
Cash Flow from Fin.
Net Cash Flow
Opening Cash Bal.
Add: Net Cash
Closing Cash Bal.
2012
874
385
1,259
-1,103
517
-586
0
-1
-48
-49
624
2,038
624
2,663
2013
964
39
1,003
-2,012
988
-1,024
-18
2
-127
-143
-163
2,663
-163
2,499
2014
1,108
261
1,368
-1,024
9
-1,015
-36
0
-255
-291
62
2,499
62
2,561
2015E
1,178
230
1,408
-231
-7,228
-7,459
7,513
0
-480
7,033
981
2,561
981
3,543
(INR Million)
2016E
2017E
1,486
413
1,899
-320
1,244
924
0
0
-576
-576
2,248
3,543
2,248
5,790
1,980
482
2,462
-340
1,367
1,027
0
0
-791
-791
2,698
5,790
2,698
8,488
November 2014
68

Update | Sector: Technology
Thematic | E-commerce
Just Dial
BSE Sensex
27,860
S&P CNX
8,324
CMP: INR1,469
TP: INR1,800
Buy
Evolving into a mega e-commerce player
Leadership in local search + e-commerce presence = winning formula
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
JUST IN
70.2
1,895/954
-11/16/-7
102.7
1.7
Base business on strong growth trajectory:
Just Dial (JUST) has a strong first-
mover ad vantage a mong c onsumers s eeking in formation o n l ocal b usinesses. I t
has a s trong d atabase o f 14.5m lis tings an d S ME d atabase o f more t han 2 ,000
cities as o n 2 QFY15, significantly ahead o f c ompetitors. In t erms of number o f
listings, th e s econd l argest p layer, A skme, i s 1 /3 th e s ize o f J UST. W e b elieve
JUST’s base business will continue to grow aggressively at 38% CAGR over the next
two years, d riven b y re vival in t he e conomic e nvironment, le ading t o S MEs
increasing their ad spend. Margins in the base business will continue to expand, as
the s hare of voice s earch d eclines t o s ingle d igits. I n F Y16, w e e xpect voice
searches to account for ~5% of overall searches, while the share of internet would
be 15% and the share of mobile would be 60%.
Financial Snapshot (INR Million)
Y/E March
2015E 2016E 2017E
Net Sales
6,061 7,667 9,529
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
1,699 2,534 3,303
1,356 1,943 2,526
19.3
12.4
90.9
23.1
32.6
77.6
16.5
27.7
43.3
27.4
38.5
54.2
13.4
36.0
30.0
28.8
40.6
41.6
10.8
Search Plus to drive transition into a mega e-commerce player:
JUST
launched
Just Dial Search Plus
to l everage i ts e xisting d atabase.
Search Plus
provides s ervices lik e o nline fo od d elivery, g roceries, w ine d elivery, d octors’
appointments, ta xi b ookings, o nline p urchases of el ectronics, etc. J UST h as
launched 2 1 p roducts i n
Search Plus,
which h as 1 45,000 s ign-ups. T he i nitial
response to
Search Plus
has b een e ncouraging. It has recorded more t han 1 ,000
food orders p er day, 250+ d octor’s appointments per d ay, and 3 50+ restaurant
table bookings per day. JUST is planning to launch a plethora of products like Just
Dial Gu aranteed, J ust D ial C ash, O nline Fashion, O nline Cab Booking, et c, under
Search Plus,
which w e b elieve w ill t ake t his platform to a c ompletely d ifferent
league. The management plans to incur one-time ad spends of INR600m-700m to
create a viral impact for
Search Plus.
We believe
Search Plus
is a g ame-changing
move by JUST, marking its entry into e-commerce.
111.6 138.4
Shareholding pattern (% )
As on
Promoter
DII
FII
Others
Sep-14
33.0
4.6
26.6
35.8
Jun-14 Sep-13
33.0
4.8
25.5
36.6
33.1
6.4
21.9
38.7
Making inroads to international markets:
JUST has entered countries like UK,
UAE, S ingapore, etc, which are v irgin m arkets, with limited c ompetition.
International business will not be capital intensive, as it would only have internet
and m obile a s s egments (voice, which is an e xpensive p roposition, w ould b e
absent). F urther, JU ST h as s pent l ess t han U SD0.5m towards c ontent a cquisition
for t hese markets, w hich is m inimal, given h uge s calability o f t he model. W e
believe J UST is making t he rig ht in roads in b uilding a s calable in ternational
presence, full benefits of which will be visible in 3-5 years.
Note: FII Includes depository receipts
Stock Performance (11 months)
Buy with a target price of INR1,800:
JUST is committed to aggressively scaling
up i ts
Search Plus
platform, and plans a m ass c ommunication program, with a d-
spends beginning in 4 QFY15 t o p opularize it . Bas e business m argin ac cretion is
likely t o b e i nvested b ack to s trengthen th e
Search Plus
platform. W e re main
optimistic o n JUST’s l eadership p osition i n t he l ocal s earch b usiness a nd t he
synergistic presence in e-commerce through
Search Plus.
The stock trades at 84.9x
FY15E and 59.3x FY16E EPS. We recommend
Buy,
with a t arget price of INR1,800
(65x FY16E EPS).
November 2014
69

Thematic | E-commerce
Story in charts
Exhibit 98: Total number of business listings
No of business listings (m)
15.5
11.8
6.0
7.2
9.1
1.4
2.0
17.8
Exhibit 99: Paid campaigns as a % of total listings
No of campaigns (in 000s)
Paid campaigns as % of total listings
2.4
2.3
2.2
2.1
2.2
4.5
62
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY10
120
FY11
171
FY12
207
FY13
262
FY14
324
FY15E
396
FY16E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 100: Premium listings continue to rise
Number of campaigns (in 000s)
22.0
21.0
16.0
262
Premium listings %
23.0
Exhibit 101: Average realization per campaign to moderate
Avg. realization per campaign per year (INR)
21.0
6.8
2.4
3.0
3.0
Growth%
120
FY11
171
207
-11.1
-21.1
FY12
FY13
FY14
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 102: Number of searches on JUST (m)
Internet
Mobile
Voice
153.0
87.0
224.0
SMS
172.9
165.3
195.4
314.1
Exhibit 103: Mobile and internet contribution increases (%)
Internet
80
60
40
20
0
Mobile
Voice
SMS
52.1
2.0
27.9
2009
71.5
4.7
57.1
93.9
9.6
77.2
115.9
13.6
124.3
139.1
41.9
182.6
280.0
350.0
2010
2011
2012
2013
2014
2015E 2016E
2009
2010
2011
2012
2013
2014 2015E 2016E
Source: Company, MOSL
Source: Company, MOSL
November 2014
70

Thematic | E-commerce
Financials and valuations
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
2012
2,621
42.5
672
25.7
90
582
0
132
0
713
209
29.3
504
504
70.7
2013
3,628
38.4
1,008
27.8
144
864
0
135
15
984
297
30.2
687
702
39.2
2014
4,613
27.2
1,422
30.8
173
1,249
0
400
0
1,649
443
26.8
1,206
1,206
71.8
2015E
6,061
31.4
1,699
28.0
189
1,510
0
400
0
1,910
554
29.0
1,356
1,356
12.4
(INR Million)
2016E
7,667
26.5
2,534
33.1
237
2,297
0
440
0
2,737
794
29.0
1,943
1,943
43.3
2017E
9,529
24.3
3,303
34.7
295
3,008
0
550
0
3,558
1,032
29.0
2,526
2,526
30.0
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
531
542
1,072
0
-9
1,063
600
251
348
12
1,568
540
0
0
237
303
1,405
1,392
13
-865
1,063
2013
695
3,564
4,259
0
9
4,269
967
359
608
16
4,858
593
0
9
239
345
1,806
1,787
18
-1,213
4,269
2014
702
4,643
5,345
0
18
5,363
1,060
532
528
0
6,257
865
0
0
370
495
2,287
2,103
184
-1,422
5,363
2015E
702
5,674
6,375
0
18
6,393
1,460
721
739
0
6,257
1,711
0
7
1,110
594
2,314
2,283
31
-603
6,393
(INR Million)
2016E
2017E
702
702
7,128
9,004
7,830
9,705
0
0
18
18
7,848
9,724
1,860
2,260
959
1,253
902
1,007
0
0
6,257
6,257
3,157
5,366
0
0
9
12
2,435
4,499
713
856
2,468
2,907
2,428
2,855
40
52
690
2,460
7,848
9,724
E: MOSL Estimates
November 2014
71

Thematic | E-commerce
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Fixed Asset Turnover (x)
Asset Turnover (x)
Creditors (No. of Days)
Working Cap. Turnover
Leverage Ratios (%)
Debt/Equity (x)
2012
9.5
11.2
16.5
0.0
0.0
157.9
133.9
90.9
40.1
156.2
0.0
49.8
70.4
4.4
2.4
193.9
-153.5
0.0
2013
10.1
12.2
61.3
0.0
0.0
148.5
123.2
24.5
28.9
104.1
0.0
26.3
37.5
3.8
0.8
179.8
-146.1
0.0
2014
17.2
19.7
76.2
2.6
13.5
87.2
76.3
19.7
22.7
73.7
0.2
25.1
34.3
4.4
0.9
166.4
-141.8
0.0
2015E
19.3
22.0
90.9
5.3
24.0
77.6
68.1
16.5
17.2
61.3
0.4
23.1
32.6
4.2
0.9
137.5
-103.1
0.0
2016E
27.7
31.1
111.6
7.9
25.1
54.2
48.3
13.4
13.4
40.6
0.5
27.4
38.5
4.1
1.0
115.6
-83.1
0.0
2017E
36.0
40.2
138.4
10.6
25.8
41.6
37.3
10.8
10.6
30.5
0.7
28.8
40.6
4.2
1.0
109.4
-78.1
0.0
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
Extraordinary items (net)
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
713
90
0
-209
444
-82
957
-231
-1,091
112
-1,209
293
-166
0
0
127
-125
196
71
2013
984
144
0
-307
314
-112
1,023
-361
-3,188
14
-3,535
2,513
1
0
0
2,514
2
237
239
2014
1,649
173
0
-443
340
0
1,719
-78
-1,399
0
-1,477
0
0
0
-163
-112
131
239
370
2015E
1,910
189
0
-554
-80
0
1,466
-400
0
0
-400
0
0
0
-325
-325
740
370
1,110
(INR Million)
2016E
2017E
2,737
3,558
237
295
0
0
-794
-1,032
33
294
0
0
2,214
3,115
-400
-400
0
0
0
0
-400
-400
0
0
0
0
0
0
-488
-651
-488
-651
1,325
2,064
1,110
2,435
2,435
4,499
E: MOSL Estimates
November 2014
72

Thematic | E-commerce
E-tail
Flipkart
FLIPKART
About the company
§
§
§
§
Business description
§
§
§
GMV data
§
§
§
§
§
§
§
§
Investors
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
Flipkart went live in 2007 with the objective of making books easily available to anyone who
had Internet access. It is headquartered in Bangalore.
The company was founded by Mr Sachin Bansal and Mr Binny Bansal, who were colleagues at
IIT-Delhi and then at Amazon.com.
According to Alexa, Flipkart's website is one of the 10 most visited sites in India.
Legally, Flipkart is n ot a n I ndian co mpany a s it is registered in Singapore a nd majority of its
shareholders are foreigners.
Flipkart.com i s I ndia’s l eading e -commerce ma rketplace, offering o ver 1 5m p roducts cross
70+ categories, including Books, Media, Consumer Electronics and Lifestyle.
Flipkart has many firsts to its name in India: cash on delivery, 30-day replacement policy, EMI
options, free shipping.
As f oreign c ompanies ar e n ot al lowed t o d o multi-brand e -retailing i n I ndia, Fl ipkart se lls
goods in India through a company called WS Retail.
In March 2011, Fl ipkart h ad a r un rate o f U SD10m. I t a nnounced p lans t o r each U SD1b in
GMV by 2015.
Flipkart reached that milestone in February 2014 based on annualized monthly GMV.
This implied February 2014 GMV of USD83m+, (INR15b+ quarterly run rate).
Reliance Retail, India's largest retail store, had 3QFY14 revenue of INR40b.
Flipkart has a workforce of 14,000.
It has 22m registered users, clocking over 4m daily visits.
Revenue soared five-fold to more than INR11.8b in FY14, from INR2.05b in the previous year,
as per documents filed by the company with the Registrar of Companies.
Flipkart r eported a l oss o f I NR2.82b i n FY 13, m uch wider t han t he l oss o f I NR1.1b in t he
previous year, as it significantly raised spending to increase revenue.
Accel Partners
DST Global
GIC
ICONIQ Capital
Morgan Stanley Investment Management
Naspers
Sofina
Tiger Global
Dragoneer Investment group
Vulcan Capital
Raised USD1b in July 2014
Raised USD210m in May 2014
Raised USD200m in July 2013
Raised USD160m in October 2013
Raised USD150m in August 2012
Raised USD20m in June 2011
Raised USD10m in 2010
Raised USD1m from Accel Partners in 2009
Flipkart aims to be India's first USD100b company in the next five years.
It runs six warehouses and intends to open 50 more in the next three years.
It plans to nearly double its headcount to 26,000.
Source: Company, MOSL
Business scale
Funding history
Business outlook /
development
November 2014
73

Thematic | E-commerce
Exhibit 104: Flipkart has thus far raised ~USD1.75b
Source: Company, MOSL
Exhibit 105: High revenue growth keeps Flipkart in investment mode
Source: Company, MOSL
November 2014
74

Thematic | E-commerce
Jabong
JABONG
About the company
§
§
Jabong.com is an Indian fashion and lifestyle e-commerce portal.
The site started operations in January 2012. It was co-founded by M r Praveen Sinha and Mr
Arun C handra M ohan, a nd a fter which Ms L akshmi P otluri, M r M anu Jain a nd M r M ukul
Bafana joined the organization.
As others gradually left to pursue varied interests, Mr Sinha and Mr Chandra Mohan remain
as the core founding team.
Jabong also has an international store called Jabongworld.com, which sells Indian ethnic wear
and wes tern w ear s uch a s s arees, l ehengas, salwar s uits a nd dress m aterials, d resses a nd
tunics priced in foreign currencies.
Jabong.com caters to the fashion n eeds of m en, women and kids across footwear, ap parel,
jewelry and accessories.
It hug ely c ontributed t owards p rocess d esign o f l ogistics services for o ther merchants a s a
separate service, JaVAS - short for Jabong Value Added Services. With the gradual increase of
other merchants on the platform, the independence of JaVAS is now more prominent.
Jabong last year piloted with a m anaged marketplace model. In this model, it does not store
vendor inventory, but follows the same quality checks and supply chain mechanisms.
In 1QCY14, 40% inventory was under marketplace, up from 31% in 1QCY13.
Jabong claims to be No. 1 in fashion and lifestyle products.
As at December 2013, Jabong’s annualized GMV run rate was USD300m+, and based on the
rapid growth in the industry, it must be much higher today.
In March 2013, Jabong shipped 6,000-7,000 orders a day. During September 2013, it shipped
14,000 orders on a daily basis, of which 60% were from small towns.
In 1QCY14, company clocked 1.95m gross orders with tier II and tier III cities, almost 2/3rds of
the total.
The e-store at present carries over 1,700 brands and over 90,000 products.
Total customer base in 1QCY14 almost tripled YoY to 2.88m.
Rocket Internet
CDC (British development finance institution)
Kinnevik
Holtzbrinck-ventures
Incubated by Rocket Internet
Reportedly raised USD100m in February 2014 (including USD27.5m from CDC)
Company's focus remains on retaining leadership with high priority on growth. Main focus is
on assortment, especially in the general merchandise category.
§
§
Business description
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
Business scale
Some numbers
Investors
Funding history
Business outlook /
development
Source: Company, MOSL
November 2014
75

Thematic | E-commerce
Exhibit 106: No of styles (‘000)
Exhibit 107: Category mix (1QCY14)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 108: Percentage of returning customers
Exhibit 109: Total customer base
Source: Company, MOSL
Source: Company, MOSL
Exhibit 110: Unique visitors
Exhibit 111: Quarterly orders
Source: Company, MOSL
Source: Company, MOSL
Exhibit 112: Transacting customers
Exhibit 113:
Orders per customer
Source: Company, MOSL
Source: Company, MOSL
November 2014
76

Thematic | E-commerce
Snapdeal
SNAPDEAL
About the company
§
§
Snapdeal.com is an online marketplace headquartered in New Delhi.
The company was started in February 2010 by Mr Kunal Bahl, a Wharton graduate as part of
the dual degree M&T Engineering and Business program at Penn and Mr Rohit Bansal, an
alumnus of IIT Delhi.
It started as a daily deals platform but expanded in September 2011 to be an e-commerce
company through a marketplace model.
In 3 round of funding of USD50m, eBay came as the largest investor in Snapdeal. The
investment also included a commercial partnership under which eBay got access to
Snapdeal’s 20m registered users, logistics software and distribution network.
Snapdeal is focused on adding as many merchants as possible and providing customers with
the best marketplace on its platform.
In December 2013, Snapdeal was converging towards USD0.5b in GMV.
As per the promoter, GMV grew 500% in FY14.
In May 2014, company expressed confidence in attaining USD1b in GMV.
In June 2014, Snapdeal stated that it has achieved the milestone of 1,000 sellers on its
platform and clocked sales of over INR10m.
The latest round of funding valued Snapdeal at ~USD1b.
Company currently ships products to over 4,000 towns and cities.
It has over 20m registered users.
Company has a wide array of 4m+ listed products encompassing 6,000+ brands and 500+
categories.
Snapdeal has 1,300+ employees, which it is looking at doubling in a year’s time.
Having launched the mobile app less than two years ago, it also generates over 50% orders
from mobile.
Over 60% of all units sold on Snapdeal are fashion goods. About 15 months ago, it was zero.
Nexus Venture Partners
Indo-US Venture Partners
Bessemer Venture Partners
eBay
Blackrock
Temasek Holdings
Premji Invest
Kalaari Capital
Intel Capital
Saama Capital
Raised USD12m in January 2011
Raised USD45m in July 2011
Raised USD50m in March 2013
Raised USD133m in February 2014
Raised USD100m in May 2014
Raised USD627m from Softbank in October 2014
In June 2010, acquired the Bangalore-based group buying site, Grabbon.com.
In April 2012, acquired esportsbuy.com, an online sports goods retailer based.
In May 2013, Snapdeal acquired Shopo.in, an online marketplace for Indian handicraft
products.
Source: Company, MOSL
rd
§
Business description
§
§
GMV data
§
§
§
Business scale
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
Investors
Funding history
Acquisitions
November 2014
77

Thematic | E-commerce
Exhibit 114: Leading online marketplace in the country…
Exhibit 115: …With sizeable team, likely to double soon
Source: Company, MOSL
Source: Company, MOSL
Exhibit 116: Rate of online shopping picking up rapidly
Source: Company
Exhibit 117: Horizontal marketplace with presence in almost all categories
Source: Company, MOSL
November 2014
78

Thematic | E-commerce
Shopclues
SHOPCLUES
About the company
§
§
ShopClues.com is an online retail website headquartered in Gurgaon, India. It is the Indian
subsidiary of Clues Network Inc, a US corporation.
The company was founded in the Silicon Valley, US in 2011 by an alumnus of Washington
University and renowned Wall Street internet analyst Mr Sandeep Aggarwal and eBay’s
former Global Product Head, Mr Sanjay Sethi.
L t
f
d
df
A
h managed
ShopCluesSh Cl first e-commerce websiteCEO M S d operated on lthed l d d ilt t
was the
in India that
marketplace model.
It works on a zero inventory marketplace model where sellers can display their product
catalogues.
It operates as a generalist offering wide assortment of items including mobile phones,
laptops, tablets, electronics, home décor, footwear, apparel, fashion accessories, books &
music etc. New product categories like Pet Supplies and Gourmet Food are also gaining
popularity.
ShopClues is aiming at GMV of INR10b by FY15, with net revenue of INR1.5b.
In FY14, it had GMV of INR3.5b and net revenue of INR455m, up from INR350m in FY12.
Company is confident of turning profitable on an operating level by June 2015.
ShopClues handles ~1.8m transactions every year. It has over 32,000 registered merchants,
200,000 products on the ShopClues platform and over 42m visitors every year across 12,000
locations in the country.
ShopClues joined as the 35th entrant in Indian e-commerce in 2011 and is reported to have
made its way to the list of top six e-commerce destinations in the country. Company employs
over 350 people across locations.
Helion Venture Partners
Nexus Venture Partners
A leading Japanese Internet company
A total of USD15m raised so far
USD4m in September 2012
USD10m in March 2013
The company is looking forward to handling 3m transactions and expects visitors on the
website to cross 100m.
ShopClues will launch its first-ever advertising campaign in September 2014 and has
earmarked INR750m for the same.
The aim is to have USD1b in GMV in 2016 and USD100m of net revenue, post which it will go
f
N d li i
Source: Company, MOSL
Exhibit 118: Aims to increase GMV to USD1b by 2016
Business description
§
§
§
Business scale
§
§
§
§
Some numbers
§
Investors
§
§
§
§
§
§
§
§
§
Funding history
Business outlook /
development
Source: Company, MOSL
November 2014
79

Thematic | E-commerce
Infibeam
Infibeam
About the company
§
§
Infibeam is an e-commerce company headquartered in Ahmedabad.
It was founded in 2007 by Mr Vishal Mehta, a Cornell and MIT Sloan alumni. After working for
Dell Computers and Amazon.com in the US for five years, Mr Mehta returned to India in 2007
and started Infibeam along with a group of ex-Amazon employees.
He funded the company by s elling his personal assets rather than opting for external equity
funding.
Infibeam.com s tarted a s a n a utomobile p ortal i n 2007, b ut l ater t urned i nto a n o nline
retailer.
Company has offices in Ahmedabad, Delhi, Mumbai and Bangalore and has a total of 1,300
employees.
Infibeam.com, the online retail website of the company, sells books, electronics and lifestyle
products.
In 2011, t he co mpany e stablished I nfibeam L ogistics, i ts own l ogistics a rm in m ajor I ndian
cities.
Infibeam extended its e-commerce platform to build online stores for HiDesign, TTK Prestige
and C rossword B ookstores a nd N DTV Shopping. I n 2 011, t he e -commerce p latform was
opened to all through Buildabazaar, which allows users to create their own web store.
In August 2013, Infibeam launched the e-commerce marketplace Dhamaal.com in association
with CCAvenues. Dhamaal has a selection of 15m products.
In F ebruary 2 010, I nfibeam l aunched P i, a n e -book r eader t hat u ses E I nk e lectronic p aper
technology.
Infibeam’s strategy was described by
Forbes
as "that seems to defy most standard models”.
Company’s turnover was reported to be INR10b as of November 2013.
It broke even for the first time in FY14 and had revenue of INR3.5b.
The promoter had so far invested his own money and funds from friends and family.
In May 2014, Sony Music Entertainment acquired a strategic 26% stake in subsidiary Infibeam
Digital Entertainment Pvt Ltd (INDENT).
However, a s p er media r eports, i t wi ll u se t he I PO r oute f or r aising funds i n t he n ext t hree
quarters, with plans to raise at least 20% of its valuation.
While the size of current team is 1,300 employees, Infibeam aspires to have 5,000 by 2015.
Company is looking to raise funds for domestic and international expansion, manpower and
infrastructure enhancement.
It forecasts ~50% growth in the coming years. Infibeam is expanding into Middle East, North
Africa and South East Asia.
Exhibit 120:
§
§
§
Business description
§
§
§
§
§
§
§
§
§
§
§
Business outlook /
development
§
§
§
Business scale
Funding history
Exhibit 119:
Source: Company, MOSL
Source: Company, MOSL
November 2014
80

Thematic | E-commerce
Myntra
MYNTRA
About the company
§
§
§
§
Myntra.com i s a n I ndian o nline s hopping r etailer of f ashion a nd c asual l ifestyle pr oducts,
headquartered in Bangalore.
It w as e stablished by M r M ukesh B ansal i n F ebruary 2 007 w ith a v ision o f c reating I ndia's
largest on-demand personalization portal.
On May 22, 2014 Flipkart acquired Myntra in a deal estimated to be ~USD300m.
Myntra.com i s a n a ggregator o f m any br ands. I ts bus iness m odel i s ba sed o n pr ocuring
current season merchandise from various brands and making them available on the portal at
the s ame t ime a s i n r espective r etail b rand o utlets. A ll t hese p roducts a re o ffered t o
customers on MRP.
Till F Y14, Myntra h ad a n i nventory m odel. I t d isclosed i ts p lans t o r oll o ut i ts marketplace
model from April 2014 (1QFY15).
From 200 7 t o December 2010, company was in the business of personalization of products
online. The products ranged from T-shirts, mugs, greeting cards, calendars, key chains, diaries
etc.
However, in 2010, it expanded the catalogue to retail fashion and lifestyle products.
In 2013, Myntra acquired San Francisco-based Fitiquette, a developer of virtual fitting room
technology.
Myntra's target for FY14 was to double its turnover from INR4b in FY13 to INR8b.
Myntra.com offers close to 70,000 products from more than 700 leading Indian, international
and designer brands. The portal receives over 50m hits every month and services over 9,000
pin codes across the country.
Myntra invested 8-10% of sales in brand promotion to develop the market.
Tiger Global
Kalaari
PremjiInvest
IDG Ventures
NEA-IndoUS Ventures
Accel Partners
Raised seed funding in October 2007 from Accel, Mumbai Angels and another angel investor
Raised a funding of USD5m in November 2008
Raised second round of USD14m in 2011
Raised USD20m in third round towards the end of 2011
Raised USD25m between 3Q and 4Q of 2012
Raised USD50m in February 2014
In i ts n ewly-launched m arketplace, M yntra e xpects t o ha ve ~ 500 vendors signed up w ithin
the first year of operation.
It also expects ~20% of the total business to come from the marketplace in the next one year.
Source: Company, MOSL
Business description
§
§
§
§
Business scale / statistics
Some numbers
§
§
Investors
Funding history
Business outlook /
development
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
November 2014
81

Thematic | E-commerce
Fashion And You
FASHIONANDYOU
About the company
§
§
Business expansion
Business model
§
§
§
§
§
Business
§
§
§
§
Investors
§
§
§
§
§
§
§
§
§
§
Founded in 2010, Fashionandyou is one of India's leading flashsales/rivate sales websites,
offering a wide range of apparel, footwear and accessories for men, women and kids
Incubated by Harish Bahl's Smile Group, and member of the Brand Alliance - an international
group of leading private sales websites
Has distribution centers in Gurgaon, Surat and Bangalore
The site gives users (or 'members') access to various curated collections of Indian and Western
fashion labels and lifestyle brands at deep discounts
The company sources its own inventory from local and international distributors
80% of revenues to be targeted from flash sales, while 20% from SKUs that would be available
continuously
Pivoting to an inventory light model to minimize risk of unsold inventory
Has 5.5 million registered members across 1,200 locations in India
Fashionandyou runs 15 new sales every day, and offers merchandise from 500+ brands
through limited-time events
Each flash sale event starts at 9:00 am in the morning and lasts for around 3 days
Women account for 70% of shoppers
Sequoia Capital
Smile Group
Norwest Venture Partners
Intel Capital
Nokia Growth Partners
Vipshop (Chinese discount retailer)
Series A: Undisclosed; November 2009
Series B: USD8m; December 2010
Series C: USD40m; November 2011
Series D: USD10m; June 2014
Source: Company, MOSL
Funding history
November 2014
82

Thematic | E-commerce
Zivame
Zivame
About the company
§
§
§
Founded by Ms Richa Kar in 2011 and headquartered in Bangalore, Actoserba Active
Wholesale Pvt Ltd ("Zivame") is an online retailer of lingerie
Zivame offers a selection of over 3,000 lingerie styles including bridal lingerie, plus size
lingerie, everyday wear, shapewear, lounge wear, nightwear, and swimwear.
This selection is from over 40 domestic and international brands like Hollywood Fashion
Secrets, Enamor, WonderBra, Triumph, Jockey, Amante, Bw!tch, Inaya, Hanes and Lovable
among others
Top international brands like Ultimo and Plie are now available exclusively on Zivame
Invest in online and offline marketing initiatives to expand reach
Zivame holds inventory for most SKUs and is able to ship them quickly. It aims to reach
INR4b in revenues by FY16
Shows 30,000 SKUs
Registers 20,000 users ever month, 1 million unique visitors
1,200 orders a day
40% of Zivame’s repeat buyers purchase lingerie 4 times a year.
60% of new customers have never bought lingerie online before.
Tier 2 and 3 sales and revenues clocked – In the 1st year, Zivame had 15% buyers from
Tier 2 & 3 cities. This number went up to 30% in the second year.
IDG Ventures
Kalaari Capital
Unilazer Ventures
Series A: USD3m in 2012
Series B: USD6m in 2013
Source: Company, MOSL
§
Business expansion
Business model
Business scale
§
§
§
§
§
§
§
§
Investors
§
§
§
§
§
Funding history
November 2014
83

Thematic | E-commerce
Healthkart
HealthKart
About the company
§
Headquartered in Gurgaon, Aquamarine HealthKart Pvt Limited ("HealthKart") runs the
website HealthKart.com and HealthKartPlus.com, and related apps on iOS and Android
through which consumers can compare prices for generic drugs and place orders for
products in a broad range of categories such as fitness & nutrition supplements, sports
nutrition, health devices, personal care, eye care and parenting, as well as some home
appliances as well as new categories like pet products
The company was founded by Mr Prashant Tandon and Mr Sameer Maheshwari
(Stanford/Harvard Business School graduates) in 2011
HealthKart has grown from a small team of 4 in March 2011 to strength of 100+, heading
towards their goal of becoming India’s e-health mega store
Healthkart has grown from offering management software to physicians to now directly
retailing healthcare products to consumers
In May 2012, HealthKart acquired Madeinhealth.com, a health nutrition e-store
Maintains own warehouses, where it stocks faster moving products
Has tied up with local pharmacies and vendors for delivery of products that it does not
stock
Recently started offline stores in some cities to play on a hybrid - offline/online sales
model
With about 50,000 transactions a month at an average spend of INR1,500-2,000, the
company is believed to be clocking monthly revenue of INR75m-100m
Currently offers more than 20,000 SKUs, which it plans to scale to 30,000 by the end of
2014
35% of traffic comes from mobile
Kae Capital
Omidyar Network
Sequoia Capital
Intel Capital
Seed round of USD1m in April 2011
Series A round of ~USD6m in January 2012
Series B round of ~USD14m in 2013
Source: Company, MOSL
§
§
Business expansion
§
§
Business model
§
§
§
Business scale
§
§
§
§
§
§
§
§
§
§
Investors
Funding history
November 2014
84

Thematic | E-commerce
Bigbasket
BigBasket
About the company
§
§
Business expansion
Business model
Founded in 2011 in Bangalore by entrepreneurs who had previously founded Fabmall,
Innovative Retail Concepts Private Limited ("BigBasket.com")
Allows consumers to order online and then delivers fresh groceries and food supplies to
consumers in Bangalore, Hyderabad and Mumbai
Expanding to 10 large Indian cities, including Chennai, Pune, Delhi, Ahmedabad and
Chandigarh in the next few months
Try and deliver orders same day or next day using own fleet of delivery vehicles
BigBasket directly sources produce from farms and aggregators and provides clients the
“farm to home” experience
BigBasket offers around 12,000 products across several categories like fruits & vegetables,
groceries & staple provisions, bread & bakery products, toiletries, branded food & non-
food products, dairy products, household provisions, confectioneries, and frozen food
such as ice creams
Currently delivers ~5,000 orders per day, with an average transaction value of INR1,600
and expects to generate GMV of INR2.5b in FY15
The company has 70,000+ customers
Ascent Capital
LionRock Capital
Zodius Capital
Helion Ventures
Series A of USD10m in 2012
Series B of USD33m in 2014
Source: Company, MOSL
§
§
§
§
Business scale
§
§
Investors
§
§
§
§
§
§
Funding history
November 2014
85

Thematic | E-commerce
Bluestone
BlueStone
About the company
§
§
§
Founded in 2011 by Ms Vidya Nataraj and Mr Gaurav Singh Kushwaha
Headquartered in Bangalore, Bluestone.com sells fashionable, contemporary jewelry
online
BlueStone offers a range of jewelry under five categories, including earrings, rings,
pendants, bangles and bracelets. Various filters — such as gold purity, stones, occasion
and stone color—have been provided to help buyers select the jewelry
Early in 2014, BlueStone launched a service to allow end users to design and customize
their wedding jewelry. Designers from BlueStone exclusively design the buyer's jewelry
set to match the wedding trousseau
Bluestone is planning to go offline by setting up physical stores in select cities
Bluestone has access to proprietary international designs and designers, and has its own
manufacturing unit
It also sources collections on order from other manufacturers
Bluestone offers 25,000 design and 10m choices for the customer with zero inventory
costs
Estimated revenue of INR350m in FY14
K Ganesh
Saama Capital
Kalaari Capital
Accel Partners
Ratan Tata
Series A: USD5m in 2012
Series B: USD10m in 2014
Source: Company, MOSL
§
Business expansion
Business model
§
§
§
§
Business scale
Investors
§
§
§
§
§
§
§
Funding history
November 2014
86

Thematic | E-commerce
UrbanLadder
UrbanLadder
§
About the company
§
Business expansion
Business model
Business scale
Investors
§
§
§
§
§
§
§
§
§
§
§
Founded in 2012 by Mr Ashish Goel and Mr Rajiv Srivatsa, and headquartered in
Bangalore Urban Ladder is an online market place for a curated range of furniture
It is currently the leader in the category
Plans to expand to 25 cities from the current 11 cities
Sources furniture from vendors in Jodhpur, Jaipur as well as local cities that it delivers in
Uses own delivery team, as has previously faced problems of damaged goods through 3PL
players
GMV of INR60m a month in March 2014
125 orders a day with a GMV of INR20,000
SAIF Partners
Kalaari Capital
Steadview Partners
Seed Round: USD1m in 2012
Series A: USD5m in 2013
Series B: USD21m in 2014
Source: Company, MOSL
Funding history
November 2014
87

Thematic | E-commerce
Travel
MakeMyTrip
Makemytrip.com
About the company
§
§
§
§
Makemytrip (MMYT) is the largest online travel company in India. MMYT commenced
operations in 2000.
In the first five years following inception, it focused on the non-resident Indian market in
the United States, primarily servicing demand for United States to India air tickets
It started its Indian business with the launch of its Indian website in September 2005
Its services and products include air tickets, hotels, packages, rail tickets, bus tickets, car
hire and ancillary travel requirements such as facilitating access to third-party travel
insurance and visa processing.
Based on 2012 gross bookings, MMYT led the market with 47% market share
Over FY10-14, its gross bookings have grown at a CAGR of 28%, and net revenues at a
CAGR of 27.5%
3.2m+ mobile apps have been downloaded, contributing 29% of total online traffic
Air ticketing is 58% of net revenues (in FY14 and 47% in 1QFY15), and hotels is 38% in
FY14, up from 18% in FY11
November 2012, acquired 100% stake in companies comprising the Hotel Travel Group -
operating in Southeast Asia. Total consideration is USD25m
In November 2012, acquired 51% stake in ITC group - hotel aggregator and tour operator
in Thailand. Total consideration was USD3.2m
On February 2014, completed the acquisition of entire equity in ETB group, for a total
consideration of USD4.4m.
MMYT has a diverse hotel portfolio of 13,000 domestic lodging properties
Gross bookings and net revenues from hotels are up ~70% in 3 years to USD1.26b and
USD106m respectively
In 1QFY15, hotels were 50% of net revenues, up from 18% in FY11
Annualized transactions in 1QFY15 were 6m, compared to 3m in FY11 and 4.9m in FY14
Source: Company, MOSL
Business statistics
§
§
§
§
Recent acquisitions
§
§
§
Focus on Hotel business
§
§
§
November 2014
88

Thematic | E-commerce
Yatra
Yatra
About the company
§
Yatra.com is India’s second largest Online Travel Agency (OTA) with a ~27% market share. It is
based in Gurgaon, founded by former Ebookers Group (UK) executives Mr Dhruv Shringi, Mr
Manish Amin and Ms Sabina Chopra in August 2006.
Besides online ticketing, Yatra is focused on further diversifying its business by growing the
hotels and holiday package business.
At present, hotel bookings constitute 15% of the business, holiday packages ~20% and flight
bookings account for the rest.
Currently, ~12% of actual sales are happening on mobile. In March 2012, Yatra.com
announced Bollywood actor Salman Khan not just as the brand ambassador for the travel
website but also as a shareholder.
In April 2014, announced as Official Travel Partner of IPL Team Rajasthan Royals.
Mobile is growing very rapidly—over 20% of the total traffic and 15% of flight bookings come
from mobile. Surge in mobile has come within the last 12 months.
Yatra is the market leader in domestic hotel bookings in India. It aims to grow the hotels and
packages net revenues to the same scale as those from air ticketing by FY16, by doubling the
domestic hotel tie-ups to 30,000 by December 2015.
Yatra.com has made three acquisitions till now: (1) ticket consolidator Travel Services
International (TSI) in October 2010, (2) global distribution system (GDS) provider,
MagicRooms.in, and (3) Indian events and entertainment portal, BuzzInTown.com—all for
undisclosed amounts.
In June 2012, it announced plans to fully acquire Travelguru.com from Travelocity Global. The
acquisition of Travelguru had given Yatra access to a network of more than 6,500 hotels in
India and 72,000 hotels worldwide.
Net revenues in FY14 were ~USD50m
Total Gross Bookings through Yatra were USD800m in FY14, compared to USD1,621m
through Makemytrip.com (MMT). Out of this, gross air ticketing value was USD700m, which
compares with USD944m at MMT.
The Company has ~1,800 employees based in across India, including 900 travel consultants.
In April 2014, Yatra stated that it had reservation facility for more than 12,000 hotels in India
and over 400,000 hotels around the world.
The firm claims that it is doing 20,000 domestic tickets and 5,000 hotels and holiday packages
per day.
In April 2012, it was the second-largest online travel website in India, with 30% share of the
INR370b (USD6.1b) market for all online travel related transactions.
Company stated that it has achieved market leadership in the domestic hotels and holiday
package segment.
In April 2014, Yatra cited that it will break even in 12 months.
On the back of hotel bookings and holiday packages business, it is expecting ~40% revenue
growth in 2014-15.
IDG Ventures
Vertex (Temasek's VC arm)
Reliance Venture Asset Management
Web18 (of TV18 group)
Norwest Venture Partners
Intel Capital
Valiant Capital Management
Yatra has so far raised USD125m in various rounds of funding
Raised USD5m in 2006
Raised an undisclosed amount from Intel Capital in 2008
Raised USD33m in April 2011
Raised USD14.5m in July 2012
Raised USD23m in April 2014
Yatra targets strategic investing of its latest round of capital in mobile technology, besides
strengthening its position in domestic hotels and packages.
In 2012, Yatra stated its ambition was to scale up the revenue to INR70b (2x).
Source: Company, MOSL
Business description
§
§
§
§
§
§
Acquisitions
§
§
Business scale
§
§
§
§
§
§
§
§
§
Investors
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
Funding history
Business outlook /
development
November 2014
89

Thematic | E-commerce
Classifieds
Bharat Matrimony
Bharat Matrimony
About the company
§
Bharat Matrimony is the world's leading online matrimony service. It has been recognized by
the L imca B ook o f World Records for h aving a record number o f documented marriages
online.
Bharat M atrimony w as f irst launched i n T amil b efore 20 00. I n 2000, i t q uickly l aunched
across all languages in India.
Presently, i t e xists n ot o nly i n a ll I ndian l anguages but ha s v entured i nto c ountries l ike S ri
Lanka, UAE, Pakistan, etc.
Bharat M atrimony h as e volved f rom an ' Online M atch' to ' Match M aking' t o ' Marriage
Service Provider', thus expanding its target market/opportunity size.
~70% of i ts lead acquisitions ha ppen o rganically. Only ~30% happen through Google and
advertisements.
Bharat Matrimony is strong in the 'cow belt' (Uttar Pradesh, Haryana, Punjab, etc), but weak
in t he ' MOW b elt' ( Madhya Pradesh, O rissa and C hhattisgarh). I t pl ans t o focus o n M OW,
going forward.
It has a t otal user data base of 50m. Men account for 70% of registrations and women for
30%. 20m are active users, while 2.3m are paid users. Paid users have increased from 7% of
total users in 2009 to 15% currently.
To supplement online services, company has 200 offline centers that help in assisted search.
A store takes about four months to break even. Bharat Matrimony targets 400 stores in the
next 2 years.
Elite Matrimony: This c aters to p remium match-making fo r a ffluent fa milies. The company
derives 5% of its revenue from this segment, where charges are up to INR50,000 per match.
Assisted Matrimony: It also offers personalized match-making at its outlets. Charges are up
to INR19,000 per match. This segment contributes ~15% of total revenue.
Regular O nline M atrimony: T his i s t he company's bread-and-butter mo del fr om wh ere i t
derives ~80% of its revenue. Charges are up to INR3,590 per subscriber.
It h as ~2 m active u sers a nd o ver 20m r egistered m embers. I t was r ecognized b y A lexa,
Traffic Estimate and Comscore as most visited matrimonial portal worldwide.
India ha s ~ 70m i ndividuals i n t he marriageable a ge group o f 2 0-35. L ove marriages
constitute ju st 2 % o f a ll m arriages i n I ndia. T he size o f o nline m atrimonial market i n I ndia
stands at INR5b. Bharat
Matrimony h as 70% m arket s hare cu rrently. O n a n a verage, i t a chieves 8, 000 p rofile
registrations per day and 1,500 marriages per day.
Company has a market share of 90% in Kerala. It is the undisputed leader in South India and
its core business enjoys 40% margin.
On an average, in each wedding, INR800,000 is spent on expenses like catering, decoration
etc. This is a large unorganized market, which the company is beginning to exploit.
Similarly, marriage return gifts are a large market that the company has ventured into. On
an average, a family spends INR50,000 towards return gifts for relatives.
'Photo Match' is a key technological innovation that Bharat Matrimony undertook. It enables
a user to upload a photograph of a celebrity with the desired profile (slim, fair etc) and find
matches accordingly.
Every year, company has been taking price hikes of 5-10% without impacting the growth of
paid subscription, substantially.
Source: Company, MOSL
§
§
§
Business characteristics
§
§
§
§
Business segments
§
§
§
Business scale
§
§
§
§
Strategic initiatives
§
§
§
§
November 2014
90

Thematic | E-commerce
Zomato
Zomato
About the company
§
Zomato is an online restaurant discovery guide providing information on home delivery,
dining-out, cafés and nightlife in cities of India, Brazil, Turkey, Indonesia, New Zealand, the
Philippines, South Africa, Sri Lanka, Qatar, Chile, Portugal, the United Arab Emirates and the
United Kingdom.
The website (earlier Foodiebay.com) was started by Mr Deepinder Goyal, a post graduate of
IIT Delhi. In August 2010, Info Edge invested USD1m in the business and in November 2010, it
was renamed as Zomato.com
Foodiebay officially started in July 2008 with a list of 1,200 restaurants in the Delhi National
Capital Region. This database expanded to 2,000 restaurants by end-2008. Within the next six
months, Kolkata and Mumbai were included on the website.
In September 2012, Zomato expanded to its first overseas location by launching services in
Dubai, UAE.
This was followed by quick expansion into Sri Lanka, Qatar, the United Kingdom, the
Philippines and South Africa.
Company launched its operations in Auckland and Wellington in New Zealand in July 2013
and Hamilton in December 2013.
More recently, Zomato expanded to Brazil, Turkey and Indonesia.
In July 2014, Zomato made its first acquisition of New Zealand's Menu-Mania for an
undisclosed sum.
On July 18, 2014, company announced the launch of its operations in Chile.
It makes money from the ads restaurants place on their pages. Restaurants advertise with
Zomato due to better targeting.
They can pay only to be displayed when someone is searching for a location — 'Colaba' for
instance — and further narrow it to be displayed only for 'take outs in Colaba'.
In November 2013, the company was averaging ~INR30m per month.
As in end-2013, the entire revenue was coming from the website and they were yet to
monetize the mobile app.
Company gets ~35% of revenue from overseas markets. Zomato's revenue increased from
INR20m in FY12 to INR306m in FY14.
EBITDA loss was INR72m in FY12 and INR414m in FY14.
Info Edge (India)
Sequoia Capital
Raised first round of USD1m in August 2010
Raised USD3.5m in September 2011
Raised USD2.5m in 2012
Raised USD10m in early 2013
Raised USD37m in November 2013
Source: Company, MOSL
§
§
Business expansion
§
§
§
§
§
§
§
§
Business model
Business scale
§
§
§
§
§
§
§
§
§
§
§
Investors
Funding history
Exhibit 121: Zomato remains in investment mode, fueling growth
Source: Company, MOSL
November 2014
91

Thematic | E-commerce
Quikr
QUIKR.COM
About the company
§
§
Quikr i s one o f t he I ndia’s largest online a nd mobile classifieds portals based i n Mumbai,
India.
Mr Jibi Thomas and Mr Pranay Chulet had co-founded Quikr in 2008 a s Kijiji India where Mr
Thomas was h ead of op erations. K ijiji.in w as re-branded as Q uikr.com with m ore i nvestors
coming in.
In July last year, Mr Thomas quit the firm to launch a digital marketing company called Web
Butter Jam.
Quikr was launched on 12 J uly 2008 a nd is currently present in 900 ci ties across India. Quikr
provides the local community with a platform to help them buy, sell, rent and find something
and address needs across many categories.
Quikr gets more than 30 million unique visitors a month on its website
It h as p resence i n o ver 9 40 cities i n I ndia a nd o perates i n 13 ca tegories a nd in 170 sub-
categories, which range from mobile phones, real estate, cars, services, jobs, entertainment,
furniture, electronics and many more.
Quikr i s a l arge-scale, cr oss-category o nline cl assifieds b usiness w ith more than 32 million
monthly customers and small business users in 1,000 cities.
Its c onsumer ba se pr imarily comes t o Q uikr t o sell, buy, rent o r f ind pr oducts a nd s ervices
across c ategories such as e lectronics an d h ousehold g oods, r eal estate, c ars, bi kes a nd
employment, among others.
It has raised a total of ~USD200m in funding till now.
The company has three revenue streams like any other online classifieds company - premium
listings, leads generation and advertising that contribute to an estimated revenue run-rate of
USD50.
CEO ha d c ited e arlier i n 2 014 t hat Q uikr’s r evenue ha d g rown f ive t imes o ver t he pa st 1 2
months.
Latest round of funding valued the firm at around USD240m.
The capital (USD60m raised in September 2014) from the latest round will be used to invest
in product development as well as to further expand its mobile business.
Tiger Global Management
Kinnevik (Swedish Private Equity)
Warburg Pincus
Norwest Venture Partners
Ebay Inc
Nokia Growth Partners
Omidyar network
Matrix Partner India
Raised USD22m in various rounds of funding before May 2012
Raised USD32m in May 2012
Raised USD90m in March 2014
Raised USD60m in September 2014
Expected to cross 100m unique users in about three to four years.
The c ompany ha s s aid t he f unds r aised w ill be us ed t o i nvest i n pr oduct de velopment a nd
expansion of its fast-growing mobile business.
Source: Company, MOSL
§
§
Business description
§
§
§
§
Business scale
§
§
§
§
Strategic investments
/Acquisitions / Milestones
Investors
§
§
§
§
§
§
§
§
§
§
§
§
§
§
§
Funding history
Business outlook /
development
November 2014
92

Thematic | E-commerce
People Group
People Group
About the company
Being an NRI, promoter Mr Anupam Mittal first launched Shaadi.com in the NRI market in 1996.
Later, it was expanded to cater to the pan-India market.
Makaan.com is the real estate search arm, which was launched after Shaadi.com.
Other businesses include Mauj Mobile, largely focused on mobile app aggregation.
People Group is made up of three companies - People Interactive, People Infocom and People
Pictures.
§
People I nteractive is t he c onsumer I nternet a rm o f t he g roup a nd o wns t he ex tremely
successful matrimonial p ortal, S haadi.com, al ong with r eal e state site, Makaan.com, and
friendship and social networking service, Fropper.com.
§
Infocom i s a M anaged Se rvices P rovider t o t elecom operators, med ia-entertainment
companies a nd c onsumer br ands. I t e xtends s ervices i n managing t hese a pplications a nd
facilitating content on them through its popular brand, Mauj Mobile.
§
People Pictures is in media production and was founded to explore the market for new-age
Indian ci nema. Fl avors, a n N RI cu lt h it r eleased i n 2005, and 99, r eleased i n 2009, a re t he
biggest hits of those summers.
Shaadi.com achieves 10,000 profile registrations a day. Only paid users can access contact details
of the profile they like. Average realization per paid user is INR5,000 for a usage period of three
months. To supplement online services, the company has 100 offline centers, which help in
assisted search, especially for parents looking to get their children married.
People Group's real estate portal, Maakan.com, is more focused on the C2C market, where broker
involvement is less.
§
§
Mobile s earches a re wi tnessing ex plosive g rowth; P eople Group ex pects >50% c ontribution
from mobile, post July 2014.
Company i s f ocusing o n p roviding a cl utter-free ex perience t o u sers ( no/ l ow
advertisements). It has been consistently striving to match users' unique requirements.
Source: Company, MOSL
Group divisions
Shaadi.com
Makaan.com
Strategic initiatives
November 2014
93

Thematic | E-commerce
Allied/Parallel
Mydala
MYDALA
About the company
§
§
MyDala started its business four years ago. Currently, it has 120,000+ merchants and targets
to reach over 1m merchants in next 12 months. As at June 2014, it had 32m visitors.
MyDala has effectively been able to adopt global businesses to Indian ecosystem to turn
profitable much faster than its global pears itself. It executes 4m transactions per month and
over 25m customers have used MyDala services.
Coupons, as available on sites like Groupon, typically are branding efforts of the merchant in
which they are not necessarily making money. What Groupon thus offers are deep discounts
on the purchase of any product / service.
MyDala, on the other hand, is a platform on which the seller can market his discounts. So,
while the promotional discount is there for the taking, through MyDala, the offer reaches to
the targeted audience most effectively. For example while a restaurant may be running the
offer of discounted lunch buffet on weekdays, it may still want to reach out to MyDala to
address the communication to the localized target audience, and in return share a fee from
the sale made through MyDala.
Low cost customer acquisition for local merchants through a hyper local mobile-focused
targeted advertising approach have been MyDala's USPs
It enables brands/ retailers to distribute hyper targeted advertising based on user
demographic which includes but not limited to location, past usage, age, gender, spending
patterns, kind of device, data connection plan and host of 40 different variables. This hyper
analytics is far more targeted than a generic platform like google and facebook itself. For
example, if P&G were to generate trial purchase of customers in Bhopal living in Arera Colony,
who have prepaid connections and are data subscribers, MyDala would be the only platform
for them to do that.
MyDala earns revenues from two sources: (1) tie-ups with TSPs (~20% of revenues), and (2)
through its own website and mobile app (80% of revenues), where users downloads coupons
Merchant quality is among key risks to the business. The company needs feet on the ground
looking over the same. At any point of time it is evaluating ~15k merchants for quality
parameters.
Info Edge was among the early investors in the company. Info Edge instilled the focus on
generating profitable growth, and also towards establishing a large sales fleet on the ground.
Cost of customer acquisition is INR6 for MyDala as compared with INR300-800 for e-
commerce players.
Groupon runs 1,000 deals per month while MyDala runs around 40,000 deals a month across
200 cities.
Around 80% of traffic is organic
Visitors to MyDala network: 35m per month, growing at 10% MoM
Transactions on MyDala network: 4m per month
Plans to start innovative products like live offers valid for 1 or 2 hours and expand product
lines
MyDala's biggest asset is the huge database of customers and its bigdata analytics engine
which based on user's dynamic usage pattern, location, mobile credit/bill and buying
preferences would offer the best suitable deals to the customers.
Source: Company, MOSL
Not a pure deep discount
coupon site
§
§
Business characteristics
§
§
§
§
Key statistics
§
§
§
§
§
§
§
November 2014
94

Thematic | E-commerce
Exhibit 122: Mydala business
November 2014
95

Thematic | E-commerce
Ecosystem
Pay Point India
Paypoint India
Business summary
§
Pay Point India was started in 2009, with a vision to facilitate and simplify methodologies of
making and processing payments anywhere and everywhere. The promoter defines his
business as Fast Moving Consumer Services (FMCS).
Company is a payment collection hub that facilitates collection of bills of various utility
service providers, issue of movie, transport, airline and railway tickets and recharge of
prepaid mobile phones
It accepts payments in all modes - cash, cheque, credit cards. It provides easy access to top-
up facility in all possible modes and anywhere across the country.
It operates on a 24x7x365 module. Pay Point operates on the vendor chain cycle. Vendors
include shopkeepers, chemists and petrol pumps in the neighborhood. Vendors issue a
receipt immediately over the counter for the payments made to them. The payment details
are sent online to the service providing companies.
Business potential is huge. Indian Railways sells 3.5b tickets annually. Every household has at
least three utilities bills to pay every month. In banking, there are numerous transfer
requirements for migrants, generating a large transactional volume.
Pay Point has a network of 6,000 distributors pan India, who execute the transactions for end
customers. Transaction processing for utility bills is pretty quick - 30 seconds as only the bar
code needs to be scanned.
Revenue stream for the business is two-fold - one from service providers and the other as
commission on sales of high margin products like air tickets.
Retailers need to put money upfront for any transaction. Hence, there is no risk of credit loss.
Money remittance has evolved to be a big business for the company, largely through
labor/migrants living in cities, who have to remit wages back home.
50% of revenue comes from financial products, 30% from utilities and 20% from mobile
recharge.
In a small district like Jawahar in Maharashtra, migrants were required to open accounts with
the State Bank of India (SBI) instantly to claim NREGA benefits. SBI itself could not open these
accounts due to capacity constraints. Pay Point opened 30,000 accounts in 45 days,
displaying the power of its reach.
Source: Company, MOSL
§
§
§
Business statistics
§
§
§
§
§
§
Strategic initiatives
§
November 2014
96

Thematic | E-commerce
DTDC
DTDC
Business summary
§
§
§
§
§
DotZot
§
§
Strategic intent
§
§
DTDC is one of the largest Indian players in the Express, Courier & Logistics Services
industry. It is also credited with pioneering the franchisee concept for the courier
industry in India and presently has the largest network in the country, with 6,500
channel partners.
DTDC's services range from domestic to international delivery, premier express, supply
chain solutions, new world retail, warehouse services etc.
Company has 281 own offices and 6,500 channel partners spread across the country. It
serves nearly 10,000 pin codes, delivering 11.5m consignments per month.
Over the years, DTDC has successfully transformed into a full scale supply chain solutions
provider, offering domestic and international express, freight, transportation, logistics
management, warehousing and distribution services.
In July 2013, GeoPost SA took 40% stake in the company. GeoPost is a leading player in
express service in Europe, ranked No. 1 in France and No. 2 in Europe. It serves 230
countries worldwide. The partnership will help DTDC to gain a larger international
footprint and enable global dominance in B2B and B2C markets.
Launched in mid-2013, DotZoT is the first pan India delivery network, focused exclusively
on the e-commerce/e-retail space. It is backed by DTDC's size, scale and reach and covers
8,000 plus pin codes and 2,300 cities across India.
DotZot aims to bridge the gap faced in logistics infrastructure by providing superior
logistics solutions to e-retailers, who are increasingly looking to enhance customer
shopping experience. DotZot ensures constant visibility of shipments and real-time flow
of information. It offers superior value and reliability to e-retailers.
DTDC’s current strategy in keeping with its Mission 1000 and Vision 2020 is to
consolidate its current position and constantly introduce new services and products that
are relevant to the needs of consumers.
To combat competition, DTDC is heavily investing in technology, infrastructure, brand
development and network expansion. A three-year program that started last year,
involves an investment of over INR250m in brand building and a complete upgrade and
standardization of all DTDC outlets. DTDC’s road map for growth is to aspire to be an
INR50b company from the present level by 2020.
Source: Company, MOSL
November 2014
97

Thematic | E-commerce
PAYU
PayU
About PayU
PayU is one of the largest consumer payment processor globally, with operations in multiple
countries and a clear leader in the Indian market. USD25b media and internet giant is the parent
company.
PayU today has 36,000+ merchants. The company is adding ~4,500 merchants on a monthly.
These fall into three main categories.
§
E-commerce – typical e-tailing transactions
§
Non- ecommerce: this includes billers, Government, Insurance, IRCTC, airlines etc.
§
Offline small sized merchants who collect payments online or through mobile occasionally.
PayU has two websites – PayU.in and PayUmoney.com. Bulk of the smaller merchants is in
PayUmoney.com. It is a It also aids buyers, with features like buyer protection, and other services
like reward points. PayU.in is purely an e-commerce oriented payment gateway service. It is
primarily meant for large merchants
§
§
Outside of India it is also a prominent player in regions like Central Eastern Europe, Latin
America, and Africa.
PayU’s services are used by leading companies like goibibo.com (group company),
snapdeal.com, bookmyshow.com, freecharge, Jabong.com, Groupon India, BigBasket.com,
pepperfry.com,
The company claims to be among the most aggressive player in the market in terms of pricing
Source: Company, MOSL
Merchant base
Operating through to sites
Leading payment solutions
provider
§
November 2014
98

Thematic | E-commerce
DIGITAL CONTENT: Hungama
Hungama
About the company
§
Founded in 1999 as Hungama.com and headquartered in Mumbai, Hungama Digital
Media Entertainment ("Hungama") is India's leading digital media platform with
businesses in mobile, gaming, online music retail including Hungama.com, voice services
and integrated media
Hungama is the largest aggregator, developer and publisher of Bollywood & South Asian
entertainment content in the world, having worldwide exclusive rights to over half a
million music and video titles
The company serves content to consumers in 47 countries across Mobile, Internet, IPTV,
DTH services and Applications, and has more than 150 partners across the world
Hungama had sold 51% stake in Hungama Digital Services (the digital agency business of
Hungama) , to WPP Group’s wholly owned agency JWT Singapore in June 2012
Expand streaming services, more concentration on Mobile as a channel
Expand DTH and VAS offerings
Sale of digital content like full length music tracks, videos, movies, ringtones, other mobile
content and apps across various categories
As India's leading Digital agency, working with brands on digital/mobile campaigns
Monetization of gaming content (own IP for 600 flashgames)
2.5 million content pieces across various genres and languages in the form of music
tracks, movies, music videos and mobile content, including includes a movie catalog over
5,000 full length movies and television titles, acquired through content partnerships with
movie studios like Yash Raj Films, T-Series, Reliance Home Video, Ananda Video, Ultra,
Shemaroo, Krishna and Kavitalaya
Partnerships with over 400 content creators, record labels, studios, broadcasters, game
publishers on a worldwide exclusive basis for digital and mobile content
Hungama has successfully managed more than 2000 mobile and digital campaigns for as
many as 350 brands globally
Won close to 100 international awards across Mobile Entertainment, Digital Advertising
and Gaming
It claims to power around 75% of all mobile entertainment content in India
It has conceptualized and created over 100 games around Bollywood and Indian films
Runs the website BollywoodHungama.com, which has 7 million visitors a month
Rakesh Jhunjunwala
ICICI Venture (exited)
Reliance Capital
Intel Capital
Bessemer Venture Partners
Undisclosed amount in 2000
Undisclosed amount in 2012
USD40m in 2014
Source: Company, MOSL
§
§
§
Business expansion
Business model
§
§
§
§
§
Business scale
§
§
§
§
§
§
§
Investors
§
§
§
§
§
§
§
§
Funding history
November 2014
99

Thematic | E-commerce
Global valuation summary
Company Name
security_name
Amazon.com Inc
Alibaba
Ebay
Facebook
Google
Groupon
JD.com
LinkedIn
Netflix
Priceline
Twitter
Yahoo
Yelp
58.com
Baidu
Rakuten*
Tencent#
Makemytrip.com
Info Edge**
Just Dial**
306
102
53
74
564
7
25
233
388
1199
40
46
61
40
237
1296
123
29
854
1530
CMP
Mkt Cap
(USD m)
141550
250938
65473
206609
379309
4948
33863
28943
23400
62860
24738
46090
4447
3481
82933
1720582
1149205
1226
102360
107351
Sales (USD m)
CY13
74452
52504
16047
7872
59825
2574
69340
1529
4375
6793
665
4680
233
146
31944
189041
60437
255
5059
4613
CY14E
89534
75454
17919
12377
52864
3178
112144
2190
5505
8508
1378
4401
376
252
49033
-
79474
138
6145
6017
CY15E
106226
102572
20091
16988
62888
3613
167723
2941
6755
10296
2284
4467
538
379
69708
-
98120
174
7594
7978
EBITDA (USD m)
CY13
3998
26618
4771
3815
17905
165
-286
182
277
2530
-525
1206
3
19
13844
79251
20881
-10
1668
1429
CY14E
6140
37133
5769
8110
26115
258
-3292
568
541
3386
265
1299
70
6
16566
-
34295
9
2027
1784
CY15E
8200
52315
6365
10108
31069
349
-1056
806
705
4189
548
1320
121
14
22948
-
43861
20
2629
2699
CY13
274
23315
2856
1491
12920
-95
-50
27
112
1893
-645
1366
-10
20
10519
32162
15502
-21
1285
1206
PAT (USD m)
CY14E
274
33378
3724
4511
17908
38
-1985
244
261
2795
63
1587
50
8
13896
-
24734
-3
1655
1444
CY15E
1765
45864
4088
5497
21306
113
-735
356
357
3441
230
1120
81
19
19255
-
32272
8
2193
2132
EV/EBIDTA (x)
CY13
44.2
-
13.9
33.6
17.9
40.1
-
130.4
76.8
22.0
-
30.8
1708.6
149.7
25.9
27.6
33.3
-
37.9
72.5
CY14E
22.4
41.7
10.9
23.8
12.3
15.9
-
46.9
41.8
17.0
85.2
27.0
57.2
521.7
29.1
-
26.0
136.4
44.1
56.9
CY15E
16.8
29.6
9.8
19.1
10.3
11.7
-
33.1
32.1
13.7
41.3
26.5
33.3
239.7
21.0
-
20.3
58.4
34.0
37.6
CY13
2.4
-
4.1
16.3
5.4
2.6
-
15.6
4.9
8.2
51.5
7.9
19.3
19.8
11.2
11.6
11.5
4.3
12.5
22.5
EV/SALES (x)
CY14E
1.5
20.5
3.5
15.6
6.1
1.3
1.6
12.2
4.1
6.8
16.4
8.0
10.7
13.1
9.8
-
11.2
8.6
14.6
16.9
CY15E
1.3
15.1
3.1
11.3
5.1
1.1
1.1
9.1
3.4
5.6
9.9
7.8
7.5
8.7
6.9
-
9.1
6.9
11.8
12.7
*Japanese YEN; #Chinese Yuan; **INR & year end March
Source: Company, Bloomberg
November 2014
100

Thematic | E-commerce
APPENDIX – I: Policy framework wish list
Industry body IAMAI spells out the imperative for sustained growth
Outline of a policy framework
In o ur v iew, if the p olicy i s to o pen e -commerce i n go ods t o F DI, i t s hould b e
formulated in a m anner that s hould all ow fo r a s ubstantial-yet-smooth f low o f
investments. S econdly, i t should ta ke care of s ome of th e s ensitivities, r eal o r
perceived, society may have.
Based on these two aspects, we suggest few salient features:
n
100% FDI should be allowed:
The r ationale b ehind t his is : [ a] it is a l ogical
extension of 100% F DI in s ingle b rand re tail an d [ b] m ost larg e b rands who
would want to set up on their own, should not be “forced” into a “partnership”
as this is not a “strategic” sector.
n
No differentiation between “strategic” and “financial” investments:
I n o ur
view, such technical and somewhat artificial definitional differentiation leads to
confusion and possibly non-transparent arrangements.
n
No artificial “floor” to investments:
Our rationale is that such ceilings act as a
barrier to smaller investors, while encouraging larger investors who usually use
this as a competitive advantage.
n
No investment in agriculture sector
[except p rocessed a nd p ackaged f ood]:
Since the larger goal in the first step is to take care of the distribution needs of
manufacturers an d t raders, it is s uggested t hat e -commerce i n g oods, a t th is
stage, s hould n ot b e e ncouraged i n t he f arm s ector. It w ill t ake some years of
capacity a nd o utreach b uilding b efore e -commerce c ompanies d evelop t he
capacity to purchase directly from the farm level.
n
Not limited to states:
A s a p olicy an d p ractice, it is n ot p ossible t o re strict e -
commerce to f ew s tates. However, i t s hould b e l eft t o i ndividual c ompanies,
based on a c omplicated matrix of logistics, state level paper work etc to decide
which geographies within the country they would like to extend the services.
n
Local sourcing:
I deally, t hough w e would n ot suggest any c eiling o n local
sourcing, e-commerce in g oods is p rimarily ab out s ourcing lo cally. C ompanies
need to be capable and willing to undertake more than 30% of local sourcing.
Thus, we conclude that:
There is substantial investor interest in this sunrise sector and an “open” FDI regime
is likely to lead to considerable investments.
An o pen F DI will l ead t o promotion o f e -commerce, w hich i n t urn w ould l ead t o
much social and economic good. There is a c lear link between economic and social
goals an d F DI i n e-commerce. T he c urrent distribution m odel is also o ne-way. It
usually flows from the urban centers to rural areas. Spread of e-commerce in goods
can b e a g reat o pportunity fo r s ynchronous c ommerce, w hereby a b uyer is als o a
potential seller and vice versa. This would be a game changer.
November 2014
101

Thematic | E-commerce
APPENDIX – II: A primer on models
From B2B to B2B2C
The common business models which are facilitated by e-commerce are as follows:
B2B:
E-commerce h as e nabled b usinesses to b uild n ew r elationships w ith other
businesses fo r efficiently managing s everal o f their fu nctions. I n fact, t here are
variants t o a B2 B model -- some p rovide d istribution s ervices, o thers p rovide
procurement s ervices a nd t here are B2 B b usinesses w hich a ct as d igital m arket
place o r as in dustry c onsortium as w ell. I ndiaMART.com is one s uch B 2B o nline
market p lace which p rovides a p latform f or b usinesses t o fin d o ther c ompetitive
suppliers. O n t he o ther h and, A riba p rovides p rocurement s ervices b y en abling
access to digital electronic market.
B2C:
Direct d ealings b etween b usinesses a nd c onsumers h ave a lways e xisted.
However, wi th th e e mergence o f e -commerce, s uch t ransactions h ave g ained
momentum. In a traditional B2C model, the distribution channel typically starts with
a manufacturer and goes through a distributor/wholesaler to retailer, who interacts
with the end customer. However, in an online model, one finds the manufacturer or
intermediary directly trading with the consumer.
C2C:
Traditionally, consumers have had dealings with other consumers, but only few
of those activities were in a commercial sense. E-commerce has made it possible to
bring t ogether s trangers a nd p rovide a p latform fo r t hem t o t rade. F or e xample,
portals such as eBay and Quikr enable consumers to transact with other consumers.
C2B:
This is a re latively n ew m odel o f c ommerce a nd a re verse o f t he t raditional
commerce models. H ere c onsumers ( individuals) p rovide s ervices/goods t o
businesses and create value for the businesses. This type of transaction can be seen
in I nternet f orums w hereby c onsumers p rovide p roduct d evelopment i deas o r i n
online p latforms where consumers p rovide p roduct reviews t hat a re u sed for
advertisement purposes.
B2B2C:
It is a variant of the B2C model, wherein there is an additional intermediary
business to assist the first business transacting with the end consumer. This model is
poised to do much better in a web-based commerce, with reduced costs of having
an in termediary. F or instance, Flipkart, one of the m ost successful e-commerce
portals provides a platform for consumers to purchase a wide variety of goods such
as books and music CDs. In fact, the growth of this model is evident from the surge
in e-commerce players adopting this model in recent times – FashionandYou, Jabong
to n ame a fe w. A part fr om b usinesses p roviding in termediary s ervices s uch as
Flipkart, m any online p latforms t ie u p w ith p ayment g ateway fac ilitators who
provide a platform for processing payments.
November 2014
102

Thematic | E-commerce
APPENDIX - III: Regulations will have to play ally
Lack of policy framework and clarity on taxation potential deterrents
Limitations on FDI in Retail has driven choice of business model
Flipkart and Amazon are
operating as marketplaces
in India due to the
regulations limiting FDI in
online retail
n
n
n
n
n
There is n o e xisting p olicy fra mework that governs F DI i n e -commerce; it is
clubbed under the general rules for FDI in retail.
As p er e xtant F DI p olicy, F DI u p t o 100% i s p ermitted i n B 2B e-commerce
activities under the automatic route.
FDI in B2 C e -commerce is p rohibited. Global o nline re tailers o r international
investors looking to s ell products d irectly t o customers ar e p rohibited from
doing so, just like the offline FDI policy on retail.
FDI in I ndia is a c omplex is sue in it self, as F DI in m ulti-brand re tail h as b een
allowed only in cities with a population of 1m and above.
Enforcement D irectorate probes in t he c ase of F lipkart.com is t he lat est
development as a result of the ongoing saga of FDI in e-commerce.
Lack of clarity on taxation laws
Lack of taxation policies is
another grey area, causing
taxation claims by separate
states on various grounds
n
n
n
The ris e of e -commerce p oses n ew q uestions f or t axation p olicies an d
administration. E-commerce blurs the distinction between the sale of goods, the
provision of services, and licensing of intangible assets. Each of these is subject
to some form of taxation.
According t o media reports, tax au thorities in Bangalore, t he c apital of
Karnataka, are looking into why Amazon India does not pay value-added taxes
as r equired u nder t he V AT A ct, 2 003 o n go ods s tored i n i ts w arehouses. T ax
officials h ave told A mazon t hat s ince t he c ompany s tores p roducts from
thousands of merchants in the same warehouse, it is, in practice, acting as more
than just a s ervice provider. If that is the case, then Amazon is also in principle
flouting the FDI norms.
While th e g rowth p roposition of the i ndustry i s h ard t o b et a gainst, clarity is
required on issues like FDI and state-level taxation for a smoother run in online
sales. The g overnment is opening up to take a s tance – DIPP (Department of
Industrial P romotion an d P olicy) has asked for comments, re views an d
suggestions fro m industry p layers an d t hose as sociated with t he online r etail
industry in the discussion paper it released on 30 January 2014.
Advantages and disadvantages of FDI as per DIPP
Advantages
n
n
n
n
Boost to infrastructure development:
Increased c apital w ill h elp t o e stablish
supply chain, distribution system and warehousing.
Impetus to manufacturing:
Growth in retail sector will have cascading effect in
the m anufacturing s ector, which w ill positively c ontribute t o overall growth o f
economy and job creation.
More efficient supply chain management:
Need f or m iddlemen will re duce,
leading to l ower transaction c osts, r educed overheads, and r educed i nventory
and labor costs.
Adopting best global business practices:
Will le ad t o b etter w ork c ulture a nd
customer service.
November 2014
103

Thematic | E-commerce
n
n
n
n
Increased outreach:
Will p rovide in creased ac cess t o b uyers/sellers, allo w
MSMEs an d art isans t o r each out t o customers fa r b eyond t heir im mediate
location, both locally within India and abroad.
Traceability and transparency:
Will n ot o nly empower c onsumers w ith
information and data but also help in better regulatory compliance.
Reduced costs:
Reduced c osts o n marketing an d d istribution, t ravel, materials
and supplies will benefit businesses.
Improved customer service:
Will help to provide more responsive order taking
and after-sales service to customers, and competitive pricing.
Disadvantages
DIPP has put out a
discussion paper to seek the
views of relevant
stakeholders on the various
pros and cons of FDI in
Retail
n
n
n
n
n
n
Works against spirit of FDI policy in MBRT:
Allowing F DI in e -commerce w ill
provide e-retailers complete geographical reach. This will be against the spirit of
FDI in multi-brand retail (restricted to cities with a population of more than one
million or any other city as per the choice of consenting states).
India i s n ot y et r eady f or opening u p the e-retail s pace t o fo reign in vestors. I t
will s eriously i mpair small-time t rading of b rick an d mortar s tores. S mall-time
shopkeepers a re n ot h ighly q ualified a nd will n ot b e a ble t o compete with a
sound e-retail business format.
Because of scale of economic operations, e-commerce players in the inventory-
based model will have more bargaining power than standalone traders and will
resort to predatory pricing.
The infrastructure created by major e-commerce players will be captive and the
government wi ll n ot b e able to a chieve i ts objective of c reating b ack en d
infrastructure.
The Indian e-commerce market is at a nascent stage of development. FDI in e-
commerce could have an adverse impact on the domestic industry. It could lead
to monopolies in e-commerce, manufacturing, logistics and retail sector.
Inventory-based e -commerce c ompetes d irectly wi th M SMEs. I ndian e -
commerce B2 C is g rowing in an e co-system w ith I ndian-owned/led c ompanies
offering open marketplace models, which provide a technology platform to help
MSMEs reach ac ross I ndia an d e ven g lobally. T hese m arketplaces d o n ot
compete wi th MSMEs or retailers an d allo w everyone t o t rade. O n t he o ther
hand, allowing the entry of inventory-based large foreign e-retailers may shrink
Indian entrepreneurship and the MSME sector.
November 2014
104

Thematic | E-commerce
APPENDIX – IV: Metrics comparing the global giants
Revenues, profits and cash flows
Exhibit 123: Revenue variations significant due to different recognition methods
Source: Company, MOSL, Bloomberg
Exhibit 124: Differential revenue recognition methods / business models drive stark differences in OPM
Source: Company, MOSL, Bloomberg
Exhibit 125: Alibaba is forecast to continue leading growth
Source: Company, MOSL
Exhibit 126: OCF is comparable across companies…
Exhibit 127: … but Amazon has higher capex and lags FCF
Source: Company, MOSL
Source: Company, MOSL
November 2014
105

This research report has been prepared by MOSt to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This
Thematic | E-commerce
report is for personal information of the select recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to
invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into
account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable
for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and
investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business
relationships with a significant percentage of the companies covered by our Research Department Our research professionals provide important input into our investment banking and other business selection
processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that
the research professionals who were involved in preparing this material may participate in the solicitation of such business. The research professionals responsible for the preparation of this document may
interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information. Our research professionals are paid in part based on the
profitability of MOSt which include earnings from investment banking and other business. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from
maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an
officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading
strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with
the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest . MOSt and
its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to
hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The
information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the
data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not
intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt
and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its
affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of
its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its
contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of
Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
§
Analyst ownership of the stock
Companies where there is interest
No
Disclosures
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
Regional Disclosures (outside India)
For U.K.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.
In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state
laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein
are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as
amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has
entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be
executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer,
MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research
analyst account.
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore
to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email:anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact(+65)68189232
Contact: (+65) 68189233 / 65249115
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
For U.S.
For Singapore
Motilal Oswal Securities Ltd
November 2014
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
106