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