Digital Start Ups

Value creation likely for the next decade- Riding on the tech wave

Today, the start-up ecosystem in India has entered into a growth phase with the advent of the
smartphone era. This period has led to tremendous growth in the number and variety of start-ups,
especially with the rise of technology start-ups. Models around e-commerce, specialised retail,
marketplaces, hyper-delivery networks and organising the unorganised sector are emerging as
strong bets. This has not only led to the entry of large consumer-focused brands like Amazon and
Uber into India, but also the emergence of more than 24 home-grown unicorns (like Ola, Nykaa,
Paytm among many more). Another factor fueling this new phase of growth is the significant
investment from the government, as well as private investors such as private equity funding or
venture capitalists, and other financial institutions. A supportive government, tech savvy young
population (60%+ of Indians below 35 years), ongoing digitization of SMEs and a well-funded PE/VC
ecosystem, that could would create value.

Few themes to watch out for are 1) Cos moving from traction to monetization; 2) online
consumption from tier 3/4 cities; 3) Fintech to be more combative vs collaborative and 4) M&A
potential in the hyper competitive internet space.
Besides large venture capital funds like Prosus Ventures, Tiger Global and SoftBank
that have made big bets on a bunch of local start-ups, many institutional investors
and pension funds are investing in online businesses

According to Venture Intelligence Investors infused a whopping $4.4 billion into Indian
start-ups between January-March ’21. Given the low ad yield rates in India, cos can’t solely
rely on ad monetization and need a mix of commerce & partnerships also. They have funded a whole
lot of models like Food-tech, Fintech (Gateway, PoS), SaaS, Gaming, Ed-tech & select D2C. E-com,
Mobility, Health-tech are sometimes away from positive unit economics. Regulation and data privacy
are the key risks. Few key cos are Freshworks, Zomato, Dream11, PineLabs and Nykaa. As investors
change their stance on companies burning cash to chase growth, major Indian startups across
sectors are now shifting their focus to better their unit economics.

Riding on the tech wave

Banks- Fintech to be more combative vs collaborative:
Fintechs have penetrated the 200 mn+ target base of private banks. While banks continue to
consider 'liability book' as a source of ownership, reality is that they are losing ownership of funding
and distribution channels to Fintechs. Also risks are rising to growth/margin erosion in the prime
retail/SME customer base. They have been monetizing on the acquisitions done for many years.
Pharma – Scale is the driving factor for online pharmacies to gain bargaining power and attract more
discounts from distributors or manufacturers. Competition in e-pharmacy is also expected to
increase with offline players like Apollo Pharmacy which went digital.
Telcos could leverage network; Telcos like Jio/Bharti better placed to leverage its 300 mn+ subs base
to upsell wealth-tech, online insurance and offer credit & in-process earn commission. Telcos are
also looking to leverage data analytics and earn incremental digital ad revenues. Multiple de-rating
for broadcasters like Zee & multiplex like PVR led by OTT (over the top) uptake.
IT: Opportunities as well as risks: Increased technology offtake by financial services/telecom &
pharma sectors could make the country more investible for the sector. Also the revenue exposure to
India could go up from the current 2%-5% of revenues towards 7%-10% over the next few years.
Risks could arise from pricing being lower than developed markets that could impact the profitability
levels in the region.
With improving GDP/capita we expect additional 200-250 mn users would be part of the addressable
market for these tech-startups in the next 5 years.

RIL leading the way…

Over the next 3-5 years, RIL is expected to have c. 500 mn mobile users, offer broadband services to
c. 20-25mn households & cater to 12-15mn SMEs. RIL’s approach of owning the “pipe” as well as the
“services” offered on the pipe should help it keep the subs base captive and apart from the core
telco and retail offerings, company could also offer other digital services. For instance,
entertainment offerings would help RIL improve stickiness. Jio may not fully monetize this but would
keep users captive to cross-sell other offerings. An omni channel approach on commerce would help
RIL sell its grocery, apparel and electronics items to a wider audience base and integrating with
Kiranas, would enhance its B2B sales. The company continues to invest in technology and is
partnering with world’s best tech-cos (Google, Facebook, Microsoft) as well as Indian start-ups
(invested in 20+ startups).Spree of acquisitions were done to create value/fill gaps in RIL's consumer
offerings. All investments fall under 5 categories: Telco, Retail, Education, Healthcare, and
Agriculture.

Exhibit-9

Amazon & Flipkart catching up fast…

Even Amazon and Flipkart have taken the ecosystem approach. Along with having their own
payments and logistics arms, they are even collaborating with start ups. In the last few years, it has
made several acquisitions in India & acquired stakes in offline companies to improve their value
proposition to India consumers.

Times Internet:
Times Group has their media assets span across news (ToI, ET, NBT), sports (Cricbuzz), lifestyle
(Indiatimes), music (Gaana), and video (MX Player), and enablement platforms serving users across
personal finance (ETMoney), real estate (Magicbricks), education (Gradeup), food (Dineout), etc.

Exhibit-10

Exhibit-11

Exhibit-12

Chart 3

Global giants: Riding the tech wave

Softbank/Prosus: Well placed with strategic options
India remains an attractive market for many global tech-giants. Majority are opting for strategic
/financial options to expand organically like Google, Amazon.
Mentioned below are the key tech-cos which have invested in many Indian start-ups mainly as a
strategic investor.
• Softbank: Focusing on the leaders: Majority of Softbank’s investments in India (mainly through
Vision Fund) are in the wallets, cab-hailing, hotel, online insurance, logistics and in grocery, mobile
ads, e-commerce and real estate. Amongst its India investments, PayTM and Oyo are relatively larger
ones and where in Oyo it owns c. 45% of stake. The behemoth made a whopping 60% return on its
$2.5bn investment after selling its stake in ecommerce co. Flipkart to Walmart, it is one of its
defining exit in India.
• Prosus: A long term internet investor in India: India is the most important single country in terms
of exposure for Prosus as the valuation of Indian-based assets represent c.25% of its unlisted assets
which includes verticals like online food delivery, ecommerce, payments, online education and
online classifieds. Its key Indian assets include a 97.6% stake in PayU valued at $3.5bn (for 100%),
39% stake in Swiggy valued at $4.1bn (for 100%) and a 100% stake in OLX India valued at $1.5bn.
Prosus also owned 11.2% stake in Flipkart which it sold in 2018, realizing a 32% IRR.

Exhibit 13: Prosus: Key investee companies

BABA/Tencent may slowdown (at least momentarily)

Indian government enforced stringent rules in TMT space and banned 200+ Chinese apps impacting
China’s investments, which impacted freezing/reduction of Chinese investments in India’s capital
ecosystem. Over time, the Chinese ownership may be diluted with capital coming from other
investors.

Exhibit 14

Exhibit 15

Exhibit 16

Exhibit 17

Exhibit 18

Google:
Google dominates India in terms of search and 90%+ of smartphones in India have Google’s Android
operating system. Recently, Google has been making investments in tech start-ups in India, but not
to an extent to some of its other peers like Amazon.

Listed cos at premium; IPOs in coming yrs?

A Well-funded PE/VC ecosystem: After US & China, India’s PE/VC ecosystem to be one of the most
vibrant with 37 Unicorns including 4 Decacorns (Cos with $10 bn valuation). 11 cos became unicorns
in 2020. However, the Indian PEs/VCs are yet to see many big-ticket exits given the nascent stage of
companies & losses they generate. Flipkart’s acquisition by Walmart in 2018 was the key defining
event for the India start-up space, given it was the first major exit.

Exhibit 19

Exhibit 20

Exhibit 21
Table2

Regulations & data privacy:

In the recent years, India has evolved a regulatory landscape across sectors like E-com, Fintech, Cab
hailing, Gaming etc.
E-commerce: Rules tweaked a few times: E-com companies by law are expected to follow
marketplace model vs inventory led. However, larger cos created warehouses partially owned by
them and in process led a quasi-inventory model. Also, the e-tailers are not allowed to buy 100%
stake in offline retailers.
Fintech – protective but progressive: The Fintech regulator – the Central bank is proactive to learn
from other countries and often drafts progressive regulation.
New listing rules: Boosting “India listing” for start-ups: Covid has not only pushed the older private
tech-cos to focus towards cutting costs & positive unit economics but also put on added pressure to
provide exits. A strong outperformance of recently listed US tech companies like Doordash and
Airbnb should be encouraging for Indian tech-cos & its investors to consider for IPO.
Key Policies attracting investors by the market regulator are 1) reducing the hold period before
listing from two years to one; 2) Allowing Issuer company to allocate up to 60% of the issue size on a
discretionary basis prior to issue; 3) Allowing issuer companies seeking listing to be allowed to issue
differential voting rights/superior voting rights to promoters or founders; 4) Stipulation of Qualified
Institutional Buyers (QIBs) to hold at least 75% of total issued capital to migrate to the mainboard
may be reduced to a lower threshold of 40% since post listing.

Valuations likely to mirror US/China peers

Exhibit 25

Core drivers: Varying sector fundamentals

Given the low ad yield rates in India, the sectors would need to be a mix of commerce, ad and
partnerships to drive profitability. Below mentioned are drivers of key sectors:

Chart8

E-commerce: Boom A boon: As E-com cos expand in tier 2/3 cites, average order value would go
down. As discounts are curtailed off demand would eventually fall (i.e. churn rising remains).
Economics need to further improve to be profitable – especially for tier 2/3 cities. Businesses like
online grocery are tough, especially as standalone ones. Though RIL online presence is minuscule,
they are aggressive in improving it in the online grocery market in coming years. Current online
grocery penetration is around 0.2%, implying size of market of $ 1.1 bn in 2020; Due to Covid and
coupled with rising competition and better value proposition to consumers, the online grocery
market is expected to be $8 bn by 2022 and $23 bn by 2025, though online grocery penetration is
still expected to be low at 2.7%. Big basket and Grofers are the other two big players in the online
grocery market.
RIL likely to make more investments in tech, logistics & supply-chain: RIL’s online strategy is largely
a hyperlocal one, where it is looking to leverage its offline physical stores to help deliver via online
channels. In its 3 retail businesses, RIL has separate apps for apparel (AJIO), electronics (Reliance
digital app) and a recently launched grocery app (JioMart). Indeed, RIL is incrementally looking to
invest in logistics and supply chain. Furthermore, the app-in-app integration with WhatsApp would
improve RIL’s consumer reach. Facebook would get a take-rate based on the GMV moving on its
platform
Many start-ups are focusing on Kiranas: Many business models emerged to cater to different needs
of the Kiranas. The key focus areas being – Back-end (traditional distribution & sourcing), Managing
financing; at the store level and Front-end (customer facing). RIL is well positioned to provide an
end-to-end solution led by its control on this supply chain (farm to fork model) & by leveraging tech
to improve revenues and margins.

Exhibit 34

Mobility: Over the years, the mobility market in India has evolved towards a greater need for 3W,
2W & buses. Covid was a spoils sport in terms profitability. Uptake of EV would lead to new
competition &/or incremental investments.
Fintech: Gateway/PoS are rewarding: Payment gateways would be one of the lucrative market
followed by PoS as current low penetration & sticky base will aid growth, but concern on the
unsecured SME/retail lending as scalability and quality remains an issue. B2C (Business-to-
Consumer) payments is low loyalty high competition market fought by well-funded tech giants like
Google, PayTM, PhonePe and even WhatsApp-Pay.
Logistics: Leveraging tech to scale: E-tailing has acted as a catalyst for determining how logistics
facilities are designed, redeveloped, relocated, and utilized to match with changing requirements in
supply chain management. The tech led asset light models are scaling up fast and have potential to
be c.15% EBITDA margins in steady state. The new-age start-up cos are leveraging on tech, pursuing
multiple revenue streams (to improve unit economics) and looking to do instant deliveries.
The key hyperlocal models to look out for are 1) Food delivery: Zomato/Swiggy-; 2) Goods delivery:
Dunzo/Swiggy Go- which is currently small at $50-100mn, but has huge potential to grow; 3) Home
services: Urban Company/ Housejoy- the market opportunity is as high as $15-40 bn as per Urban
Company (but currently small at c. $50-100 mn); 4) Grocery delivery: BigBasket/Grofers/JioMart
which could be a $12bn opportunity by 2023; 5) Last mile logistics: ShadowFax, Grab among others
or medicine delivery like 1mg- Unit economics is still a challenge in some of these models, but
overtime with scale, profitability could be improving.
Food-tech: Strong take rates; good traction: While the Food-tech industry in India to be well
positioned to sustained growth with improving unit economics. Take-rates are one of the highest in
India at 20-25% and consumer traction is increasing. Market is largely a duopoly between Zomato &
Swiggy with 80%+ share.

Zomato & Swiggy dominate mkt: Zomato is one of the successful start-ups in India ecosystem that
scaled up aggressively, shown solid execution and well positioned on the path towards profitability.
Prosus backed Swiggy’s business model has evolved and along with food delivery it is also offering
other services like SUPR Daily, Swiggy Genie etc. Amazon launched its food delivery service pilot in
Bangalore in May-20 & is charging 10-15% as take rates against 20-25% charged by Zomato/Swiggy.
It remains to be seen how fast Amazon scales up and if it leads to potential increase competition.
Cloud Kitchen models better payback: Cloud kitchens have also started to gain traction in India.
Companies like Rebel Foods (Faasos), FreshMenu, HolaChef etc. started this with delivery-only
restaurants, or virtual restaurants. The rent-to-sales ratio for a cloud kitchen is accordingly 3-5%, i.e.
1/5th-1/6th that of a traditional restaurant which bears about 15-25%. A typical cloud kitchen
invests roughly 1/3rd or 1/4th the amount invested by a traditional restaurant. Therefore- the
payback period for a cloud kitchen is also much lower at less than 1 year for a cloud kitchen as
against 3-5 years for a restaurant.

Gaming: Profit pools are real: Most gaming companies in India are profitable at operating level with
good unit economics. However concerns remain on the regulatory front.
Ed-tech: Good demand with willingness to pay: During Covid, Ed-tech has seen good traction as it
provided access & good quality offering at affordable price. Gross margins for business are good at
70%.
Health-tech: Tough sector to monetize: While heath-tech offers huge long term potential, the
current dynamics & difficulty in execution make economics difficult.
SaaS: A Proven model: India SaaS cos have largely proven themselves in US & other international
markets. The bigger ones have gross margins of 80-90% and churn rate <10%.
D2C: Well placed to create value: Some of the D2C brands in a short span have addressed niche
opportunities & moving closer towards profitability by leveraging tech. Companies like Nykaa,
Lenskart are addressing gaps left unaddressed by traditional players in largely unorganized spaces
eB2B: Early days, but huge space: A big theme coming offlate in India is the emergence of eB2B
companies especially led by digitalization of SMEs and “Make in India” push by the govt. Companies
like Udaan, Moglix are also looking to solve credit, logistics issues. Improving scale should help B2B
cos move towards EBITDA breakeven.

Exhibit 27

Fashion: Flipkart dominates; high margins

Likely to be $25 bn online market by 2023: Fashion is one of the high margin verticals (20-25% take-
rate). Indeed Flipkart rules with 60% market share in the online fashion market post acquisition of
Myntra & Jabong. Key drivers are 1) growing influx of local and global fashion brands; 2) rising online
penetration as the younger population of the country moves online and becomes more fashion
conscious. Reliance Retail’s fashion platform AJIO is also emerging as a key player. It offers over 250K
styles of curated collections across its own brands and 1,400+ brands.

Furniture: Discovery (& not search) based

Key players: Pepperfry & Urban Ladder: The two major online vertical players that operate in this
category are Pepperfry and Urban Ladder. Urban Ladder was recently acquired by Reliance Retail.
There are other smaller ones like Livspace and Wooden Street. Even Flipkart has its private label
Perfect Homes under which it sells Furniture and Amazon sells it under its Solimo & Amazon basics
labels. The emergence of rental commerce driven by Furlenco, Rentomojo, etc is building up the
organized sector. These companies are targeting the millennial population majorly on rental
accommodations and are often uncertain of their long term rental leases.

Grocery: Scale matters for unit economics

Online penetration only 0.2%: Online grocery is one of the most difficult sectors to generate positive
unit economics until companies acquire scale. Globally, cos like Amazon and Alibaba are evolving
towards omni-channel approach by acquiring stakes in Wholefoods and SunArt respectively. Indian
grocery market traditionally has been an unorganized market. Grocery is the largest retail segment
at c. $545 bn currently and expected to grow at 9% CAGR to $849 bn by 2025. The online market is
very small at $1.1bn or 0.2% of the market.
Positive unit economics – not easy: Given the perishable nature of business and costs associated
with warehousing, delivery and even promotions, the steady state margins are expected to be
around single digits. The cos need to have atleast AOV (avg order value) of $10 to be positive gross
margin. Private labels/fresh have better margins than staples. In order to improve gross margin
companies try to 1) Target AOV of around $20 with a large mix driven by private labels/fresh; 2)
Move to 5K dark stores as against warehouses as it increases proximity to delivery radius and 3)
Improve density to reduce delivery costs.

Fintech: Highest Velocity

Exhibit 43

India is well placed for immense competition of Fintech in the next decade led by improving tech
savviness, formalization of economy, coupled by uptake of inter-operable enablers. Huge headroom
would ensure strong growth for financial services. However hyper competition (2000+ Fintechs)
could delay monetization for most businesses.
On B2C front, the salaried class are well serviced by banks and are likely to be target bank for Credit
card focused, Neo-Banks & wealth mgmt Fintechs. Even telcos like Jio, Bharti are likely to play a
strong role as distributors of financial services. On B2B front large enterprises are well served by
banks; but most SMEs have unmet credit - SME lenders, embedded finance offerings (like Udaan
Credit, Jio PoS loans) could address these unmet needs.
Payment gateways/PoS well placed; Cautious on lending: 1) Under Penetration is the key driver for
payment gateways to be one of the lucrative market & sticky base will also aid growth; 2) Despite
headwinds, the PoS (point of sale) models have evolved to charge a subscription fee & offer VAS
(value-added services)/superior offering; 3) Cautious view on the unsecured SME/retail lending as
scalability and quality remains an issue; 4) B2C payments is low loyalty high competition market
fought by well-funded tech giants; 5) Wealth-tech is at nascent stages with addressable market of
top 50-60 mn users & Insur-tech is seeing steady uptake of sachet offerings.

Exhibit-45
Exhibit-46

• PineLabs provides a merchant platform and makes software for PoS machines. It serves 140K+
merchants across 450K network points. PineLabs has run an analytics app on debit card base of
banks it tied up to determine the extent of credit to be made available to every cardholder.
MasterCard recently invested in PineLabs.
• PolicyBazaar is India’s largest insurance aggregator & makes money largely through commissions
(95%); from revenue point, health & life insurance contribute to 80%+ of the revenues.
PolicyBazaar’s platform focusing on loan and non-insurance product is PaisaBazaar. It is a
marketplace in unsecured lending. The company uses credit score as an acquisition vehicle.
• RazorPay started as a pure payment gateway business and is now evolving towards a converged
financial ecosystem company. Its two new business lines are its neo-banking platform “RazorpayX”
and its lending arm “Razorpay Capital”. Overtime, company expects these to contribute 35% of its
revenue.
• CashFree is a full stack payments solution & is one of the leading API banking platform that lets
businesses send money round-the-clock and instantly to bank accounts. Some of the features of
CashFree are a split payment solution for marketplaces, a Bank Account Verification API and Auto
Collect.
• Zerodha is one of the most prominent players amongst domestic brokers. Zerodha has witnessed
continuous growth in no of active clients & is the market leader with c. 18% market share as of
Oct’20 (share as a % of total active clients on National Stock Exchange). The total client base has
jumped c. 40X to 2.6mn over past 5 years for Zerodha. The co introduced disruptive pricing offering
low flat brokerage to its clients & clocked Rs 8.5bn Revenues in FY19 & Rs 3.5bn net profit.

Hotels: A fragmented “high margin” space: The hotel/lodging market size in India was $14bn in
2019 is expected to grow mainly due to 1) increase in first time travellers; 2) increasing travel spends
by middle-income households; 3) continued expansion of footprint by carriers. Overall online
penetration is expected to increase due to standardization of quality and greater online booking of
both work and leisure travel as more Millennials enter the workforce
Oyo: the game changer in budget hotels space: Founded in 2013, Oyo is one of the early startups
into the hotel aggregation business. Backed by Softbank (it owns c. 45% in Oyo), Oyo aggressively
expanded outside India in markets like China, US & Europe – both organically as well as inorganically.
Currently it is the third largest hotel chain in number of rooms.

Few Indian ad network cos are serving the global audience:

• InMobi started as SMS-based search engine, and later pivoted to leverage data such as location
and app interests to pop up ads that felt organic and part of a user's mobile computing experience.
Focus areas for InMobi have been, improving video advertising, adding artificial intelligence, as well
as working on mobile remarketing and preventing ad fraud. InMobi through its subsidiary Glance
also operates in a B2C content delivery service. Glance is a lock screen application, which shows
media content, including short form videos, news, gaming etc. in local languages on the lock screen
of Android smartphones. InMobi has partnered with a number of top smartphone vendors, including
Xiaomi, Samsung, Vivo and Gionee, to integrate Glance into their respective operating systems.
• PubMatic allows publishers and app developers to sell space to advertisers across various media
platforms, including display or video ads on mobile apps or web. PubMatic's advertising software
allows users to opt-out of having their personal information collected on internet searches. The
company processes nearly one trillion ad impressions per month, and has created a global
infrastructure to activate meaningful connections between consumers, content and brands.

Exhibit 50

Music streaming: Ad likely primary monetization tool

Growth drivers in place: Indian music streaming market has grown significantly, especially in the last
3-4 years suggesting an increase in MAUs from 30-35mn in 2016 to c. 200mn+ currently. Unlike
China music streaming where one player (Tencent Music) dominates the market with 80%+ market
share, Indian music market is fragmented with JioSaavn, Gaana and Airtel Wynk all having 100mn+
installs/ MAUs. Competition off-late has been increasing with players like Spotify/Apple Music
entering the market. Going forward regional focus and personalization would likely be the key focus
areas the players could have to differentiate themselves.
The 3 key domestic apps are doing well: 1) Gaana’s features include: voice search feature, where
25%+ of its users this, Incremental focus on regional languages to increase subs base and simplified
song-based layout; 2) With a parent-co like Jio, JioSaavn is in a sweet-spot as overtime it could have
access to c. 500 mn Jio users. It also has access to high end advertisers (RIL partner brands like
Diesel, Salvatore Ferragamo) and could leverage media tie-ups like MTV, Vh1, and Network18.
Similarly Airtel’s Wynk would also be able to benefit.
..and have expanded into the video format: Post the TikTok ban, besides several new homegrown
apps entering in the space, we have also seen the entry of Gaana ‘HotShots’ as a short-video section
within the app. JioSaavn announced a strategic partnership with Triller (a music video platform) and
has embedded within the JioSaavn music app. The integration provides JioSaavn users access to
exclusive video content from Triller within JioSaavn app.
Ad likely the key way to monetize: Given Indian consumers’ low propensity to pay for music services
and widespread prevalence of consuming pirated content (76% of internet users listened to pirated
music), it is believed the growth in audio streaming would be through bundling by telcos.
Subscription market is relatively smaller and focused more on the high-end market (primarily
addressed by Spotify/Apple Music). Similar to content, the telco led partnership is evolving into an
India specific manner with telcos like Bharti/Jio having controlling stake in streaming apps
Wynk/JioSaavn respectively.
Online gaming: Seeing paradigm shift
Game on: Millennial/Gen Z on driver’s seat: However in the last few years, the online gaming
industry has witnessed a paradigm shift post 4G rollout. India now is amongst the top five mobile
gaming markets in the world with c. 365 mn gamers in 2019. We estimate this number to rise to
486mn by 2022. Mobile gaming company Nazara IPO backed by billionaire investor Rakesh
Jhunjhunwala was subscribed nearly 4 times. It raised Rs 583 crore through the IPO at a price of Rs
1,100-1,001 per share. The company is known for its games on World Cricket Championship, Chhota
Bheem and Motu Patlu series.
• Dream11 allows users to create virtual teams comprising real-life players and lets them organize
matches based on statistical performances of those players in real games. The platform offers
fantasy cricket, football, kabaddi and basketball, and is the official partner of the Hero Caribbean
Premier League T20 tournament and Indian Super League.

Ed-tech: Resolves legacy education issues

Ed-tech: Covid backdrop helped accelerate traction: Legacy issues in the traditional Indian
education system like lack of quality teachers, physical infrastructure could be resolved by leveraging
on tech. Some of the advantages of Ed-tech model are 1) Convenience; 2) Scalable business with
quality teachers; 3) Use of AI for personalization. Jio launch has made 4G services cheaper in rural
areas and declining smartphone prices is reducing disparity between urban & rural students.
Fragmented segment with different models: The companies in Ed tech sector in India are 1) Product
led: Such companies have no service component E.g. BYJUs; 2) Service led –these are companies like
Unacademy, Vedantu etc. Off-late, a massive traction has been seen in reskilling platforms like
Eruditus.
Health-tech: Gaining traction post Covid
India Pharma-tech opportunity is classified into 3 sub-segments -1) B2B commerce; 2) e-pharmacy
and 3) Preventive care market. The preventive healthcare is the largest of the market. Top players
are seeking for integrated model where they cater to the e-pharmacy as well as the preventive
health-care model. The top integrated players in the space are 1mg and Practo.
1: B2B commerce: Ironing supply chain issues: The pharma industry is encumbered with many
supply chain issues, given its large size & unorganized nature. Institutional sales form c. 7% of the
total drug sales, while 93% is retail- within retail only 3% is organized, while 97% is unorganized.
Which creates enough headroom for growth opportunity for tech enabled B2B companies to solve
for inefficiencies in pharma retail.
2: E-Pharmacy: Consolidation: According to Frost & Sullivan, e-Pharmacy market in India was
estimated to be around US $512 mn in 2018. Recently, we saw consolidation in the space with
Medlife and PharmEasy merging and RIL acquiring Netmeds.
3: Preventive market: $102 bn market & 130 mn users by 2022: The Preventive healthcare market
caters to physical and mental well-being.
Agri-tech: Help improve farm yield/output
Agri-tech is the use of technology in agriculture, horticulture, and aquaculture to improve yield &
profitability. Agri-tech can be products, services or applications derived from agriculture that
improve various input/output processes. Some of tech/applications used in Agri-tech are: Drones,
Satellite photography, IoT-based sensor networks, Weather forecasts, Automated irrigation, Light
and heat control, soil management etc. Agri-tech start-ups are using technology both in pre-harvest
(soil, water testing etc) and post-harvest (focus on supply chain, grading products).
Exhibit 53
Exhibit 54
Exhibit 56

Tech start-ups: Leveraging data: Some of the new breed EV-focused OEMs are Ola Electric, Ather
Energy, Revolt, Ampere & Okinawa. These tech cos are leveraging car/user data to better
understand consumption patterns. Apart from the traditional GPS locators, EV is expected to use AI
and IoT for enhancing the user experience. E-com cos Amazon/Flipkart & even RIL have pledged to
make a significant portion of its delivery fleets electric.

Key companies in the tech-logistics space are:

#1: Delhivery provides transportation, warehousing, freight and special services like reverse
logistics. Since its inception the company has fulfilled over 850 mn orders. They operate across 2300
cities through 70 hubs and 85 fulfillment centers. Delhivery brings value to businesses through cost
efficiency and pan-India reach.
#2: Rivigo owns and operates its own fleet of trucks while closely tracking the time spent by drivers
behind the wheel, to make sure that drivers are not too tired to operate the trucks safely. Rivigo
leverages its big data capabilities to create a relay system so trucks can be handed over from one
driver to the next, without interrupting operations.
#3: Blackbuck helps bring offline operations of trucking online, from matching shippers with
truckers. Blackbuck is making it easier for truckers to book loads and move at capacity, and enable
shippers of all sizes to have access to the right truck, at the right time for the right price. They
operate across 2000+ locations.

SaaS cos well-funded by VC ecosystem

Given strong margins & ARR and the less capital intensive nature of business, SaaS cos are well
funded by major PE/VC players. A rule of thumb followed by VCs while investing in SaaS companies
is to look for LTV (life time value) to CAC (Customer acquisition cost) ratio >3, CAC payback period <9
months, gross margins c. 80-90% and churn rate <10%. Typical valuations of the top players/ leaders
in their respective segments are 8-10X revenue on a 1 yr forward multiple. SaaS cos could likely be
one of the early companies to consider IPOs given lower cash burn, strong growth and higher
margins/profitability. The industry is expected to follow trends like in mature markets suggesting
M&A could become a more common form of exit for early investors.

Indian government also supportive: The Indian government approved the national policy on
software products in Mar-19, which aims to develop India as a global software hub and propel its
size by 10X by 2025. The policy comes with five key objectives: 1) Create a sustainable Indian
software product industry, driven by IP, leading to a 10-fold increase in India’s share of the global
software product market by 2025; 2) Nurture 10K technology startups in software product industry,
generating direct and in-direct employment for 3.5mn people by 2025; 3) Create a talent pool by up-
skilling of 1mn IT professionals; 4) Build 20 sectorial and strategically located software product
development clusters having integrated ICT (Information & Communication technology)
infrastructure, marketing, incubation, R&D/test-beds and mentoring support.; 5) Evolve and monitor
scheme and also programs for the implementation of this policy. Offlate, there is a strong
Government push for procurement of “Made in India” SaaS products.
 Funding received by Indian SaaS companies over the years ($bn)
2.5
2.1
2
1.8

1.5
1.1
1
1
0.7 0.7
0.6
0.5
0.3

0
2013 2014 2015 2016 2017 2018 2019 2020