Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com/disclosures. INDIA Inside Indian E-Commerce – Tip of the iceberg 2 What do you get in this report? 8 India is on the cusp of E-Commerce revolution 9 Drivers of E-Commerce growth in India 12 Indian E-Commerce Eco-system 21 Look out for more IPOs 25 Regulation: Hurdle remains on FDI policy 26 Listed Company Profiles 27 Info Edge (INFOE IN, Not Rated) 28 Just Dial (JUST IN, Not Rated) 34 Online Travel: Lion’s share of Indian E-commerce 39 MakeMyTrip (MMYT US, Not Rated) 42 Yatra.com (Unlisted) 48 IRCTC (Unlisted) 51 Online E-Tailing: Growing the fastest… 53 Snapdeal (Unlisted) 54 Flipkart (Unlisted) 56 Myntra.com (Unlisted) 59 Jabong.com (Unlisted) 62 Fashionandyou.com (Unlisted) 64 Network 18 Media Investments (NETM IN, Not Rated) 66 Analyst(s) Atul Soni +91 22 6720 4089 [email protected]Nitin Mohta +91 22 6720 4090 [email protected]13 January 2014 Macquarie Capital Securities India (Pvt) Ltd Hunting Stocks Indian E-Commerce – Tip of the iceberg We believe e-commerce is the most exciting and fastest growing segment of the Internet story in India and is likely to remain so for the foreseeable future. The growth over the last couple of years has been even faster than expected. In this report, we investigate several critical components along the e- commerce value chain and compare/contrast different business models and various market players. India is at the cusp of the e-commerce revolution: US$18bn market by 2015E Early Stages of Growth & Drivers in place. Indian E-commerce has shown strong CAGR of 30%+ since FY09 and we expect it to become an attractive Rs1.1 trillion (US$18bn) opportunity by FY15E. We believe that India will continue to witness high growth rates in e-commerce due to (1) rising internet penetration, (2) 300m+ middle class population, (3) increasing mobile penetration, (4) low levels of e-commerce activity. Nature of Indian E-commerce Industry. Compared to the west, India’s e- commerce industry is still in its infancy. E-commerce contributes only 0.6% of the country’s GDP vs 1%-3% for other countries (Fig 16), with only 12% of India’s online population transacting online vs 64% for the US and 50%+ for China (Fig 3). Travel has the lion’s share of 71% of Indian e-commerce, but e-tailing has grown the fastest, at a 59% CAGR between FY09-13E, to reach 16% market share (Fig 7). Look out for more IPOs With only two listed internet companies in India, we believe the segment is going to see more companies come to the capital markets within the next 18- 24 months. Our research on private equity data and the recent multi-million dollar fundraisings by some of the country’s top e-commerce players also corroborates the same thesis. Valuations & Risks Internet companies trade at high multiples. Internet companies tend to trade in a high multiple zone of 20x-50x 1 year forward earnings due to the basic nature of high growth estimates in future years. Pages 6-7 show a comparison of valuations across US, China and India for internet companies. Risks – Finally a bet on model and company execution. It is easy to see that e-commerce will grow substantially in coming years, but picking which models and companies are going to be winners is much harder. We believe risks reside mostly with the different business models and execution of different players in the market. Conclusion: Battle of business models In this report, we have taken a deep dive into different e-commerce business models relevant to India – Inventory, Marketplace and Hybrid. We conclude, there is room for all models to exist, but it will be a race to the finish. Thus, the company which will emerge as the top player will likely do so based on its top management’s execution and capital management ability.
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Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com/disclosures.
INDIA
Inside
Indian E-Commerce – Tip of the iceberg 2 What do you get in this report? 8 India is on the cusp of E-Commerce revolution 9 Drivers of E-Commerce growth in India 12 Indian E-Commerce Eco-system 21 Look out for more IPOs 25 Regulation: Hurdle remains on FDI policy 26 Listed Company Profiles 27 Info Edge (INFOE IN, Not Rated) 28 Just Dial (JUST IN, Not Rated) 34 Online Travel: Lion’s share of Indian E-commerce 39 MakeMyTrip (MMYT US, Not Rated) 42 Yatra.com (Unlisted) 48 IRCTC (Unlisted) 51 Online E-Tailing: Growing the fastest… 53 Snapdeal (Unlisted) 54 Flipkart (Unlisted) 56 Myntra.com (Unlisted) 59 Jabong.com (Unlisted) 62 Fashionandyou.com (Unlisted) 64 Network 18 Media Investments (NETM IN, Not Rated) 66 Analyst(s) Atul Soni +91 22 6720 4089 [email protected] Nitin Mohta +91 22 6720 4090 [email protected]
13 January 2014 Macquarie Capital Securities India (Pvt) Ltd
Hunting Stocks Indian E-Commerce – Tip of the iceberg We believe e-commerce is the most exciting and fastest growing segment of
the Internet story in India and is likely to remain so for the foreseeable future. The growth over the last couple of years has been even faster than expected. In this report, we investigate several critical components along the e-commerce value chain and compare/contrast different business models and various market players.
India is at the cusp of the e-commerce revolution: US$18bn market by 2015E
Early Stages of Growth & Drivers in place. Indian E-commerce has shown strong CAGR of 30%+ since FY09 and we expect it to become an attractive Rs1.1 trillion (US$18bn) opportunity by FY15E. We believe that India will continue to witness high growth rates in e-commerce due to (1) rising internet penetration, (2) 300m+ middle class population, (3) increasing mobile penetration, (4) low levels of e-commerce activity.
Nature of Indian E-commerce Industry. Compared to the west, India’s e-commerce industry is still in its infancy. E-commerce contributes only 0.6% of the country’s GDP vs 1%-3% for other countries (Fig 16), with only 12% of India’s online population transacting online vs 64% for the US and 50%+ for China (Fig 3). Travel has the lion’s share of 71% of Indian e-commerce, but e-tailing has grown the fastest, at a 59% CAGR between FY09-13E, to reach 16% market share (Fig 7).
Look out for more IPOs
With only two listed internet companies in India, we believe the segment is going to see more companies come to the capital markets within the next 18-24 months. Our research on private equity data and the recent multi-million dollar fundraisings by some of the country’s top e-commerce players also corroborates the same thesis.
Valuations & Risks
Internet companies trade at high multiples. Internet companies tend to trade in a high multiple zone of 20x-50x 1 year forward earnings due to the basic nature of high growth estimates in future years. Pages 6-7 show a comparison of valuations across US, China and India for internet companies.
Risks – Finally a bet on model and company execution. It is easy to see that e-commerce will grow substantially in coming years, but picking which models and companies are going to be winners is much harder. We believe risks reside mostly with the different business models and execution of different players in the market.
Conclusion: Battle of business models
In this report, we have taken a deep dive into different e-commerce business models relevant to India – Inventory, Marketplace and Hybrid. We conclude, there is room for all models to exist, but it will be a race to the finish. Thus, the company which will emerge as the top player will likely do so based on its top management’s execution and capital management ability.
Macquarie Research Hunting Stocks
13 January 2014 2
Indian E-Commerce – Tip of the iceberg Executive Summary
In this report, we undertake a comprehensive study of the Indian e-commerce industry. We
believe e-commerce is likely to be one of the fastest-growing segments in the Indian
Internet space. And it is happening against a positively changing macro backdrop – the
Indian economy is forecast to grow 5–7% per annum over the next three years.
The Indian E-Commerce industry is a very recent phenomenon and has been in its infancy
for the larger part of the previous decade. However, in last four years, the industry has
witnessed an incredible CAGR in excess of 30%+ annually. As per IAMAI estimates, the
industry has increased from Rs192bn (US$3.8bn) in 2009 to Rs630bn (US$9.5bn) in
2013E. However, our estimates may ultimately prove conservative, as the adoption of e-
commerce in India has occurred faster than many had expected, and e-commerce growth
could follow the same trend.
Fig 1 Indian E-commerce industry to cross Rs1.1 Trillion (US$ 18bn) in 2015…
Source: IAMAI, Macquarie Research, January 2014
Huge Potential for growth. The various drivers of driving e-commerce in India are in
place, including rising income levels in middle class Indians, an increasing internet
penetration rate in the population, current low levels of online e-commerce activity and
development of the ancillary logistics and payments industries to drive online purchasing
activity. The chart below shows that the numbers of Indians on the internet and number of
Indians using e-commerce are still pretty low. This presents a unique opportunity where
one sees rising internet usage but still low levels of e-commerce activity.
Fig 2 Huge scope for increasing online buyers… Fig 3 …. With penetration rates of mere 12% !!!!
Source: IAMAI, Macquarie Research, January 2014 Source: IAMAI, Macquarie Research, January 2014
192 263 351 473 850 1,148630
36%
34%
35%35% 35%
33%
-
200
400
600
800
1,000
1,200
1,400
2009 2010 2011 2012 2013E 2014E 2015E
31%
32%
33%
34%
35%
36%
37%
Indian Digital Commerce Mkt (Rs bn) YoY growth rate (%)
320
1350
24
200
1220
245
538
2079
205156
270
11 27 25
0
200
400
600
800
1000
1200
1400
1600
USA China Australia Brazil India
Population (m) No. of Internet Users (m) No. of Online Buyers (m)
1.6x
2.0x
1.8x2.9x
8.2x
Ratio of Online Population to Online buyers (x)
64%
50%
55%
34%
12%
0%
10%
20%
30%
40%
50%
60%
70%
USA China Australia Brazil India
Online Buyers as % of Internet Users
We project Indian E-
Commerce Industry
to growth to
US$18bn
opportunity by
FY15E.
Macquarie Research Hunting Stocks
13 January 2014 3
Driver for growth in place. We list below the key drivers for driving growth in E-
commerce in India. We present a chart below giving a snapshot of the six key drivers and
then explain them in more detail one by one in the next pages.
Fig 4 Key Drivers of growth in Indian E-Commerce Sector
Source: Macquarie Research, January 2014
E-Commerce Models in India. E-commerce business models differ from traditional
models since they deliver the products directly to the consumer, eliminating multiple
players in the process. Various examples in the developing and developed world show that
top players have almost always outsourced forward logistics, while controlling the back-
end supply chain such as warehousing and inventory management. Most of the energies
of the global e-commerce players have been spent on establishing warehouses that are
capable of handling thousands of orders per hour. Currently, Indian e-commerce
entrepreneurs are looking at their business in three ways
Fig 5 Various approaches to Indian E-Commerce
Source: Macquarie Research, January 2014
Indian E-Commerce
Business Models
Inventory Led E.g. Flipkart.com
Niche Business E.g. Infoedge's
naukri.com
Mass Business E.g. Justdial.com
Marketplace E.g.
Snapdealcom
Hybrid E.g. Amazon.com
The drivers for
growth in E-
Commerce in India
are contributing to
its immense
potential.
Macquarie Research Hunting Stocks
13 January 2014 4
Travel has the lion’s share but E-Tailing growing the fastest. Indian E-Commerce is
dominated by the online travel segment, which contributes more than 70% of the country’s
e-commerce revenues. However in the last three years, we have seen strong growth in
the e-tailing segment (FY09-13 CAGR of 59%), which is expected to grow even faster in
the coming years on the back of rising mobile penetration and better payment
mechanisms. We expect these trends to continue, with E-tailing showing the strongest
growth amongst peer groups.
Fig 6 Breakdown of Indian Ecommerce Industry – 2013E
Fig 7 ..growth rates for E-Tailing the fastest…
Source: IAMAI, Macquarie Research, January 2014 Source: IAMAI, Macquarie Research, January 2014
Look out for more IPOs in 12-24 month time frame. In the Indian context, only two
internet-based companies are listed on the markets, including Infoedge (INFTEC IN),
which runs India’s largest job portal (naukri.com), and justdial (JUST IN), which is India’s
largest local search site. In our conversations with various founders and top management
leaders in Indian e-commerce companies, we got a sense that most companies would be
hitting relevant milestones with regards to revenues and profitability in 12-24 months’ time
frame. This should clear the way for multiple IPOs from this segment.
Global Phenomenon: 6 out of top 10 internet IPOs have come in the last three years. We
present a chart below showing the biggest internet IPOs in history.
Fig 8 2011-13 has witnessed 60% of the largest internet IPOs…...ever…..
Note: Prices as of 6 January 2014 close. Data for not-rated companies based on Bloomberg consensus estimates.
Source: Bloomberg, Macquarie Research, January 2014
Macquarie Research Hunting Stocks
13 January 2014 8
What do you get in this report? In this report, we have analysed critical components of the e-commerce landscape and
how they are being impacted in the Indian context. We also highlight the various e-
commerce business models in use in India and a brief overview of the leading players in
each of the segments.
Infoedge Ltd.
•Leading bouquet of businesses including Naukri.com: Leading Indian player in job search, Jeevansathi.com: Top 3 matrimony site , 99acres.com: Leading real estate classified site etc.
•Strategic investments in sites like zomato.com, policybazaar.com etc
JustDial
• India's leading local search engine
Makemytrip.com
• India's #1 travel site
Yatra.com
• Leading competitor to Makemytrip
IRCTC
• 800 pound gorilla in rail bookings
Snapdeal.com
• India's #1 online marketplace
Flipkart.com
• India's #1 inventory based online store
Myntra.com
• India's #2 shopping site
Jabong.com
• Top 3 player: New kid on the block and growing rapidly
Fashionandyou.com
• India's leading flash sale site for lifestyle products
Macquarie Research Hunting Stocks
13 January 2014 9
India is on the cusp of E-Commerce revolution The Indian E-Commerce industry is a very recent phenomenon and has been in its infancy
for the larger part of the previous decade. However, in last four years, the industry has
witnessed an incredible CAGR in excess of 30%+ annually. As per IAMAI estimates, the
industry has increased from Rs192bn (US$3.8bn) in 2009 to Rs630bn (US$9.5bn) in
2013E.
Fig 12 Indian E-commerce industry could cross Rs1.1 Trillion (US$ 18bn) in 2015
Source: IAMAI, Macquarie Research, January 2014
We are at nascent stages of E-Commerce Industry lifecycle vs Rest of the World
We see huge potential for growth in content of the Indian e-commerce landscape. The
various drivers of driving e-commerce in India are in place, including rising income levels in
middle class Indians, increasing internet penetration rate in the population, current low
levels of online e-commerce activity and development of the ancillary logistics and
payments industries to drive online purchasing activity. The chart below shows that the
numbers of Indians on the internet and number of Indians using e-commerce are still pretty
low. This presents a unique opportunity where one sees rising internet usage but still low
levels of e-commerce activity.
Fig 13 Huge scope for increasing online buyers… Fig 14 …. With penetration rates of mere 12% !!!!
Source: IAMAI, Macquarie Research, January 2014 Source: IAMAI, Macquarie Research, January 2014
192 263 351 473 850 1,148630
36%
34%
35%35% 35%
33%
-
200
400
600
800
1,000
1,200
1,400
2009 2010 2011 2012 2013E 2014E 2015E
31%
32%
33%
34%
35%
36%
37%
Indian Digital Commerce Mkt (Rs bn) YoY growth rate (%)
320
1350
24
200
1220
245
538
2079
205156
270
11 27 25
0
200
400
600
800
1000
1200
1400
1600
USA China Australia Brazil India
Population (m) No. of Internet Users (m) No. of Online Buyers (m)
1.6x
2.0x
1.8x2.9x
8.2x
Ratio of Online Population to Online buyers (x)
64%
50%
55%
34%
12%
0%
10%
20%
30%
40%
50%
60%
70%
USA China Australia Brazil India
Online Buyers as % of Internet Users
We project Indian E-Commerce Industry
to growth to US$18bn opportunity
by FY15E
Macquarie Research Hunting Stocks
13 January 2014 10
Contribution to Indian GDP: Still early stages…
As per the McKinsey Global Institute, the Internet already has an immense impact on the
global economy, contributing an estimated US$1.7 trillion, or 3% of global GDP. Yet half
the number of Internet users live outside the advanced economies, often in countries that
are quickly developing, have significant economic potential and are socially and culturally
diverse, India being a prime example of the above. KPMG estimates that the E-Commerce
industry could contribute around 4% to the GDP by 2020 (vs less than 1% currently).
Fig 15 E-Commerce Industry in early stages in India…
Fig 16 … can lead to huge head room for growth..
Source: IAMAI, Macquarie Research, January 2014 Source: IMF, IAMAI, Macquarie Research, January 2014
How the pie splits in Indian Ecommerce Traffic
Indian E-Commerce is dominated by the online travel segment, which contributes more
than 70% of the e-commerce revenues in the country. However in the last three years, we
have seen strong growth in the e-tailing segment, which is expected to grow even faster in
the coming years on the back of rising mobile penetration and better payment
mechanisms. We expect these trends to continue, with E-tailing showing the strongest
growth amongst peer groups.
Fig 17 Breakdown of Indian Ecommerce Industry - 2009
Fig 18 Breakdown of Indian Ecommerce Industry – 2013E
Source: IAMAI, Macquarie Research, January 2014 Source: IAMAI, Macquarie Research, January 2014
224210
3019
11
0
50
100
150
200
250
USA China Australia Brazil India
Size of E-Commerce Industry (In US$ bn) - 2013
1.3%
2.4%
2.0%
0.9%
0.6%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
USA China Australia Brazil India
E-Commerce Industry as % of country's GDP (2013)
Online travel
industry
78%
E-Tailing
8%
Others
2%
Classifieds
market
4%Financial
services
8%
Online travel
industry
71%
Financial
services
6%
Classifieds
market
5%
Others
2%
E-Tailing
16%
Macquarie Research Hunting Stocks
13 January 2014 11
We explain the constituents of the e-commerce traffic in India:
Online travel includes booking rail, air, bus tickets, hotel accommodations and tour
packages. The largest players in this category include Indian Railways, Makemytrip,
cleartrip, yatra, goibibo etc.
E-Tailing includes purchases of various consumer products/services such as
electronics, apparel, footwear, jewellery, home & kitchen appliances, consumer
durables, furnishings. The largest players in this category include flipkart, snapdeal
etc.
Financial Services includes services such as paying insurance premiums and
renewals, paying utility and mobile bills, trading shares and securities. The largest
players in this category include various telecom and banking players.
Classified includes jobs, matrimony, car, real estate etc. The largest players in this
category include Infoedge, Timesjobs.com (part of Times of India) and Shine.com (part
of HT Media) etc.
Others include online entertainment ticketing, online food delivery, buying
discounts/deals/vouchers etc.
Fig 19 Online travel still the largest but E-Tailing growing the fastest…
Source: IAMAI, Macquarie Research, January 2014
150
16 15 8
449
100
36 31
-
50
100
150
200
250
300
350
400
450
500
Online travel industry E-Tailing Financial services Classifieds market
13 January 2014 Macquarie Capital Securities India (Pvt) Ltd
MacVisit: Info Edge Core business strong, string of pearls strategy for unlisted investments We met with Mr. Ambarish Raghuvanshi, Group President Finance and Chief
Financial officer (CFO) of Info Edge (India) Limited, which is India’s largest
on-line classifieds company in recruitment, matrimony, real estate, education
and related services.
Impact
Business Model: String of Pearls strategy. Info Edge operates in 4 key
business lines and has 6 strategic investments in external unlisted
ecommerce ventures. Its 4 key business segments are:
Recruitment. This comprises online recruitment classifieds
(www.naukri.com, India’s leading job site and www.naukrigulf.com, a job
site focused at the Middle East job market) and offline executive search
(www.quadranglesearch.com). Related sites in this business are a
professional networking site (www.brijj.com) and a fresher hiring site
(www.firstnaukri.com).
Matrimony. This comprises online matrimony classifieds
(www.jeevansathi.com) and 14 offline Jeevansathi Match Points.
Real Estate. This comprises online real estate classifieds
(www.99acres.com), a real estate brokerage business
(www.allcheckdeals.com, housed in a subsidiary named India Private
Limited).
Education. This comprises online education classifieds
(www.shiksha.com).
Key Drivers for growth. Info Edge believes it stands to benefit from the
secular growth story of increasing internet penetration, strong and established
brands, increasing 3G mobile subscriber base and young demographics
profile for the country.
Key Strengths & weaknesses.
Key strengths include 1) First mover advantage in various categories, 2)
Recruitments, contributing ~77% of company revenues is ~50% EBITDA
margin business, 3) No debt and cash generating business.
Key weaknesses include 1) Low barriers to entry, 2) Failure to adapt to
newer technological shifts, 3) Competition
Outlook
Valuation. The stock is currently trading at 34x FY15 earnings on Bloomberg
13 January 2014 Macquarie Capital Securities India (Pvt) Ltd
MacVisit: MakeMyTrip Leading Online Travel Player We met with Mr. Jonathan Huang, Director, Investor Relations of MakeMyTrip
Limited (MMYT US) which is India’s largest online travel company. The
company provides air tickets, customized holiday packages, hotel bookings,
railway tickets, bus tickets, car hire etc.
Impact
Business Model: All things travel. MMYT is the largest online travel site in
India in terms of market share with 47% of domestic gross bookings. MMYT
earns its revenue from direct customer payments and commissions made
through transactions on its site. It operates in 3 key business lines including
Air Ticketing (Domestic and International), Hotels and Packages and Others
(Rail and Bus Ticketing, Travel Insurance etc). During FY13, the three
segments contributed 65%, 31% and 4% respectively. Management indicated
that the desired mix for hotels and air tickets is to reach 50-50 within the next
18-24 months.
Recent acquisitions expected to drive growth in improving economic
environment. The company has been acquiring assets in the hotels and
ticketing space to cement its leading position in the space. A list of the
acquisitions is as follows:
Recent acquisitions show focus on Hotel and Packages segment…
Date Name Deal value (In US$ m)
Nov-12 ITC Group (Thailand) 3 Nov-12 Hotel Travel Group 25 Nov-11 My Guest House Accommodations Pvt Ltd. na Aug-11 Le Travenues Technology Pvt. Ltd. 5 Feb-11 Luxury Tours & Travel Pte Limited 3 Mar-10 Travis Internet Private Limited na
Source: Company Data, Macquarie Research, January 2014
Key drivers of growth. MMYT expects to benefit from the secular growth
story of increasing internet penetration, its strong and established brand
name, an increasing 3G mobile subscriber base, rising urban population in
India and young demographic profile of the country.
Key strengths & weaknesses
Key strengths include: 1) First mover advantage, 2) largest seller of
domestic hotel bookings, 3) established user base.
Key weaknesses include: 1) Low barriers to entry, 2) high competitive
intensity in the segment, 3) high dependency on macroeconomic
conditions.
Outlook
Valuation. The company is currently trading at 64x FY16 earnings on
Yatra.com (Unlisted) No. 2 Travel Platform in India
Meeting with CFO. We interacted with Mr. Alok Vaish, Group CFO at Yatra Online Pvt
Ltd, which is India’s second-largest on-line travel company. The company provides a
complete suite of travel services including air tickets, customized holiday packages, hotel
bookings, railway tickets, bus tickets, car hire etc. Currently, the company generates ~70%
of its revenues from air ticketing, which it is targeting to reduce to 50% in 24-30 months.
Company Profile. Yatra.com is an Indian online travel company based in Gurgaon,
Haryana, India. It was founded by Dhruv Shringi, Manish Amin and Sabina Chopra in
August 2006. As of 2012, Yatra.com was the second-largest travel portal in India with
~20% market share. It provides information, pricing, availability, and booking facilities for
domestic and international air travel, railway reservations, hotel bookings, holiday
packages, buses, and car rentals. Yatra is trying to become a one-stop-shop for all travel-
related services. As a consolidator of travel products, Yatra.com provides reservation
facilities for more than 5,000 hotels across 336 cities in India and over 90,000 hotels
around the world.
Access. Users can access Yatra.com multiple ways including online website, a 24x7 multi-
lingual call centre, a network of brick and mortar stores and through mobile phones.
Financial Details
Our interaction with the CFO revealed that the company is looking to generate Rs45bn
(approx US$750m) of gross revenues in FY14. For FY11, the company reported revenues
of Rs1.3bn (vs Rs1.1bn in FY10). The company had reported a loss after tax of Rs390m in
FY11 (vs loss of Rs82m in FY10). The company is looking to break even in 12-18 months’
time.
Air ticketing profitable, Hotels and packages in investment mode. The CFO indicated
that they are showing profitability in the air tickets operations, while hotels and packages
would continue to see investments for some time.
Funding and Business Strategy
Driven by acquisitions. Yatra.com has been active in the acquisitions mode, making 4
major acquisitions till now. They are as follows:
Fig 59 Acquisitions focus to fuel growth…
Name Date Area
Travel Services International Oct-10 Ticket consolidator MagicRooms.in Jun-11 Global distribution system BuzzInTown.com Jan-12 Events and entertainment portal Travelguru.com Jun-12 Travel Portal
Source: Company data, Macquarie Research, January 2014
Investors and Funding History. Yatra.com has marquee investors backing the company
with the likes of Reliance Venture Asset Management Ltd, TV18 Group, Norwest Venture
Partners and Intel Capital.
Funding. In April 2011, the company announced receiving funding of Rs2bn
(US$45m) from Valiant Capital Management, Norwest Venture Partners (NVP) and
Intel Capital.
Advt for equity stake to local movie star, Mr Salman Khan ensures top of the mind
recall during advertising. Yatra.com started an innovative advertising for equity program
by associating with local movie star Salman Khan during April 2012. Media reports suggest
that Khan has received a ~5% stake in yatra.com and would become the brand
Snapdeal (Unlisted) India’s largest online marketplace
Meeting with founder, Mr Kunal Bahl. We interacted with Mr. Kunal Bahl, Founder & CEO,
and Mr. Aakash Moondhra, CFO of snapdeal, which is India’s largest on-line marketplace
company.
Company Profile. Snapdeal.com is an online marketplace, headquartered in New Delhi.
The company was started in February 2010 by Kunal Bahl, a Wharton graduate, and Rohit
Bansal, an alumnus of IIT Delhi. Snapdeal.com started as a daily deals platform but
expanded in September 2011 to become an e-commerce company via a marketplace
model. The company started with 20+ employees in 2010 and now employs over 1,000 in
its operations.
Customer and Merchant Base. As of February 2013, the company had over 25m
registered users. It registers 35m+ page visits and over 300m page views every month. It
offers an assortment of 4m+ products in over 500+ categories from over 20,000 sellers,
shipping to 4,000 towns and cities in India.
Financial Details: Target US$1bn sales in FY15
Our interaction with the founder revealed that the company is currently generating Gross
Merchandise Value (GMV) of US$500m and looking to generate US$1bn by FY15. During
2013, the company grew revenues 6x by increasing their product categories and
assortments.
Mr. Kunal Bahl, Founder & CEO has discussed in media reports and interviews that the
company is looking at possible listing in the next 12-24 months. (Link1) & (Link2)
Funding Details & Acquisitions
Snapdeal has received three rounds of funding amounting to US$107m. The details on the
funding timeline and investors are as follows:
Fig 71 Funding Details for Snapdeal: Ebay is the largest investor in snapdeal
Date Investors Amount (In US$ m)
Jan-11 Nexus Venture Partners and Indo-US Venture Partners 12 Jul-11 Bessemer Venture Partners, Nexus Venture Partners and Indo-US
Venture Partners 45
Jun-13 eBay and existing investors 50
Source: Company data, Macquarie Research, January 2014
Snapdeal has done three acquisitions since inception. The details on the acquisitions are
as follows:
Fig 72 Acquisitions have been strategic in nature…
Date Acquiree Details
Jun-10 Grabbon.com Bangalore-based group buying site Apr-12 esportsbuy.com Delhi based online sports goods retailer May-13 Shopo.in Online marketplace for Indian handicraft products
Source: Company data, Macquarie Research, January 2014
Showing tremendous growth potential. Our interaction with the founder showed that the
company views mobile as a key driver for increasing revenues.
Currently, mobile is contributing 30% of orders placed (up from 5% less than 12 months
ago). Its mobile commerce site witnesses about 12m average visits per month. 75% of the
mobile-based transactions involve cash on delivery and 25% are prepaid transactions,
while the majority of customers are from Delhi, Mumbai, Chennai, Kolkata, Bangalore and
Hyderabad.
The top selling categories over m-commerce on Snapdeal are mobiles, men's apparel,
women's apparel, pen drives and memory cards and men's footwear.
Issues and Challenges
Challenges facing marketplace-led model. Snapdeal is India’s largest online marketplace
company. Thus the challenges inherent to the model would be the same as faced by
snapdeal.
These include dependency of every aspect of business on third parties or outsourcing right
from supply chains to payment and logistics. In our view, cracking the supply chain and
keeping track of logistics and customer satisfaction is the most complex part of the whole
chain.
Macquarie Research Hunting Stocks
13 January 2014 56
Flipkart (Unlisted) India’s largest inventory-led e-commerce Company
Company Profile. Flipkart is an Indian e-commerce company founded in 2007, by Sachin
and Binny Bansal and headquartered in Bangalore, Karnataka. It is considered as the
pioneer in e-commerce in India, which made online shopping popular in India.
How it all started? Flipkart was founded in 2007 by Sachin Bansal and Binny Bansal, both
alumni of the Indian Institute of Technology Delhi. They had been working for Amazon.com
previously. During its initial years, Flipkart focused only on books, but once it expanded, it
started offering other products like electronic goods, air conditioners, air coolers, stationery
supplies and lifestyle products and e-books. Flipkart now employs more than 4,500 people,
and is ranked among the top 20 Indian websites.
Cash on Delivery: Key to success. Flipkart's offering of products on Cash on Delivery is
considered to be one of the main reasons behind its success. Flipkart also allows other
payment methods, including credit or debit card transactions, net banking, e-gift voucher
and Card Swipe on Delivery.
User base. Flipkart has 10m+ registered users and sees about 1m+ visits every day.
Financial Details: Target US$1bn sales in FY15
In his interactions with the media, founder Sachin Bansal has shared that the company
currently generating Gross Merchandise Value (GMV) of US$600m and is looking to
generate US$1bn by FY15. (Link)
The company founders have discussed in media that they are currently not profitable and
are making investments in its growth. (Link1)
Funding Details & Acquisitions
Flipkart has received five rounds of funding amounting to US$541m. The details on the
funding timelines and investors is as follows:
Fig 73 Funding Details for Flipkart: Funding does not seem an issue….
Date Investors Amount (In US$ m)
May-09 Accel India 1 Jun-10 Tiger Global 10 Jun-11 Tiger Global 20 Aug-12 MIH (part of Naspers Group) and ICONIQ Capital 150 Jul-13 Tiger Global, Naspers, Accel Partners and Iconiq Capita 200 Oct-13 Dragoneer Investment Group, Morgan Stanley Investment Management,
Sofina SA, Vulcan Capital, Tiger Global 160
Source: Company data, Macquarie Research, January 2014
Flipkart has done four acquisitions since inception. The details on the acquisitions are as
follows:
Fig 74 Acquisition have been strategic in nature…
Date Acquiree Details
2010 WeRead Social book discovery tool 2011 Mime360 Digital content platform company 2011 Chakpak.com Movie news site 2012 Letsbuy.com Indian e-retailer in electronics
Source: Company data, Macquarie Research, January 2014
Reducing margins in Air ticketing leads to renewed focus on Hotels and Packages.
Among the key businesses of MakeMyTrip Ltd, air ticketing margins have been reducing
due the closure of Kingfisher Airlines in India along with adverse macro economic
environment during 2011-3. They have already come down from 7%+ to ~6% levels vs
Hotels and Packages segment, which has been on an increasing trend.
Fig 107 Air Ticketing margins has been reducing…
Fig 108 …while Hotels and packages has been showing increasing margins…
Source: Company Data, Macquarie Research, January 2014 Source: Company Data, Macquarie Research, January 2014
Financials. The company’s gross bookings grew from US313m in FY09 to US$1,170m in
FY13. On a net basis, revenues grew to US$88m in FY13 (vs US$ 26m in FY09), showing
a CAGR of 37%. Do note that net revenues constitute revenues less service costs.
Fig 109 Total Gross bookings has been growing at a CAGR of 39% during FY09-13…
Fig 110 …while margins have been impacted from negative industry conditions and recent acquisitions….
Source: Company Data, Macquarie Research, January 2014 Source: Company Data, Macquarie Research, January 2014
7.2%7.6% 7.4%
7.9%
6.0%6.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
FY09 FY10 FY11 FY12 FY13 1HFY14
Adjusted Operating Margins for Air Travel (%)
10.6%
14.0%
11.5% 11.9% 12.0%12.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
FY09 FY10 FY11 FY12 FY13 1HFY14
Adjusted Operating Margins for Hotels and Packages (%)
0
200
400
600
800
1000
FY09 FY10 FY11 FY12 FY13
0%
10%
20%
30%
40%
50%
60%
70%
Gross Bookings - Air Ticketing (US$ m)
Gross Bookings - Hotels and Packages (US$ m)
Air Ticketing YoY growth (%)
Hotels and Packages YoY growth (%)
(10.2)
0.8
4.6
10.9
(5.2)(3.5)
-15
-10
-5
0
5
10
15
FY09 FY10 FY11 FY12 FY13 1HFY14
Adjusted Operating Profits (In US$ m)
1.9% 7.5% 12.4%
Macquarie Research Hunting Stocks
13 January 2014 80
Fig 111 MakeMyTrip Homepage snapshot: Focusing on Travel in India
Source: makemytrip, Macquarie Research, January 2014
Macquarie Research Hunting Stocks
13 January 2014 81
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 31 December 2013
AU/NZ Asia RSA USA CA EUR Outperform 47.89% 60.13% 37.97% 39.49% 59.64% 48.65% (for US coverage by MCUSA, 6.52% of stocks followed are investment banking clients)
Neutral 35.56% 22.65% 46.84% 54.50% 35.54% 32.43% (for US coverage by MCUSA, 4.35% of stocks followed are investment banking clients)
Underperform 16.55% 17.22% 15.19% 6.01% 4.82% 18.92% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)
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13 January 2014 82
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