Merisis Consumer Newsletter Q2 FY 2016

7/24/2019 Merisis Consumer Newsletter Q2 FY 2016

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Consumer Spotlight

M&A and Private Equity Perspective on

the Consumer Sector

Q2

FY2016

Mumbai Bangalore


2/11

2

Merisis Consumer Sector Coverage

Consumer Goods& Services

E-Commerce

Finance

Healthcare

Indias consumer packaged goods and retail sectors may not be able to sustain the

high growth path solely on consumption-led demand in the wake of structural

bottlenecks, as per FICCI report.

The online grocery market in India is growing at 25-30% annually in metropolitan areas

and large cities and only 5% to 8% of all grocery stores are organized corporations.

Hence, its a challenge for companies to get local mom and pop or kirana stores onboard due to existing gaps in technology and integration

Indian e-commerce market is likely to reach USD 8.5 Billion by 2015

It is estimated that online retail will be an $18 billion industry in India by 2018 and e-

commerce logistics will be a $2 billion industry by 2019

Re-rating of Unicorn start-ups valuation globally likely to have an impact on funding

and valuation in India

Large ecommerce players looking at aqui-hiring - not just for skilled people but for

innovative ideas

Indian financial services firms delivered the second-highest return on invested capital

for private equity firms during 2009-13, according to a study by McKinsey & Co

RBIs decision to grant 11 payment banks license and 10 small banks license in this

quarter is likely to see more deal activity. 9 out of the 10 entities that received the

RBIs in-principle license for small finance bank might have to raise an estimated INR

4,000 crore ($606.2 million) from domestic investors to bring down their foreign

shareholding to 49%

India's healthcare sector is expected to reach $280 billion by 2020, growing at a

compound annual growth rate of 16%, says a FICCI-KPMG report and set to create 7.4

million jobs

Home healthcare picks up pace in India thanks to digital technology and the positive

fillip in e-commerce industry

The healthcare segment is gaining traction as it has attracted foreign funds to the tune

of USD 3.37 billion in January-July 2015

Education

The education market in India is worth USD 100 billion annually. Ed-tech startups are

contributing to a changing trend in education in India

Real-time book updates, online tutoring, edutainment and online test preparation are

some of the business models through which education startups are trying to cater to a

larger audience. Using technology they have been able to reach tier II and tier III cities

Govt. of India approved a proposal to bolster ties between India & Germany in higher

education sector in the field of research, skill development & faculty development


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3

31%

22%15%

10%

9%

8% 3%

2%

Information Technology Consumer Services Industrials

Financials Health Care Materials

Energy Utilities

52%

22%

10%

9%

5% 2%

Information Technology Consumer Services IndustrialsFinancials Health Care Others

Macro Overview

Aiming to reap significant benefits from

continuing reforms, Finance Minister Arun

Jaitley said all macroeconomic parameters

including fiscal deficit and inflation appear

positive and hoped that GDP growth would

exceed 7.3% rate of last year

For 2015-16, the government aims to restrict

fiscal deficit to INR 5.55 lakh crore, or 3.9% of

GDP. Implementation of Goods and Services

Tax (GST) is very high on the governments

priority list where they have set a deadline of

April 1, 2016 for its implementation

Consumer Industry Overview

Indias resilient consumer spending is anadvantage, as demand decelerates almost

everywhere else. For years, growth in India has

been fueled more by domestic demand than

by exports

Indias retail market is expected to cross $1.3

trillion by 2020 from the current market size of

$600 billion, expected to grow at a CAGR of 15

- 20%

Modern retail with a penetration of only 5% is

expected to grow about 3x to $180 billion by2020 from $60 billion in 2015

Deal Overview

Private Equity

Between Jan-Sept 2015, there were 928 PE

deals worth $14.24 billion, the highest so far in

volume and value for the Indian private equity

Investments of $4.7 billion, spread across 342

deals, were made in Q2 FY2016; an increase of

53% in deal volume and 56% in deal valuewhen compared to deal-making in Q2 FY2015

Merger & Acquisition

M&A deals struck during Q2 FY2016 were

recorded at 233 deals worth $6.8 billion.

Compared to Q2 FY2015, deal volume declined

9%, deal value increased by a healthy 31% the

growth being driven by outbound deals, which

grew over 4.8x between the same period

Investment Activity - India

66%

16%

9%

5% 5%

E-Commerce Consumer Goods & Services

Financials Education

Health Care

1,150

220

615

3338

Consumer Fundraising - Q2 FY2016

By Value - $2.3 BillionBy Volume 200 Deals

Total Fundraising Q2 FY2016


1,068

1,425

248

1,383

382

386

41%

32%

17%

5%

E-Commerce Consumer Goods & ServicesFinancials Education

43

71

255

0

Consumer M&A - Q2 FY2016By Value - $369 MillionBy Volume 36 Deals

Total M&A - Q2 FY2016


629

78712

1,8521,554

1,817

24739


4/11

4Top 5 PE Deals in Q2 FY2016

Snapdeal

Snapdeal raised $500 million valuing them at $4.8 billion post money, funding

led by SoftBank and new investors Wonderful Stars Pte and Alibaba on Aug 18,

2015

Funds will be used to increase the number of merchants on its site to 1 million,

from about 150,000 todayUSD 500 million

Oyo Rooms

The $100 million deal values Oyo at around $400 million post money, funding

led by new investor SoftBank and existing investors Sequoia, Lightspeed, &

Greenoaks on July 14, 2015

Funds will be used to expand the size of its network to 50,000 rooms across 100

cities by the end of this year, develop innovative technology products and up

customer acquisition and for expanding into Asian countries

USD 100 million

L&T Finance Holdings

PE firm Bain Capital has bought close to a 10% stake in L&T Finance, arm of

Larsen and Toubro Ltd, for INR 1,300 crore in two transactions

The deal will help L&T Finance raise capital to allow L&T to divest some of its

holding, meet its capital adequacy requirements, & for growth capital purposes

at CAGR 25% over 3 yearsUSD 100 million

Pepperfry

The $100 million was a Series D funding round led by new investors Goldman

Sachs & Zodius Advisors and existing investors Norwest and Bertelsmann India

on July 27, 2015

Funds will be used to expand its logistics footprint in Tier-3 & Tier-4 cities by

adding to its growing fleet of delivery vehicles, open new distribution centers,

expand assembly services, strengthen its technology platform and experience

centersUSD 100 million

Practo Technologies

The $90 million deal values Practo at $525 million post money, funding led by

new investor Tencent Holdings, Sequoia Capital Global Equities, Google Capital,

Sofina Socit, Yuri Milner, Altimeter Capital and existing investors Sequoia

India and Matrix Partners on Aug 6, 2015

Funds will be used to expand product lines, acquire more startups, enhance

headcount, increase its lead in the doctor discovery business, accelerate its

international expansion.USD 90 million


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5Top 5 M&A Deals in Q2 FY2016

Share khan Ltd.

BNP Paribas SA acquired Share khan Limited from The Rothay Group, Baring

Private Equity Asia Fund, IDFC Private Equity, Samara Capital and Citi Venture

Capital International for INR 22.4 billon on July 30, 2015

Through this acquisition BNP, whose financial offerings in India include

corporate and retail banking, investment banking and wealth management, willfurther expand into brokerages as well as asset management in India.

P/E = 12.5x

USD 350 million

IIFL Holdings Limited

FIH Mauritius Investments Ltd made an offer to acquire 26.8% stake in IIFL

Holdings Limited for INR 16.2 billion in cash on July 14, 2015

Fairfax already holds 9% stake in IIFL through one of its investment through the

HWIC Asia Fund and after the transaction will end up holding 35% , thus greater

than the promoters shareholding of 29.8%

Equity Value/Book Value = 2.4x P/E = 13.1xUSD 255 million

Kuoni Travels (India) Pvt. Ltd.

Thomas Cook acquired Swiss tour operator Kuoni Group's business in India &

Hong Kong for INR 535 crore as a part of its strategy to scale up the inbound

business & explore Asia opportunity

Thomas Cook will take in about 1,800 employees of Zurich-headquartered

Kuonis business unit in India and Hong Kong.

EV/Revenue = 2.76x (Historical 2014) EV/EBITDA = 17.7x (Historical 2014)USD 84 million

Mebelkart Technologies Private Limited

Mebelkart announced it will receive $20 million in funding on August 18, 2015.

The transaction will involve sole participation from new investor, Getit

Infoservices to acquire more than 75% stake to complete a strategic investment

in the growing furniture market

Funds will used to enter the interior design and modular kitchen business and

investing in creating augmented and virtual reality options on its site.

Valuation - $26.7 millionUSD 20 million

The Royal Bank of Scotland Plc., Indian Private Banking Unit

The Royal Bank of Scotland Plc. entered into a definitive agreement to sell its

Indian private banking unit to Sanctum Wealth Management, a company led by

the head of the business, Shiv Gupta in a management buyout transaction on

July 27, 2015 for an undisclosed financial disclosures

The deal was primarily to pull back from some foreign markets and to focus on

UK retail and commercial banking. It will retain its private banking business,

onshore clients and staff and will retain all branch networks currently operated

by RBS India (Private Banking)USD 30 million

Indian Private Banking Unit

Sanctum Wealth Management

Indian & Hong Kong Business


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Company Overview

Oyo Rooms is an Indian virtual hospitality brand. It aggregates budget hotels

and guesthouses, making inventory discoverable and bookable online. Its

branding provides a franchise-like consistency of product. Its a managed

marketplace of properties.

OYO Rooms currently offers 14,000 rooms in 80 cities.

Ritesh Agarwal, the founder of Oyo Rooms was the first Asian to graduate as a

Thiel Fellow, a global contest in which he was the only winner from India. At

19, he chucked the idea of Oravel, the Airbnb clone, and changed his business

to OYO Rooms.

Notable PE Transaction

$0.65 million Lightspeed

Venture Partners

and other

institutional

investor

Angel Round

(Mar 2014)

$5 millionNew: Sequoia

Existing Investors:

DSG Consumer

Partners,

Lightspeed

Series A

(Sept 2014)

$24 millionNew : Green Oaks

Capital

All existing

Investors

participated

Series B

(Mar 2015)

$100 millionNew : Softbank

Group

All existing

Investors

participated

Series C

(July 2015)

It has developed an asset-light business model. It partners with hotels with the aim of standardization on various

measures in each room including free Wi-Fi and breakfast, flat TVs, spotless white bed linen, branded toiletries, 6-inch

shower heads, a beverage tray and similar amenities

OYO doesn't own any of these properties, and instead, invests in marketing and management quality improvement for

the hotels under its fold. It's a win-win for OYO and the hotels, many of whom just don't have the network, knowledge

or the budget for smart marketing, and they run empty. OYO helps them improve their yields.

Competition

Business Model

OYO rooms is a first mover & a leader in the re-

branded budget hotels space. OYO has displayed how

un-organized, offline business can move to the

organized online space and take advantage of

business potential that the connected digital world

has to offer. The success of OYO has resulted in the

creation of a new category in India and led to a flurry

of new entrants into the space.

Yet, there are still a lot of un-organized spaces in the

Indian market waiting to be structured through

collective branding/re-branding and technology.

Merisis Opinion

Company Amt Raised Investors

USD 36 Mn Orios Venture,Tiger Global

USD 6 MnSaif Partners,

Matrix Partners

USD 5 MnAccel Partners,

Kalaari Capital

USD 3 Mn Mangrove Capital


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Deal Overview

Thomas Cook (India) Ltd., Indias premier integrated travel and travel related

financial services company has signed a definitive agreement with Kuoni

Group to acquire Kuonis Travel businesses across India and Hong Kong in

entirety for a consideration of Rs. 535 crore. The acquisition will be financedthrough equity infusion, internal accruals and debt

The Kuoni brand is licensed to the acquirer for one year in India and for five

years in Hong Kong. Thomas Cook will pay Rs. 320 crore to add consumer-

travel brands such as SITA, SOTC and Distant Frontiers to its portfolio in India,

overtaking Cox & Kings to become the top player in customized holiday

bookings and the balance Rs. 215 crore for Kuoni's Hong Kong travel business

As part of the acquisition, Thomas Cook (India) Ltd will take on approximately

1,800 employees of Kuonis business unit in India and Hong Kong tour

operating, and will continue to run the business activities independently The acquisition of Kuonis Indias travel operations gives TCIL access to their 21

owned offices and 85 franchisees

Notable M&A Transaction

Kuoni Group had announced its intention to sell tour businesses in India and other parts of world to focus on online

travel, destination management and visa processing services

This acquisition is expected to help TCIL, essentially a fragmented player in the travel industry, to strengthen its

inbound and outbound tour offerings and consolidate its base in the market

The deal gives Thomas Cook the scale and will help in better contracting and improve margins

The acquisition of Kuonis HK business will give Thomas Cook (India) a foothold in China as HK is considered Chinas

gateway

USD 84 Million

Deal Value

2.76x(Historical 2014)

EV/Revenue EV/EBITDA

Merisis Opinion

Deal Rationale

The acquisition is part of Thomas Cook strategy to scale up the inbound tour business and expand in foreign markets

With this acquisition Thomas Cook would become the largest tour operator in both inbound and outbound segments

Also like other companies, Thomas Cook faces challenges from online travel companies that are growing at a fast rate.

This acquisition also allows the company to face the challenge

Indian & Hong Kong Business

17.7x(Historical 2014)


8/11

8Sector Focus Hyperlocal Logistics

Introduction

First there was E-commerce, then M-commerce and now

its the time for N-commerce (Neighbourhood). With

majority of the retail shopping still happening in the

neighbourhood of the consumers, the hyperlocal logistic

space can aspire to tap the entire retail market.

Increasing number of consumer-facing hyperlocal

platforms are seeking to serve their consumers directly to

their homes to expand their business. Lack of credible 3rd-

party logistics options force merchants to employ in-house

personnel for logistics, which is not efficient or scalable.

The market need has led to the growth of specialist

express delivery services that are able to aggregate and

meet the delivery demand requirements. A number of

companies operating in the hyperlocal logistics space have

also drawn investor interest. Some of them are:

Company Amt Raised Investors

USD 11 MnSequoia, Nexus,

Blume

USD 8.8 Mn

Kunal Bahl, Rohit

Bansal, Fidelity

Growth

USD 1.6Mn Accel Partners

USD 1.3 MnOrios Venture,

Zomato

USD 0.7 MnHaresh Chawla,

Oliphans, Zomato

NA Lightspeed

How big is the Market Opportunity?

Indias retail market is estimated at USD 600 billion in 2015

with 10% of the market share with organized retail.

Catering to the organized retail which also includes E-Commerce segment presents a USD 3 billion opportunity.

While the entire unorganized retail segment may not use

the services of the hyperlocal delivery provider, even if a

mere 10% of them use these services (F&B brands, outlets

on hyperlocal platform such as Grofers, PepperTap & 1mg

etc.), it presents an additional market of USD 3 billion.

Given the fact that retail players are just warming up to

the hyperlocal concept, the market opportunity is huge.

The total hyperlocal logistics opportunity is estimated to

be between USD 3-6 billion.

How the Business works

In Hyperlocal logistics, typically a merchant makes a

request for delivery once he receives the order from his

customer. These orders have to be delivered in a time

bound manner.

Economic Model Analysis

The most critical variables in hyperlocal logistics business:

Revenue per Order: The hyperlocal logistics providers

typically earn Rs.40-50 per order depending on either the

time sensitivity or the size of the order. Time sensitive and

big orders command premium pricing.

Cost per Order:While the revenue per order is more of a

fixed component, cost per order is a variable factor whichcan determine the viability of the model. Typically a rider

can expect to earn Rs.20,000 22,000 per month. On 26

days a month schedule, his cost works out to approx

Rs.750 850 per day or Rs.75 - 85 per hour for 10 hour

shift. A rider typically delivers an order in 45 minutes or

delivers 12-14 orders in a day.

Profitability Analysis per rider

Particulars Details

No of deliveries per day (10 hr shift) 12-14

Revenue per order Rs.40-50

Revenue per day Rs.480 - 700

Rider Cost per day Rs.750 - 850

Loss per day -Rs. 50 370

Lower revenues earned per rider against cost incurred

makes the model economically less attractive. Reason for

lower revenues is underutilization of riders working hours

Most of the hyperlocal logistics providers currently focus

on catering to the demands of the F&B segment. Hence in

a day you get 6 peak hours of delivery and 4 non-peak

hours of delivery where there are fewer deliveries

Hyperlocal logistics businesses will have to look for ways to

utilize the non-peak hour optimally to become

economically viable. Tapping into other hyperlocal industry

verticals besides the scheduled delivery segment will go a

long way in making the business model viable.


9/11

9Sector Focus Hyperlocal Logistics

Logistics providers who have clients with pan India

presence are likely to evolve into pan India players as the

clients would like to work with 1-2 vendors nationally to

ensure standard service offering. The rest of the payers

will have a strong presence in the areas where they are

currently present.Factors likely to impact the growth of the market

Talent pool: Riders are the backbone of the business

segment and will be the crucial factor for a company to

attract business going forward. Hence retention of the

riders in the network will be crucial given the fact that the

attrition rates in the segment is north of 20%. Incentivising

the riders with monetary as well as non-monetary benefit

besides having a defined career growth path is important

Going forward the riders will have to be treated the way

Blue collared employees are treated.

Pricing war: Most of the logistics provider on the back of

the funding are chasing market share by aggressively

pricing their offering. Such pricing is economically unviable

in the long run and the pricing will have to be rationalized

in future.

However there exist a concern that the business may fal

significantly when the prices are increased going forward

Also will the merchants who have adopted the hyperloca

delivery due to the cheaper pricing stick when the prices

are revised is a question to be answered.

Merisis Take on Hyperlocal Logistics

Hyperlocal logistics provides the retail merchants an

opportunity to service their customers at home without

the need to set up their own logistic channel. Changing

lifestyle, customer preferences and rising real estate costs

are driving the growth of hyperlocal delivery.

Hyperlocal delivery services have a huge market potentia

in India. With a large number of players mushrooming in

this space, the ones that deliver efficiently are more likelyto succeed.

Companies should diversify their clients and start

delivering for multiple industry segments in the long run

This would require a company to own-up a location so

that it becomes the partner-of-choice for that location.

Success in this space would depend on managing the rider

pool and ensuring that these resources are optimally

utilised.

Generating maximum revenue per day from a rider

through optimal utilization of the peak and non-peak hours

will decide the viability of the business model.

Technology a key enabler in the business

A robust technology backend is critical to the success and

scalability of this business. Technology helps in improving

efficiency through route optimization, proper allocation of

resources based on demand trends, tracking of riders and

easy reconciliation etc.

Will Hyperlocal Logistics become irrelevant in future?

There is an argument that going forward the consumer

facing platforms will like to have control over delivery as

delivery is their touch point with the customer. While such

a rationale makes sense, in reality managing front end and

back end together is operationally difficult. If we look at

the E-Commerce segment as reference, most of the E-

Commerce players also rely on outsourced services for

fulfilling a major part of the delivery.

Even in Hyperlocal, the front end platforms are focussing

on managing the customers and looking at outsourced

delivery partners for fulfilling the orders. For example

Zomato, which has tied up with Pickingo and Grab to

manage their deliveries. Other customer centric players in

the hyperlocal segment are also either contemplating or

doing pilots for outsourcing the delivery part of the

business to these specialists.

Even full service logistics provides including E-Commerce

logistics providers may have to work with the Hyperlocal

logistics players to outsource a part of their delivery

requirement and maintain their own delivery channels

only for the base load.

Hyperlocal logistics as a business segment is here to stay

Is the segment overcrowded?

Another argument being made is that the segment has

become competitive and overcrowded and consolidation is

bound to happen. If E-Commerce, which constitutes ~1%

of the retail market, can have 3-4 specialized logistics

player, hyperlocal logistics which cater to the other 99% of

the market should easily allow for 8-10 large players.

How will the market evolve?

While the market will have 8-10 large players, a few of

them will have pan India presence while the rest will be

strong players in a particular region.


10/11

10Merisis Transactions

Voylla Raises $15 million from Peepul Capital

Merisis Advisors is pleased to announce that its client, Voylla, a leading

fashion jewellery brand has raised $15 million from Peepul Capital, a

leading private equity fund managing a corpus of $700 million

Jaipur-based Voylla Retail Pvt. Ltd, which owns and operates e-tailer

Voylla.com, is an online portal that offers a wide range of designer

jewellery and accessories for women, men, and kids

The funds will be used for brand building, expansion of the distribution

network, investments in technology and enhancement of manufacturing

capacity

The deal represents Merisis Advisors 8thtransaction in 2015

Merisis Advisors acted as the sole advisor to Voylla Retail Pvt. Ltd for

this transaction

Deals this Quarter

On-Going Transactions

Indias only holiday planner which technologically enables users to Discover, Plan and Book their trips online

on a single platform at once, is seeking to raise funds

Holiday Planner

Indias leading a Food logistics company providing last mile delivery using technology to ensure operational

execution is seamless

Food Logistics

One of Indias biggest Television shopping e-commerce company, is seeking to raise funds

Home Shopping

A chain of retail outlets serving fresh, healthy, on the go juices, is seeking to raise funds

Fresh Juices

One of Indias leading technology back-bone software to restaurants, connecting them to the digital world

creating a Food-tech Ecosystem, is seeking to raise funds

Restaurant POS


11/11

11Merisis Consumer Practice

Selected Transactions

Merisis Advisors, a leading independent advisory company, helps growing companies raise capitalfrom institutional investors as well as advises owners and funds exists from their investments and

maximizes the value of their portfolio. Merisis Advisors focus areas are Technology, Consumers and

Industrials and its experienced team provides deep domain expertise in these verticals as well as a

strong commitment to client. With offices in Mumbai and Bangalore, Merisis Advisors helps its

clients through the complex process of fund raise and M&A, and deliver on its promise of Growth

Simplified. Merisis is the Indian representative of AICA, a global alliance of independent advisors

with presence in 25 countries.

For more information visit

www.merisisadvisors.com

About Merisis

Sumir Verma

Managing Director

Email: [email protected]

Mobile: +91 99672 55500

Fazal Ahad

Director

Email: [email protected]

Mobile: +91 98201 49574

504 Shashmira Centre, 176 Vidyanagari, CST Road, Santa Cruz (East)

Mumbai 400098

www.merisisadvisors.com

January 2015

M&A

Undisclosed

Acquires

April 2012

Equity Syndication

USD 4 Mn

Series A

Investment by

October 2015

Equity Syndication

USD 15 Mn

PE Investment

By
http://www.merisisadvisors.com/mailto:[email protected]:[email protected]://www.merisisadvisors.com/http://www.merisisadvisors.com/mailto:[email protected]:[email protected]://www.merisisadvisors.com/

Merisis Consumer Newsletter Q2 FY 2016

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