INDIA RISINGMay 4, 2015 India Internet India is poised to see more people join the Internet over the next 15 years than any other country. The prospect of 1 billion people online by 2030 sets the stage for enormous growth in e-commerce. In the latest report in our India Rising series, we examine how a nascent sector that is today dominated by private “unicorns” and international companies is likely to transform into a US$300 billion hyper local, ondemand market. Unlocking the potential of a billion digital users Rishi Jhunjhunwala +91(22)6616-9039
[email protected] Goldman Sachs India SPL Piyush Mubayi +852-2978-1677
[email protected] Goldman Sachs (Asia) L.L.C. Venkat Surapaneni +91(22)6616-9047
[email protected] Goldman Sachs India SPL Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. May 4, 2015 India: Technology: Internet Table of contents PM Summary: Transforming into a hyper-local, on-demand market 3 India internet market: Hyper-local and on-demand 17 Indian companies that are exposed to India internet themes 20 Six key ecosystem enablers 23 Ecosystem #1: Telecom infrastructure developing at a rapid pace 24 Ecosystem #2: Capital infusion accelerating as global firms enter 31 Ecosystem #3: Payment landscape evolving across channels 35 Ecosystem #4: Logistics – Within the bottleneck lies the opportunity 38 Ecosystem #5: Government initiatives likely to pick up 40 Ecosystem #6: Talent driven start-up ecosystem fast emerging 43 Risks to our view: Execution is key 45 Addressable markets: US$300bn opportunity 47 TAM# 1: Indian e-tail market to reach US$220bn by FY30E 48 TAM# 2: Online travel market to reach US$40bn by FY30E 52 TAM# 3: Digital ad market to reach US$15bn by FY30E 54 TAM# 4: Electronic payments market to reach US$5bn by FY30E 57 India’s increasing importance for global firms 59 Google: Multi-pronged opportunities across verticals in India 62 Facebook: India set to become the largest subscriber base globally 64 Twitter: Picking up pace in India 66 Amazon: A giant with global expertise and balance sheet 67 eBay: Early entrant building a diversified portfolio 68 Samsung: Market leader facing stiff competition 69 Xiaomi: Unique marketing style, but going full throttle now 70 Apple: Growing shipments, but not significant strides in India yet 71 SoftBank/Alibaba: Strategically entering India through investments 72 Private companies dominant in the Indian market today 74 Appendix 80 Disclosure Appendix 83 The prices in the report are as of the market close of April 28, 2015, unless stated otherwise. Goldman Sachs Global Investment Research 2 May 4, 2015 India: Technology: Internet PM Summary: Transforming into a hyper-local, on-demand market We believe India is at an inflection point of consumption moving online at a rapid pace as digital transformation commences. This should see the country emerge as the secondlargest digital market in the world by 2020, based on connected smartphones. In our view, India will leapfrog traditional tech themes and embrace new disruptive technologies with greater ease facilitated by a currently underdeveloped landscape. We expect diverse demographics and inadequate infrastructure to catalyze the transformation of the sector into a hyper-local, on-demand market. 10 pulse points of the Indian internet market Over the next 15 years, we estimate India will have more than one billion digital users. This would be a unique global phenomenon, witnessing arguably the largest shift online in a country’s population. We summarize 10 pulse points of the India internet sector that make it a unique market and potentially one of the largest opportunities in the internet space globally. US$300bn addressable market for e-commerce by 2030E from US$20bn currently We forecast the Indian e-commerce market to grow 15X to 2.5% of GDP, or US$300bn, by 2030 driven by hyper growth in affordable smartphones, improving infrastructure, and a propensity to transact online. Further, India’s attractive demographics – the youngest population in the world – should lead to 300mn+ new online shoppers in the next 15 years, making e-tailing the largest online segment. We outline the four key total addressable markets (TAMs) which we think could potentially catalyze transformation of domestic companies into multi-billion dollar businesses: (1) E-tailing market: US$220bn by FY30E Opportunity: We estimate the Indian e-tail market to reach about US$220bn by FY30E in terms of gross merchandise value (vs US$7bn currently) driven by online shopping penetration rising to 25% from 4% currently. Catalyst: We believe lack of adequate infrastructure would potentially catalyze the adoption of online retail in India. Further, e-tail companies are looking to address issues (such as fragmented supply chain) by aggregating merchants via marketplace model and debottlenecking infrastructure to enhance the internet shopping experience, in our view. Comparison with US/China: We estimate the Indian e-tail market at US$220bn in FY30E vs current US market at US$240bn and China at US$134bn. (2) Online travel market: US$40bn by FY30E T Opportunity: We estimate the online travel agency (OTA) market to grow to US$40bn by FY30E from US$8bn in FY14 driven by rise in online travel penetration from 41% in FY15 to 50% by FY30E. Catalyst: We believe the underpenetrated hotels and packaging segment would be the key growth driver in the OTA space. At present, the OTA market is dominated by airlines which contribute 55% of the total revenues. However, we expect other categories such as hotel bookings, railways and car rentals to grow at a faster pace. Comparison to US and China: We estimate the Indian OTA market at US$40bn in FY30E vs current US market at US$137bn and China at US$23bn. (3) Digital ad market: US$15bn by FY30E 4T Opportunity: We forecast digital ad spend market to grow to US$15bn by FY30E from c.US$0.5bn now, driven by the shift from offline advertising (such as print) to online with mobile (US$4.6bn) and social media (US$4.5bn) being the largest contributors. Catalyst: With increasing online adoption and expanding e-commerce market, time spent by consumers on online media is set to rise, in our view. We believe this is likely Goldman Sachs Global Investment Research 3 May 4, 2015 India: Technology: Internet to shift the advertising spend to online media such as social and mobile. Further, significantly lower digital ad rates in India are likely to rise driving the online ad market. Comparison to global ad-spend penetration: As per our US team, the global online ad spend stands at 23% currently and is expected to go up to 36% over the next five years. We also assume a similar online ad-spend penetration in India by FY30E. (4) Electronic payments market: US$5bn by FY30E Opportunity: We estimate the electronic payments market in India to grow from just US$80mn in FY15E to US$5bn by FY30E, largely driven by migration of offline retail to: (1) electronic modes of payments and (2) e-commerce as data penetration improves. Catalyst: We believe emergence of innovative payments mechanisms such as e-wallets and social payments, helped by the potential launch of payment banks, will boost the epayments market. Further, continuing shift of payments from offline to point of sale mode (credit/debit cards) would help increase adoption of electronic payments. Government push: Government’s initiative to extend banking facilities to its previously unbanked citizens through the ‘Jan Dhan Yojna’ scheme has added significant number of debit cards (over 110mn in 5 months to Jan 2015), thereby providing these customers access to electronic payments. We look deep into the various ecosystem enablers that are likely to propel growth of online adoption in India. We focus on six key areas: Six enablers to provide the launch pad 1) Telecom infrastructure: Developing at a rapid pace: Launch of 4G services in India and availability of sub-US$200 4G handsets are likely to compress data prices in 2015. 2) Capital infusion: Accelerating as global firms enter: Inflows from private equity funds/ public listings will support aggressive expansion, M&A, and price competition. 3) Payments landscape: Evolving across channels: Reduced entry barriers through payment banks’ launch and initiatives by traditional banks to facilitate digital payments. 4) Logistics: Within the bottleneck lies the opportunity: Logistics/last mile delivery bottlenecks may be deterrents, but potential introduction of GST may lower barriers. 5) Government initiatives: Likely to pick up: Government would likely be a key enabler through its initiatives (Digital India) and reach (India Post, IRCTC, JAM trinity). 6) Talent availability: Driving the start-up ecosystem: With abundant supply of engineers from the IT sector, India has enough specialists to enable the digital shift. Increasing importance for global internet giants Key risks to the internet opportunity in India We highlight how India is fast becoming one of the most important markets for global internet and telecom giants as they look beyond China for opportunities. US giants are targeting ad revenues (such as Google, Facebook) and the e-tailing pie (Amazon); Asian majors such as Samsung, Xiaomi are eyeing significant smartphone shipments, while Alibaba/Softbank look for strategic stakes in the India internet opportunity, helped by low entry barriers compared with some of the other markets, in our view. While the Indian internet opportunity looks compelling, we see some risks around execution. Some of the key challenges faced by the industry are: (1) lack of investment in telecom infrastructure, delayed rollout of 4G services and Digital India initiative, (2) regulatory uncertainty over taxation, listing, and foreign investment restrictions, (3) continuous cash burn by companies resulting in fragmented business models, (4) lack of logistics and technology infrastructure that may slow the pace of online adoption, and (5) language diversity may be a deterrent to online adoption. 4T Goldman Sachs Global Investment Research 4 YOUNGEST/MOST DIVERSE ECONOMY IN THE WORLD PIN CODES SERVED BY INDIA POST 850 25. BANK ACCOUNTS 30% OF POPULATION 400mn people in India have bank accounts. IAMAI. Amazon. (3) Only 30% of the population have bank accounts and only 3% file their income tax returns. Goldman Sachs Global Investment Research. Business Standard). GST (Goods & Services Tax) rollout. monthly value transacted on credit cards in 2014. significant pickup is witnessed in their shipments. Diverse population speaks 22 different languages and has the second-largest English speaking population in the world at 125mn+. US$2. Cheapest 3G handsets are available for as low as $40. 30% in China and 2% in US. News articles (including The Economic Times. (4) Just 9% is covered by digital fiber and only 20mn people own a credit card. Indian internet usage leapfrogging PCs and tablets. 37/38 for China/US. 76% of incremental internet users are from the mobile channel. Snapdeal & Shopclues have all tied up with India Post to expand their reach.000 post offices in India with 90% of them in rural areas. Ministry of Finance. We believe the introduction of 4G services with new companies coming in will improve 4G coverage in India. Source: CIA Fact book. India Post also planning to launch its own e-commerce portal by CY2015 end. 45% in the US and 20% in China. Multi-tax structures hampering centralized warehousing expansion. OF INDIA IS CONNECTED BY FIBER 20mn credit cards outstanding vs. comScore.25 BILLION 68% of the population is under the age of 35 – key target market for global internet companies is the largest in the world. speaking 22 different languages and the second-largest English speaking population in the world at 125mn+. LOGISTICS BOTTLENECK WAREHOUSING & DISTRIBUTION COSTS 10%-18% Only 9% of India penetrated by Fiber vs. CNNIN. Incremental smartphone shipments in 2014 (38mn) is more than total mobile phone shipments in 2013.800 people have filed taxes with taxable income exceeding Rs10mn. 3G coverage is available in 2530% of the country currently. expected in April 2016.May 4. The Prime Minister’s flagship program “Jan Dhan Yojana” has opened 125mn bank accounts and issued 111mn debit cards in 5 months since its launch in Aug 2014. which make it unique: (1) India has one of the youngest populations in the world with 68% below 35 years. Holisol Logistics. CASH ON DELIVERY (COD) 60% OF E-COMMERCE SALES 60% of Indian e-commerce transactions are COD vs. India’s largest mobile wallet firm. FIBERIZATION 9% There are over 150. Warehousing & distribution cost is 10%-18% of sales in India. All this. We estimate 673mn Indians to be online by 2020. 40% in China. Only 42. We estimate COD deliveries to come down to 45% by 2025 and 30% by 2030 as mobile wallet penetration improves to 25% by 2030 from the current 2% levels. 2015 India: Technology: Internet 1) What is so ‘unique’ about India? Did you know these facts about India. and median age of 27 years vs. INTERNET PENETRATION CREDIT CARD HOLDERS < WALLET HOLDERS 20% 243mn internet users/57% via mobile 3rd largest internet user base in the world behind China. (2) India has a very diverse population. However. in our view.2bn – avg. We estimate that 2/3rd of this was previously unbanked. 50mn registered users for Paytm. RBI.000 MILLION / 1. SMARTPHONE SHIPMENTS INCOME TAX PAYERS CHEAPEST SMARTPHONE $40 With smartphone costs coming down. Since June 2012. 2.89% OF INDIANS PAY INCOME TAX 3% or 36mn people in India pay income tax vs. key to bottlenecks. along with suboptimal infrastructure are key triggers for the online economy to develop. Goldman Sachs Global Investment Research 5 . We believe India will leapfrog traditional tech adoption themes (such as accessing internet through PC and broadband). top 20 countries in terms of the internet population in the world (excluding China) Indian Census (2011). Data from respective countries. but we expect it to reach US$300bn by 2030 . World Bank. US$675bn for the US and US$200bn for China.US$20bn vs. 280mn for US and 640mn for China currently). Goldman Sachs Global Investment Research. This would be a unique global phenomenon. in our view. and move towards online mobile penetration. witnessing arguably the largest shift in a country’s population towards the online segment (to reach 1bn by 2030 vs.India is on the way to becoming the country with the second-largest digital population in the world by 2020. May 4.Korea Japan Indonesia United Mexico Kingdom 0 50 100 150 *Madhya Pradesh grouped in 100mn group as it and Uttar Pradesh >=100mn 50‐100mn 25‐50mn <=25mn Source: India Census. 2015 Goldman Sachs Global Investment Research 2) Why look at the Indian internet market? Exhibit 1: Comparison of population of individual Indian states vs. Internet statistics (July 2014) 6T Internet users in Countries Thailand Population in India States Canada Italy Spain Argentina Australia Nigeria United States of America France Brazil Philippines Vietnam Russia Turkey S. The current e-commerce market size in India is c. ITU. together represent equivalent internet users in the US 200 6 India: Technology: Internet Germany Millions Uttar Pradesh Madhya Pradesh* Maharashtra Bihar West Bengal Tamil Nadu Rajasthan Karnataka Gujarat Andhra Pradesh Odisha Telangana Kerala Jharkhand Assam Punjab Chhattisgarh Haryana Delhi Jammu and Kashmir Uttarakhand Himachal Pradesh Tripura Meghalaya Manipur Nagaland Goa Arunachal Pradesh Puducherry Mizoram Chandigarh Sikkim Andaman and Nicobar . especially from the perspective of a new addressable market for global internet giants. its online market lags that of the US and China significantly with the largest Indian company (unlisted) valued at US$13bn (vs US$380bn/US$220bn for US/China) and total listed market cap of only US$4bn (>US$1tn/US$550bn for US/China). comScore.5K Data Usage 640 Internet Penetration 280m n 254 mn Market Market size $675 bn Mcap > $1 trillion Largest Co $380 bn 24 Market $15 bn 32 158 256 403 73 Mcap $4 bn Largest Co $13 bn Market $200 bn Mcap > $550 bn Largest Co $220 bn Source: CIA Fact book. For India. May 4. Goldman Sachs Global Investment Research.450 mb/mth 243 Median Age Per‐Capita Income $2k Data Usage Population 1. IAMAI. beyond China. CNNIN. the largest company is unlisted and its valuation is based on the latest round of funding raised. iResearch. Statista. 2015 Goldman Sachs Global Investment Research 3) How does India compare with the US and China? Exhibit 2: India vs. China Population Demographics 320 mn 2G/3G User China India USA Median Age Per‐Capita Income Population 38 yrs $54K 1. However. News articles (including The Economic Times. While India has one of the youngest populations in the world.India may prove to be a different market from China. 7 India: Technology: Internet Note: Data as of 2014 or latest available. China has higher entry barriers for foreign companies. India could potentially become one of the largest markets for the foreign companies.25 bn 27 yrs Time spent Time spent Data Usage 2G/3G User 74 mins 1. Cisco. potentially helping homegrown Chinese companies to develop successful business models in China.35 bn 2G/3G User Median Age 37 yrs Time spent Per‐Capita Income $7. USA vs. Business Standard). . in our view. 2015 India: Technology: Internet 4) Is the ecosystem available for internet to develop? India currently has enough spectrum and telecom infrastructure to provide 3G data coverage to 25%-30% of the population. helped by the China 4G regime.000 $800 $503 $600 $400 $200 $94 No Applicant JV Partner 1 2 3 Aditya Birla Nuvo Bharti Airtel Cholamandalam Investment and Finance Fino Paytech Future group GI Technology Oxigen Paytm Reliance Industries Vakrangee Ltd Vodafone Idea Cellular Kotak Mahindra Bank NA $1. 2015.400 $1. 4T Exhibit 3: Indian telecom infrastructure ecosystem is evolving fast. but also indirect drivers for online adoption.800 mn $3. DoT.457 $1. penetration Capital flows (US$ mn) into e-commerce industry Key bank applicants $2. Logistics and infrastructure are bottlenecks.000 villages by broadband) may help improve fiberization from the current 9% country coverage. Goldman Sachs Global Investment Research. despite 60% of e-commerce transactions currently in cash on delivery mode. creating a launch pad for higher internet penetration Network of forces coming together • Post spectrum auction in Mar. 2015. Finally. TRAI. The potential R-Jio launch in 2015 (with pan-India 4G services) and Digital India (government initiative to connect 250. US$6bn+ of private funding has come into India in 2014 and significant funds are still waiting.May 4. 3G enabled smartphones are available for US$40 with more than 900 phone launches last year. Exhibit 4: Large capital inflows accelerated in the past 6-9 months enabling start-ups to grow scale Exhibit 5: We think the grant of payment bank licenses to wallet companies would improve trust. Crunchbase.’s Digital India will help ramp up capacity and coverage • Introduction of 4G by RJio/telcos could reduce data tariff further in the next 3 years Source: Company data. 2015). implying a potent ecosystem is in place. Business Standard dated Jan 16. 8 .757 $181 $322 $304 $115 $0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2013 2013 2013 2013 2014 2014 2014 2014 2015 Source: News articles (including The Economic Times dated Apr 16.000 $1. India telcos now have spectrum to enable pan-India 3G coverage • Cheapest 3G/4G handsets are available for US$40/150 • 4G ecosystem in China will provide enough supply of 4G handsets in India • Government expects National optical fiber network will cover 250k villages by Dec 2016 Spectrum Devices Fiber/ Towers Tariffs • 9% Fiber coverage and 25%30% 3G/4G coverage currently • Data tariffs have reduced by c. The payments landscape is also evolving fast with the launch of digital wallets and payment banks. Goldman Sachs Global Investment Research 4 5 6 7 8 9 10 11 NA IDFC NA RBL Bank NA State Bank of India NA Yes Bank Source: RBI.200 $1.600 $1.20% in the past 2 years • Capex ramp up by telcos/R-Jio and govt.4bn $1. would survive in the first round of consolidation. in our view. As the market matures. Exhibit 6: We are currently between the ‘Consumer is king’ and ‘Survival of the richest’ phases Life cycle of the India internet sector: A hyper-local and on-demand market Survival of the "Fittest" US$300 Going Public M&A in public space India E-Commerce Market (bn) Major IPOs hit markets Survival of the "Richest" M&A in private space Start-ups bloom as PE money flows in Consumer is "King" Firms with better data will build better brands Horizontals will standardize. funded by the significant flow of private equity funds. In the first few phases of the life-cycle. Goldman Sachs Global Investment Research 9 . not necessarily better business models. interests and spending patterns. Firms with better data will be able to build better brands by analyzing consumer behavior. Horizontal firms will standardize their offerings while vertical firms will specialize to personalized offerings.000 Online Consumers (mn) Source: Goldman Sachs Global Investment Research. Myntra Heavy discounting To Be or Not To Be US$10 Online adoption begins 0 100 200 300 400 500 600 700 800 900 1. on demand market. 2015 India: Technology: Internet 5) What is the life cycle of the internet economy in India and at which stage are we now? We believe the Indian internet landscape is evolving into a hyper local.May 4. (2) “Survival of the richest”: Companies with better balance sheets. firms will go public and consolidate once profitability is established for 2-3 years. we see two themes playing out: 4T (1) “Consumer is king”: The consumer will benefit from heavy discounting and incentives as we are currently witnessing. We are currently in between both these themes. as online adoption improves and private equity money flows in. Verticals will personalize Flipkart vs. For the potential revenue opportunities. Recently. Exhibit 7: India emerging as a key market for global companies Global companies’ website positioning (latest rank) in India in the past 3 months T Note: Size of bubble represents unique visitors from India for global websites *For Samsung. Mr. 2015 India: Technology: Internet 6) What are the opportunities for global internet giants in India? Global technology giants have made inroads into the Indian market already and are eyeing a larger share of the pie. Gartner. Apart from this. but in terms of revenues it has yet to materialize. comScore. 2) Smartphone shipments: Apple. 2015) as it plans to aggressively expand operations in India with a first India-specific handset model – Mi4i at Rs12. we see three major avenues: 1) Digital ad revenues: Google. Goldman Sachs Global Investment Research. and Twitter with already a large user base in India are likely to target this pie. 3) E-tailing: Amazon is already the third-largest e-tailer in India. and Paytm. Xiaomi and Apple: X-Axis = market positioning in India based on smartphone shipments in 4Q2014. Olacabs.May 4. we note that other major companies such as Alibaba/Softbank have made strategic investments in several unicorns such as Snapdeal. Xiaomi are eyeing this market. 2015. Ratan Tata announced buying stake in Xiaomi (source: The Economic Times. April 27. Source: Alexa. For most. Samsung. India is already a top-3 market in terms of users. Goldman Sachs Global Investment Research 10 .999 – launched in India on April 23. Facebook/Whatsapp. Y-Axis = Market share of smartphones in India in 4Q2014. Size of bubble represents smartphones shipments in India in 4Q2014. we see some risks around execution.600 8. delayed rollout of 4G services and Digital India initiative. and foreign investment restrictions. Paucity of spectrum leading to low speeds 6.000 9. Lack of investments in infrastructure by private telecom operators. telcos Dept. Different rules in different states for getting clearances 2. Of Information & Broadcasting Ministry of Home & Finance Source: News articles (The Economic Times. of Revenue M&A Logistics ‐ 100% in B2B e‐commerce ‐ 100% in single brand retail (offline) ‐ 51% in multi‐brand retail (offline) All B2C ecommerce companies Mobile wallets.100 2. Lack of data spectrum. Complicated Right of way procedures and high ROW charges. listing.200 4. of Information Technology All e‐tailing companies ‐ Complete restriction on foreign online retailers to sell Foreign ecommerce products sourced by themselves ‐ should rely on marketplace companies model which is 100% allowed ‐ Distributable profits in at least 3 out of past 5 years and positive net worth in the past 3 years Ministry of Corporate affairs Loss making e‐commerce companies ‐ For goods sold by online retailers like Amazon under their own risk (fulfilment). Dept.).May 4.100 2.000 8. Goldman Sachs Global Investment Research CoD Pre-paid offered reach (Pincodes) (Pincodes) 1.600 7. of Consumer affairs ‐ Lack of GST leads to inefficient taxation of sales tax and VAT in each state and resulting in multiple warehouses in different All e‐tailing companies locations and lack of economies of scale Ministry of Statistics and Programme Implementation Dep. of Commerce Regulation Affected Companies ‐ 2 factor authentication is mandatory for card / online payments Payments Landscape ‐ Allowing payment banks licenses which will allow acceptance of deposits upto Rs100k. still governed by existing rules/laws Regulatory landscape for e-commerce and related businesses in 2014 6T Category Reserve Bank of India Dept. Low smartphone and PC penetration 4. Business Standard etc. e‐commerce companies. Lack of digital literacy and consumer awareness in rural areas about advantages of internet 5. Poor network coverage. 2015 India: Technology: Internet 7) What are the challenges in the country? While the Indian internet opportunity looks compelling.900 3. BTS: population ratio in India much lower than in China Source: Goldman Sachs Global Investment Research. of Industrial Policy and Promotion. offering financial products like MFs. issuance of debit cards.000 6.300 2. except India Post Exhibit 10: Challenges to ‘Fiberization’ through Digital India initiative Key logistics solutions providers in India and their reach Company eCommerce solution Type Shipping solutions Aramex REDe B2B and B2C Blue Dart E-business solutions B2B and B2C Delhivery Delhivery DTDC Dotzot FedEx FedEx India Post Express Parcel India Post Business Parcel Logistic aggregators KartRocket ShipRocket Zepo ZePost B2B B2B and B2C B2B and B2C B2B and B2C B2B and B2C B2B B2B Source: Company data.550 50 cities 25.220 Challenges to Fiberization in India 1. (2) regulatory uncertainty over taxation.000 2. 11 . Copper wire network mostly owned by PSUs 3. they should be paying VAT rather than All e‐tailing companies the merchant ‐ Current tax regime and unclear M&A regulations for online All e‐commerce companies companies make the M&A process complicated Dept.100 16. 4T Exhibit 8: No separate regulator in place for e-commerce yet.650 50 cities 25. (4) lack of logistics and technology infrastructure that may slow the pace of online adoption and (5) language diversity may be a deterrent to online adoption. and debates around net neutrality that may affect capex from telcos. Some of the key challenges faced by the industry are: (1) lack of investment in telecom infrastructure.000 5. Exhibit 9: Most logistics companies do not have enough pan-India reach. Goldman Sachs Global Investment Research. payment gateways. (3) continuous cash burn by companies resulting in fragmented business models. Foreign Direct Investment (FDI) Listing / IPO Value Added Tax Dept. Insurance. News articles (including The Economic Times.5bn Others US$ 400mn US$ 300mn US$ 300mn US$ 250mn US$ 165mn Newshunt Sequoia Capital Tree Line Asia Info edge Sequoia Capital Vy Capital Cisco investments Others American Express Falcon Edge Capital Sequoia Capital Matrix Partners Hillhouse Capital SoftBank Accel Partners Tybourne Capital Nexus Venture Partners SAIF Partners Sequoia Capital Others Omidyar Network Network 18 Others Falcon Edge Darby Overseas Investments Others Helion Venture Partners Others Others Indian companies exposed to internet themes in India Internet Telecom Banks Logistics Real Estate Consumer Info Edge Bharti Airtel ICICI Bank GATI Phoenix Mills Titan Just Dial Idea Cellular HDFC Bank DLF Shoppers Stop MakeMyTrip Reliance Industries (R-Jio) State Bank of India Snowman Logistics Pantaloons Blue Dart Bharti Infratel Dish TV Source: Crunchbase. Exhibit 11: Six unicorns have emerged in India.May 4.4bn US$ 2bn SoftBank DST Global SoftBank Kalaari Capital SoftBank Kleiner Perkins Naspers Nexus Venture Partners Tiger Global Management Sherpalo Ventures DST Global eBay Intel Capital Steadview Capital Mumbai Angels T Rowe Price Singapore GIC Temasek Holdings Accel Partners Others Matrix Partners Ant Financial (Alibaba Sub) SAIF Partners Intel Capital Silicon Valley Bank Others US$ 1bn Tiger Global eBay Steadview Capital Matrix Partners Omidyar Network Others Sequoia Capital Others US$ 700mn Others US$ 1. 2015 India: Technology: Internet 8) Which companies have biggest exposure to the internet story? In this section. Forbes. VC Circle. such as Amazon. we highlight sectors and stocks which are exposed to the online adoption and India e-commerce opportunity. Business Standard). InMobi (digital ad) and Quikr (C2C classifieds). Paytm (wallet and m-commerce). Uber. and Xiaomi. Olacabs (taxi-hailing). room for more Last reported valuations and investors in each of the companies.5bn Tiger Global Management US$ 5bn US$ 2. Within the listed space. Indian companies exposed to India internet themes 6T US$ 12. Some of the global companies are also making a mark. Goldman Sachs Global Investment Research. Goldman Sachs Global Investment Research 12 . we highlight six Indian unicorns in the private space that are reportedly valued at US$1bn+ and are creating a market leading franchise in their respective verticals through differentiated business models and strong moats – Flipkart and Snapdeal (etailing). 0 15.9 14.2 US$ mn 14. PhoCusWright. RBI. Goldman Sachs Global Investment Research.5 16.0 79.US$40bn market Exhibit 15: Digital ad market to grow at 24% CAGR to US$15bn by FY30E driven by offline to online shift Penetration – online shoppers as % of population 6T Total online travel market (US$ bn) Total travel market (US$ bn) Total online ad spend Online penetration (%) [RHS] 55% 90.000 45% 35. 2015 India: Technology: Internet 9) What is the total addressable market opportunity in 15 years? We estimate the total addressable market (TAM) for e-commerce in India to reach US$300bn by 2030E.50% by FY30E resulting in c.1 9.7 28.5 50% 80.0 40. IAMAI.0 10.5 12. we forecast the overall e-commerce market to grow at 30% CAGR to reach US$80bn by 2020E. Snapdeal.0 60. This compares with China/US at US$200/US$675bn currently with 22%/60% online shoppers’ penetration. We forecast etailing to be the biggest share of this pie at US$220bn and reach 1.000 40% 35% 4. driven by increasing online data penetration (71% ) and shopper penetration (25%). IAMAI.000 30% 10.8% of India’s nominal GDP and many domestic companies may emerge as multi-billion dollar revenue business models.0 FY14 40% 35% 31% 20% 15% 7% 8% 452 596 2. Source: Company data (Flipkart.0 49% 70.000 FY30E FY25E FY20E FY19E FY18E FY17E FY16E FY15E 30% Source: PhoCusWright.US$300bn by FY30E.767 FY14 FY15E FY20E 2.4 22.0 12.093 10% 5% 0% FY25E FY30E Source: IMRB International. Goldman Sachs Global Investment Research. IMRB International.000 25% 19% 8.0 40.5 10.4 25. growing at 19% CAGR… e-commerce market breakdown GMV= gross merchandize value 6T Other financial services GMV (US$bn) 250 12% CAGR 144% US$ bn $300 $300 $17 $8 16% CAGR $15 $40 $250 $220 44% 0 $0 FY15E FY20E FY25E FY30E $3 $7 $12 $19 $27 2018E 50 $21 50% 57% 2017E $50 $220 2016E $81 90% 71% 100 30% CAGR $100 110% 70% $169 $150 130% 150 2015E $200 150% CAGR 2015‐2020: 47% 2015‐2025: 32% 2015‐2030: 26% 200 2014 $350 Growth (%) [RHS] 36% $37 29% $47 30% $112 19% 13% 10% ‐10% 2030E Mobile recharge 2025E Adtech 2020E OTA 2019E E‐Tail 6T Source: Company data. with e-tailing growing at the fastest rate of 47% CAGR to US$47bn. Exhibit 13: …primarily driven by e-tail where we estimate GMV to reach c.000 Goldman Sachs Global Investment Research 37% 24% CAGR 30. Exhibit 14: We estimate OTA penetration to reach c.000 18.8 20.8 16. Goldman Sachs Global Investment Research.1 45% 46% 50% 62. Goldman Sachs Global Investment Research.May 4.US$220bn by FY30E Exhibit 12: We estimate e-commerce market to reach c.000 Online ad as % of total [RHS] 8. growing at 19% CAGR over 2015E-2030E.4 0.0 50. 13 . Amazon). In the medium term.3 44% 31.043 36% CAGR 6.5 13% CAGR 40. media reports (such as The Economic Times).0 42% 8.0 20.0 41% 43% 40% 30. 0% 2.35X of their GMV as expenses. while slowly working towards lowering and eventually eliminating aggressive consumer incentives. driven by high discounting and promotions Current e‐tailer revenue split 160% 140% 120% 30. We believe this is likely to continue till the online shopper penetration reaches a steady state. in about 5 years from now. cash incentives and various other incentives that e-tailers give to attract consumers. free shipping and handling.0 $5 $2.0% 65% 60% 40% 20% 0% Vendors Discounts Marketing & Technology Promotions Logistics Warehousing Packaging Loss Source: Goldman Sachs Global Investment Research.0% 8.0% 100% 80% 12.0% 3.9 $0 2015E 2016E 2017E 2018E Source: Goldman Sachs Global Investment Research.0% 3. we estimate that e-tailers are likely to continue their cash burn to keep their growth intact.May 4.5 $20 2019E 2020E FY15E‐FY20E $4. marketing. Exhibit 17: We estimate that US$20bn of incremental cash burn is needed to sustain GMV growth to US$47bn over FY15E-FY20E E‐tailing: Incremental annual funding needed (US$ bn) $25 $20 $2.0% 5.0% 7.0% Payment Gateways Others 35.4 $1. As such. 2015 India: Technology: Internet 10) When will they be profitable and how much funding is needed? Companies in India are currently burning cash at an average rate of 1.3 $15 $4. 4T Exhibit 16: Currently.35X of the GMV sold. through heavy discounting. Goldman Sachs Global Investment Research 14 .7 $10 $4. companies are incurring almost 1. We estimate that the e-tail industry will need at least US$20bn of incremental cash infusion to sustain before it reaches a steady state in FY20. May 4. 2015 India: Technology: Internet India: On your marks… Goldman Sachs Global Investment Research 15 . 5bn US$ 52.8bn Expedia Overstock US$ 1.4bn . News articles (including The Economic Times.2bn Facebook INDIA Yahoo! US$ 4.2bn Trip advisor Google LinkedIn Expedia US$ 5.com US$ 41.1bn* Alibaba JD.5bn Flipkart US$ 3bn * Snapdeal US$ 1. still several years before they resemble their peers in the US and China Ola Cabs US$ 300mn # UBER Source: Company data. For India.5bn US$ 2.9bn* Dangdang US$ 1.com Dang dang Tencent US$ 13bn Tencent Makemytrip US$ 139mn Yatra US$ 60mn May 4.4bn Naukri US$ 72mn Zomato US$ 10mn Just Dial US$ 100mn Yahoo! Uber US$ 10bn # Alibaba US$ 365bn* JD. Goldman Sachs Global Investment Research Qunar Baidu eLong US$ 200mn eLong SouFun Holdings US$ 688mn SouFun CTrip US$ 1.USA Amazon US$ 174bn* eBay US$ 83bn* eBay Amazon Trip Advisor US$ 1. revenue for FY15 (ending Mar 2015) * Gross merchandize value (GMV). # Gross transaction value (GTV) Data as of 2014 or latest available Qunar US$ 285mn Baidu US$ 7. 2015 Goldman Sachs Global Investment Research Exhibit 18: Indian companies are just beginning to develop. Forbes.5bn * CHINA Amazon India US$ 1bn * Overstock Google LinkedIn Facebook US$ 12.2bn CTrip 16 India: Technology: Internet Note: Numbers represent revenue in US$ for 2014. Business Standard). 13% a year ago. start-ups started emerging at a rapid pace and funding became more accessible. but also adapt to new disruptive ideas as it is easier to change an underdeveloped tech landscape. Cheaper handsets and data tariffs have resulted in a big shift towards being online.May 4. significantly diverse demographics – culturally. With 3G auctions happening in India in 2010 and telcos rolling out 3G on mobile. Key reasons for this are the lack of infrastructure. it led to a significant adoption of data services. Internet penetration has now reached 20% of the population vs. As a result. potentially the last shift of this scale for the next few generations as no other country has a similar underpenetrated market. We analyze the life cycle of the Indian internet sector in various stages below. We also point out that the Indian internet opportunity is a unique phenomenon which will arguably see the largest shift in population towards the online community anywhere in the globe. and Bookmyshow/ Makemytrip selling movie/air tickets. To be or not to be online: This is the initial phase of the internet journey when most 4T of the data access was through broadband and resulted in limited penetration. Goldman Sachs Global Investment Research 17 . Myntra Heavy discounting To Be or Not To Be US$10 Online adoption begins 0 100 200 300 400 500 600 700 800 900 1. As a result. This was followed by PE funds flowing into India as investors started looking for opportunities beyond China. geographically. in our view. Start-ups bloom on PE seed capital: This phase saw the initial success of some of the online business models such as Flipkart selling books. and economically – and relatively lower per capita incomes. Verticals will personalize Flipkart vs.000 Online Consumers (mn) Source: Goldman Sachs Global Investment Research. Exhibit 19: We are currently between the ‘Consumer is king’ and ‘Survival of the richest’ phases Life cycle of the India internet sector: A hyper-local and on-demand market Survival of the "Fittest" US$300 Going Public M&A in public space India E-Commerce Market (bn) Major IPOs hit markets Survival of the "Richest" M&A in private space Start-ups bloom as PE money flows in Consumer is "King" Firms with better data will build better brands Horizontals will standardize. 2015 India: Technology: Internet India internet market: Hyper-local and on-demand The India internet landscape is evolving into a hyper-local and on-demand market. which are somewhat different from how it played out in China. not only will the Indian internet market leapfrog many secular tech adoption trends. while vertical companies (e. 4T 4T 4T Goldman Sachs Global Investment Research 4T 18 . consumer behavior and usage patterns are likely to become increasingly important to gauge. Snapdeal-Freecharge deals. regulatory ease and addressable market.g. With companies burning cash. and to fend off competition. verticals will personalize: As every company tries to 4T 4T capture the limited time of an online consumer. In this phase. Data will build brands: As consumers spend more and more time on internet for social networking. OlacabsTaxiforsure. Horizontal companies (e. Horizontals will standardize. Flipkart) would need to standardize their offerings so that volumes will drive profits.g. This phase is not necessarily driven by firms with better business models acquiring other companies. companies with proprietary access to data would be able to build much better brands and prove to be a key differentiator. and services. looking to become profitable in the 4T 4T next 18-36 months. depending on investor appetite. We have recently witnessed the Flipkart-Myntra. 2015 India: Technology: Internet Consumer is King: With significant amount of private equity money flowing into India. would consider going public through the IPO route in India or the US. this phase will see the survival of the richest. shopping. Hence. not necessarily the fittest. Survival of the Fittest: We believe this would be last phase of the internet life cycle before the market matures and peaks out. the consumer has become the biggest beneficiary of the trend and is enjoying heavy discounting and incentives. Survival of the Richest: This phase marked the beginning of the first round of 4T 4T consolidation in the internet space and is underway. entertainment. This would end up in the weaker companies getting acquired and it becoming a “winner takes all” market. Going public: This is the phase when companies. It will not be a market for just one business model. access. we believe there will be space for both horizontals and vertical specific companies. 4T 4T it has created an environment where significant pricing and discounting competition has begun among companies to acquire a customer’s time and wallet share. Myntra) would need to personalize the user experience and get premium pricing despite lower volumes. The transactions are mostly in the private space with the companies acquiring peers of somewhat similar size in order to gain scale or technical know-how. but by firms with more cash. whereas the weaker business models will suffer lack of capital and profitability. companies would consolidate as the business models with more powerful competitive advantage will survive. Hence.May 4. VC Circle. Business Standard) Goldman Sachs Global Investment Research 19 . more on the way The six unicorns: Based on recent media articles quoting private equity investments into 4T 4T some of the largest names in the Indian internet market. there are several others 4T 4T that may emerge to potentially become billion dollar companies in the near to medium term. India is now home to at least 6 unicorns (US$1bn+ companies) including the largest e-tailers: Flipkart and Snapdeal. mobile classifieds company: Inmobi. The ancillary technology unicorns: Apart from the regular internet firms. taxi hailing app: Ola cabs. real estate classifieds company Housing.5bn Tiger Global Management US$ 5bn US$ 2.5bn US$ 1bn Ant Financial (Alibaba Sub) Tiger Global SAIF Partners Intel Capital Silicon Valley Bank Others Matrix Partners eBay Steadview Capital Matrix Partners Omidyar Network Others Sequoia Capital Others US$ 300mn US$ 300mn US$ 250mn US$ 165mn Newshunt Sequoia Capital Tree Line Asia Info edge Sequoia Capital Vy Capital Cisco investments Others American Express Others Falcon Edge Capital Sequoia Capital Matrix Partners Hillhouse Capital SoftBank Accel Partners Tybourne Capital Nexus Venture Partners SAIF Partners Sequoia Capital Others Omidyar Network Darby Overseas Investments Helion Venture Partners Network 18 Others Falcon Edge Others Others Source: Crunchbase. Home for start-ups: We believe that besides these companies. Exhibit 20: Six unicorns have emerged in India. Forbes.4bn US$ 2bn SoftBank DST Global SoftBank Kalaari Capital SoftBank Kleiner Perkins Naspers Nexus Venture Partners Tiger Global Management Sherpalo Ventures DST Global eBay Intel Capital Steadview Capital Mumbai Angels T Rowe Price Singapore GIC Temasek Holdings Accel Partners Others Others US$ 700mn US$ 400mn Others US$ 1. 4T mobile wallet company Mobikwik. 2015 India: Technology: Internet Several Unicorns have already emerged.com.May 4. we are also 4T 4T witnessing the emergence of multi-billion dollar ancillary firms which are disrupting the technology landscape such as IPSoft in automation and Mu-Sigma in data analytics. Potential billion dollar babies? Several other companies like restaurant finder Zomato. News articles (including The Economic Times. room for more Last reported valuations and investors in each of the companies 6T US$ 12. India is fast becoming a home for start-ups in the e-commerce space and private equity funds are fuelling the hyper-growth of new ideas and technologies. wallet/mobile commerce company: Paytm and online/mobile classifieds company: Quikr. local news aggregator NewsHunt and ticketing platform Bookmyshow have raised funds at valuations of more than US$100mn. it has the air ticketing business which is a mature market with moderate growth. deals and gifts portals.May 4. consolidation and some new entrants could potentially alter competitive landscape. Just Dial has a dominant share in online local search classifieds and is now expanding its footprint to 23 other categories such as e-tailing. Idea offers 2G and 3G services on a pan-India basis. The Indian internet opportunity may have an impact on growth in data demand. tickets. It also has investments in matrimony. consolidation and some new entrants could potentially alter the competitive landscape. Blend of steady-state and hyper-growth business models. 2015). The Indian internet opportunity may have an impact on growth in data demand. revenue mix. travel. maintain Buy. Neutral. foods through its search and transact platform called Search Plus (to be launched in FY16) (also refer to our report. 8) Dish TV (covered by Aditya Soman): It is India’s largest satellite TV provider with a market share over 27% and over 18. EBITDA margins and capital expenditure. EBITDA margins and capital expenditure. revenue mix. education. Hence. In addition. In addition. Leveraging the competitive edge in Search Plus. 3) Makemytrip: MMYT is India’s largest online travel services provider with more than 40% share of gross bookings in the online travel market (2014). real estate listing (99Acres) and restaurant listing (Zomato) portals. In addition. Reliance Jio has the largest inventory of 4G-LTE spectrum. It may Goldman Sachs Global Investment Research 20 .000 tenancies. 2) Just Dial: Just Dial is India’s largest online and voice search classifieds company with more than 30% of India’s small enterprises listed on its portal (2014). consolidation and some new entrants could potentially alter competitive landscape. 2015). The Indian internet opportunity may have an impact on growth in data demand. 7) Bharti Infratel (covered by Aditya Soman): It is a tower company with a consolidated portfolio of over 85. is gearing up for a 4G-LTE launch over the next few months. financial services.5 mn gross subscribers (as of Dec 2014). dated May 4. among the listed companies in Indian internet. On one hand. 6) Reliance Industries (covered by Nilesh Banerjee): One of India’s largest companies Reliance Industries. 5) Idea Cellular (covered by Aditya Soman): It is India’s 3rd largest mobile operator with a revenue market share of almost 18% (2014). 2015). 4) Bharti Airtel (covered by Aditya Soman): It is India’s largest mobile operator with market leadership in 12 of 22 regions and revenue market share over 30% (2014). 2015 India: Technology: Internet Indian companies that are exposed to India internet themes We highlight companies that are impacted by the various themes of the India internet opportunity and are leveraging the online penetration in India. 1) Info Edge: Info Edge is India’s largest online classifieds company with top 3 positions in the recruitment listing (Naukri). Buy. dated May 4. revenue mix. Bharti Infratel and its associate company Indus towers (Infratel owns 42% in Indus along with Vodafone which owns 42% and Idea which owns 16%) may potentially be impacted by the growth in data demand which may lead to greater demand for infrastructure to support the data bandwidth. through its telecom arm Reliance Jio.000 towers and over 175. Profitable growth key to re-rating in a maturing OTA market. dated May 4. Bharti Airtel is a pan-India operator with the largest spectrum holding and offers 2G/3G/4G services. and on the other it is expanding its footprint in the underpenetrated hotels and packages segment (also refer to our report. EBITDA margins and capital expenditure. Info Edge has the most diverse and balanced mix of companies with steady state market leadership businesses such as Naukri and hyper-growth global expansion business such as Zomato (also refer to our report. 9) ICICI Bank (covered by Tabassum Inamdar): ICICI Bank has been at the forefront of innovation in particular in the retail digital space. It is one of the largest processors of online banking transactions. From delivering over 5. The company is looking to open multiple warehousing centres (called e-fulfilment centers) across the country where sellers on e-commerce portals can store goods and value added services are provided. saving time as the couriers do not have to go to the seller's location to pick up the item. mobile number. emergence of large online grocery retailers tends to alter working capital cycle of large FMCG firms. Pantaloon – Not Covered): Over the medium term. 13) Snowman Logistics (Not Covered): It is one of the largest temperature controlled logistics service providers in India. 14) Phoenix Mills (covered by Puneet Jain): It is currently one of India’s largest retail mall companies having the largest mall in four key metros. The e-wallet allows users to instantly send/request money to/from any e-mail id. Recently. 2015 India: Technology: Internet potentially see a significant impact due to increased convergence and change in content distribution platforms. the watches segment is susceptible to large discounting on Swiss watches by online retailers. although the Swiss Franc depreciation helps them. but would do so with more comprehensive banking products and services. 3) Recently launched Pockets (their e-wallet) – the first Indian bank to do so. As per our India consumer team. but this can be partly mitigated if some area is occupied by restaurants and multiplexes. banking on Twitter and goal based savings product iWish in a tieup with SmartyPig. the product is packed and shipped to the consumer. Management wanted to use the IPO proceeds (listed in Sept 2014) for expanding capacity from 25 depots currently to 37 depots in the medium term as it expects strong growth in the segment. Gati stated that it expected to sustain the trend of growing its ecommerce volumes at 100%+ yoy for the next two years. In 1QFY15. 80% of its value accrues from retail malls. 16) Home and personal care (HPC) firms and offline retail (Shoppers Stop.May 4. 15) Titan (covered by Puneet Jain): It is India’s largest specialty retailer selling jewelry (80% revenues as of 2014). 40% share in e-commerce transactions (as per the company).5mn packages in a month currently. The company has reported 40%-50% CAGR sales growth over the past 4 years. Some of its product introductions are: 1) first bank to launch Facebook banking. Having said that. and has now managed to notch up a 32% market share (9MFY15) in mobile banking and c. rental growth of malls are typically impacted due to lower SSSG of tenants due to potential shift from offline to online retail. Management believes that its success is in the high usage of the channels rather than launching too many products. 12) GATI (Not Covered): Prominent logistics companies in the Indian surface logistics industry such as GATI are looking to capitalize on the e-commerce opportunity. 10) HDFC Bank (covered by Tabassum Inamdar): HDFC Bank seems to be ahead in converting customers to the digital platform. Currently HPC companies in India enjoy negative working capital due to the unorganized distribution chain. friends on Facebook and bank account and make payments at e-commerce websites. watches (15% revenues) and eye-ware/accessories. Each time an order comes in. Goldman Sachs Global Investment Research 21 . It earmarked capex to invest in cold chain warehouses to benefit from the online distribution of perishable goods. 11) Blue Dart (Not Covered): It is one of the largest courier companies in the organized air express segment in India. the company is targeting to deliver 1mn packages per day by 2020. they too plan to launch on social media. as per our India consumer team. 2) Launched India’s first ‘contactless’ debit and credit cards. As per our India consumer team. it has focused on creating Hindi language apps and will be soon launching mobile wallet. Better the quality of listings higher the customer retention Navigation/Interface Ability to find listings/services easily Integration w/ payment systems Seamless integration with different payment methods Grievance redressal better service. Scale. gaining scale quickly is becoming quite critical even if it is coming at the expense of significant cash burns. 4T 4T Exhibit 21: Entry barriers for different e-commerce categories E-tailing Merchant ecosystem Digital Advertisements Traffic Higher the number of merchants. there are three moats which are common for most: 1) Scale: In most of the verticals. Companies that invest in building franchise technology platforms and data mines will be able to maintain a competitive edge. technology can potentially be a big differentiator. better the ability to sign up new merchants and negotiate favorable terms Ratings Higher the number of ratings. better return handling Navigation/Interface Consumer ability to report grievances and procedures to address them Clean navigation and display is critical (customer can’t touch product) Payments/Wallets User base Bigger the user base. Companies with strong investor backing and free capital available would be able to buy out competition early if it proves to be disruptive and a challenge to their own model. technology and capital are the most common moats: While moats may differ for 4T 4T different verticals. availability of capital is a very strong moat.May 4. better pricing algorithms. or they can use it to gain scale through burning significant cash on customer acquisitions. (4) potential addressable markets. (2) business model. more choice implies more consumers Partnerships Travel agents. better customer service. 3) Capital: In the first half of the life cycle of the industry. higher the customers (Virtuous cycle) Distribution network Higher the consumer traffic. Goldman Sachs Global Investment Research 22 . 2015 India: Technology: Internet Entry barriers (moats) for different e-commerce categories Framework for screening stronger business models: We are witnessing quite a few 4T 4T companies emerging with new ideas that are spending significant amount of cash currently. We believe the five factors that will decide which companies survive over the long term are: (1) management quality. especially when there 2) 4T 4T is no underlying physical entry barrier to it (such as exclusive supplier tie-ups for an etailer). fewer product returns Capital infusion Ability to discount and spend on customer acquisition and retention Technology / Data Superior analytics. 4T 4T Technology: While a lot of the business models are replicable. Hence. global access Market share Higher the market share. higher the acceptability by merchants Capital Ability to discount to lure customers to sign up Ease of use Pay in as many fewer steps as possible Security Safety and security policies. (3) moats or entry barriers. and (5) cash costs in the form of fixed vs. It is difficult to pick which companies would survive over the long term. variable. higher the acceptability from merchants Universal acceptability Payment method should be merchant agnostic Low charges Lower the costs. higher the listings and vice versa Data quality Faster delivery times. complementary service providers. it's a winner-takes-all market with room for at the most one or two more competitors apart from the leader. more comfortable customer feels to book Navigation/Interface Easy navigation and smooth transacting capability are vital Source: Goldman Sachs Global Investment Research. grievance redressal Online Travel Footprint Large footprint (airlines/hotels) implies more choices for consumer. better customization Trust/Customer loyalty Reward points. 2015 India: Technology: Internet Six key ecosystem enablers Six key ecosystem enablers Goldman Sachs Global Investment Research 23 .May 4. 35 Data tariff (Rs/MB) Exhibit 24: …and are already among the lowest in the world (2014) Data per sub per month (MB) 1.20% in the past 2 years • Capex ramp up by telcos/R-Jio and govt. Exhibit 23: Data tariffs in India are declining over the past four quarters (yoy)… 0. Cisco. 2015 India: Technology: Internet Ecosystem #1: Telecom infrastructure developing at a rapid pace This section includes the view of our India telecom team of Aditya Soman and Manish Adukia Exhibit 22: Indian telecom infrastructure ecosystem is evolving fast. 24 .4 400 0.600 0.31 0.27 0. DoT.200 0.000 0. Goldman Sachs Global Investment Research 3Q15 2Q15 1Q15 4Q14 3Q14 2Q14 1Q14 4Q13 3Q13 2Q13 1Q13 0. is already among the lowest globally at 0.8 1. #1 Data tariffs: New entrants could accelerate the declining trend Data tariffs already low: India’s data tariffs as of Dec 2014. Despite the low tariffs. Goldman Sachs Global Investment Research.’s Digital India will help ramp up capacity and coverage • Introduction of 4G by RJio/telcos could reduce data tariff further in the next 3 years Source: Company data.33 Cost per MB (US cents) [RHS] 1.4 0. creating a launch pad for higher internet penetration in India Network of forces coming together • Post spectrum auction in Mar. Idea Cellular. has been significantly lower than in China/US (Exhibit 10) due to slow adoption and lack of proper ecosystem in the past 5 years.0 1. China Mobile.0 1. RCom.2 200 Source: Company data from Bharti Airtel and Idea Cellular. measured as per capita consumption across all mobile phone subscribers in India. data consumption. measured as charge per unit 4T MB of usage. AT&T and T-Mobile used as proxy for respective markets). similar to the trend in voice ARPU which is at US$2/month. Data rates in India are 2X cheaper than in China and nearly 3X cheaper than in the US.25 0 158 India 256 ‐ China US Source: Company data (Bharti Airtel. India now has spectrum to enable pan-India 3G coverage • Cheapest 3G/4G handsets are available for US$40/150 • 4G ecosystem in China will provide enough supply of 4G handsets in India • Government expects National optical fiber network will cover 250k villages by Dec 2016 Spectrum Devices Fiber/ Towers Tariffs • 9% Fiber coverage and 25%30% 3G/4G coverage currently • Data tariffs have reduced by c.2 1. Goldman Sachs Global Investment Research.6 0. 2015.5 cents (US$) per MB.400 1.1 1.29 800 1.450 600 0. Verizon. China Unicom and China Telecom.May 4. May 4, 2015 India: Technology: Internet Telcos focusing on data revenues: As data adoption picks up, it is becoming a key 4T 4T revenue growth driver for Indian telecom companies. Our telecom research team expects data revenues to drive 43% of incremental revenues by FY25E for the Indian telecom sector. Widespread adoption of data plans has resulted in data prices coming down by almost 20% in the past 2 years. Further, economies of scale are also driving these prices lower. The team expects data consumption by 3G/4G data subscribers to increase to c.1GB/month by FY25E from c.395MB/month in FY14 driven by (1) better smartphone penetration, (2) convergence to IP and (3) more localized content. New entrants may act as another catalyst: Launches by new entrants such as Reliance Jio (the only private operator to have a pan India 4G/LTE spectrum) would impact: a) price of data plans, b) per capita data consumption, and c) coverage area of high speed internet 4T 4T (4G network/ FTTH). Moreover, R-Jio has already launched its chat app called Jio-Chat which is offering free audio/video calls and messages. Free internet for consumers: We note another trend with internet companies tying up 4T with telecom companies to offer free internet applications or website access and the cost is borne by the telco/internet firm rather than the consumer, e.g. Internet.org by Reliance Communications and Facebook, and Airtel Zero by Bharti Airtel, Flipkart and others, (although Flipkart has recently pulled out of the scheme). Exhibit 26: …boosting data consumption significantly, in our view Exhibit 25: New entrants to impact penetration and tariffs… Different technology platforms to offer data services 250 800 200 600 150 400 MTS India Tata Docomo BSNL MTNL Aircel Note: 3 ticks indicate strong focus, 2 ticks indicate moderate focus and 1 indicates limited focus Source: Company data, Goldman Sachs Global Investment Research. Data price (Rs/GB) [LHS] 100 200 Data use (MBs/month) [RHS] 50 0 FY25E Reliance Jio 1,000 FY24E RCOM 300 FY23E FY22E FY21E Idea Cellular FY20E 1,200 FY19E 350 FY18E FTTH FY17E Bharti Airtel Vodafone India Wired Internet FY16E 3G/4G 4G data (dongle) on phone FY15E 3G data (phone) FY14 Operator Source: Company data, Goldman Sachs Global Investment Research. #2 Devices: Smartphone penetration rising exponentially Availability of cheaper smartphones is key: Another key cog in the wheel to boost data usage is the availability of affordable devices/ handsets that are suitable to 3G/4G bands. Over the past 2 years, India has seen a significant jump in smartphone launches with a majority of them in the affordable band of Rs5,000 to Rs15,000 (US$80 to US$250). Moreover, there have been 200+ new smartphone launches in both 2013 and 2014 that cost below Rs5,000 (or US$80). As affordability improved with these launches, the number of smartphone shipments also improved significantly with nearly 38mn units shipped in 2014, which is higher than the total shipments (smartphones + feature phones) in 2013. 4T Goldman Sachs Global Investment Research 4T 25 May 4, 2015 India: Technology: Internet Exhibit 27: Smartphone prices in India are declining and are already at c.US$40 levels Price trends for smartphones and feature phones in India Exhibit 28: Bulk of the new smartphone launches in India are in the US$80-US$250 range (Rs5,000-Rs15,000) Smartphone launches in India 6T Smartphone 3,500 6T Feature phone New Smartphone launches in India Rs 3,022 3,000 2,712 2,611 2,575 2,565 400 350 300 250 200 150 100 50 0 2,500 2,000 1,500 1,000 740 698 687 689 712 Oct‐14 Nov‐14 Dec‐14 Jan‐15 Feb‐15 2013 368 299 215 202 46 63 Below Rs 5K 500 Source: Retail websites (such as Flipkart, Amazon, Snapdeal), Goldman Sachs Global Investment Research. 2014 Rs 5K ‐ 15K Rs 15K ‐ 25K 18 18 18 27 Rs 25K ‐ Above Rs 35K 35K Source: 91mobiles. Shift from feature phone to smartphone underway: India’s current penetration of smartphones stands at just 16% of mobile phone users compared with 78% for China and 82% for the US. The rapid rise in affordable smartphones combined with replacement demand from feature phone users (who bought their phones in 2009-2010) will lead to a significant jump in smartphone penetration, reaching 54% by 2020, according to Ericsson. Consequently, as is witnessed in other countries such as China, we expect the rising smartphone penetration to directly correlate with higher 3G/4G subscription. As such, our telecom team estimates 3G/4G penetration to reach 49% by 2020. 4T 4T Exhibit 30: Smartphone shipments into India in 2014 more than the total shipments in 2013 Exhibit 29: India’s smartphone penetration currently at 16% vs. China/US at 78%/82% Smartphone and high speed mobile data penetration 6T Smartphone penetration Smartphone shipments (in mn) 6T 75.1 3G/4G subs penetration 82% 78% 80% Incremental smartphone shipments in 2014 more than total shipments in 2013 46% 38.1 37.0 20.6 16% 16.5 9% India China USA Source: Company data (Bharti Airtel, Idea Cellular, RCom, China Mobile, Verizon, AT&T used as proxy for respective markets), Gartner, Goldman Sachs Global Investment Research. Goldman Sachs Global Investment Research 2012 2013 2014 Source: Gartner. 26 May 4, 2015 India: Technology: Internet Exhibit 31: Smartphone penetration in India expected by Ericsson to improve to 50%+ by 2020… 700 500 50% 40% 400 Smartphone users (mn) 300 30% Smartphone penetration (RHS) 200 5.1% 5.9% 7.2% 0 16.0% 10.7% 81 20% 10% 151 2008 2009 2010 2011 2012 2013 2014 3G/4G subs penetration 54.2% 60% 650 mn smartphone users by 2020 according to Ericsson 600 100 Exhibit 32: …driving similar penetration levels in data subscription 90% R² = 0.8089 80% USA 70% 60% Europe 50% Russia 40% India 2020 China S.Africa 30% 20% Indonesia India 10% 0% 0% 0% 2020 50% Smartphone penetration 100% Note: Data as of CY2014 Source: Gartner, Ericsson, Goldman Sachs Global Investment Research. Source: Company data (Bharti Airtel, Telkomsel, China Mobile, Vodafone, MTN, Verizon, AT&T, MTS are used as proxy for respective markets), Gartner, Goldman Sachs Global Investment Research. Chinese 4G ecosystem to help India too: China has seen a rapid development in the 3G/4G ecosystem as 4G subscribers crossed 100mn in 2014 and are rising rapidly. As a result, availability of 4G handsets has also become greater. 4G-LTE spectrum band auctioned in India is same as that of China – 2300 TD LTE and potentially 2600 TD LTE – which implies compatibility of 4G handsets from China (available at a reasonable price). The cheapest 3G/4G handsets in India are now available for US$40/US$150, respectively. The trend is likely to continue with the entry of multiple Chinese handset makers such as Xiaomi, Oppo, and OnePlus. Xiaomi has already claimed 4% market share of smartphones in the first 3 months of its launch in India as of Dec 2014, as per Gartner. 4T 4T #3 Spectrum auction has improved 3G/4G coverage across India Data from TRAI suggests that various telecom circles in India have 40%-45% of the spectrum available in Western Europe on a per population basis. However, current data usage per subscriber is 20%-25% of those in Western Europe. Further, we note that if the Indian government were to vacate more spectrum in the 700 MHz band in future, it could potentially cover all the needs for 100% coverage in all forms, i.e., 2G/3G/4G technologies. Recent auction of spectrum has ensured Bharti, BSNL, and Jio will have entire 100% of 3G/4G coverage, whereas Vodafone and Idea would have c.75% of coverage in India. Some of the spectrum licenses of the top four mobile operators in India are coming up for renewal in the next two years. At present, only Airtel and Aircel offer 4G services in India, albeit on a very small scale. But with R-Jio launching its 4G services shortly, we believe other operators will start investing and promoting data usage a lot more going forward. Goldman Sachs Global Investment Research 27 May 4, 2015 India: Technology: Internet Exhibit 33: We believe the recent spectrum purchases would provide pan-India 3G coverage Spectrum band Comments Exhibit 34: India currently has spectrum to enable panIndia 3G coverage 2G Enough 2G spectrum to cover 100% of the population. India already has c.80% voice penetration 3G Recently concluded spectrum auction will ensure Indian telecom companies have enough spectrum to cover 100% of the population if other infrastructure exists 1,400 1,160 1,200 992 1,000 800 Current available spectrum can ensure 4G coverage for 30%-40% of India. If Indian Defence department vacates 700MHz spectrum in future, that will ensure 100% coverage as well 4G Spectrum Inventory in India (MHz) 520 600 421 400 306 200 0 900 1800 2100 2300 800 Source: Department of Telecom, Goldman Sachs Global Investment Research. Source: Department of Telecom. Exhibit 35: Government has been active in auctioning spectrum in the past 4 years Exhibit 36: Both spectrum and non-spectrum capex to rise, as per our India telecom research team Spectrum auctions in India including re-auctions (MHz) GS India telecom coverage capex (Rs bn) 6T 6T Non‐spectrum capex Spectrum Auctions in India (MHz) 1000 Spectrum capex Capex as % of sales (RHS) 880 800 600 400 19% 350 17% 300 15% 250 400 385 355 295 95 11% 150 178 200 13% 200 46 104 99 85 0 100 9% 50 7% 0 5% 2100 2300 800 1800 900 1800 800 900 1800 2100 2010 2012 2014 Source: Department of Telecom. 2015 Source: Company data, Goldman Sachs Global Investment Research. #4 Towers: 3G/4G uptake to drive BTS growth of 6X in 10 years 3G/4G BTS penetration at 25%-30%, much lower than US/China: Over the past several years, we note that telecom companies in India have held back on investing in building mobile networks as they have been burdened with relatively high spectrum prices and low average revenue per user (ARPU) in India. As a result, India has had only 25%-30% of the area covered by 3G/4G enabled towers. However, we believe that: a) the impending pan India launch of TD-LTE based 4G services across 800 cities by R-Jio, and b) the rising data demand on the back of improving smartphone penetration are likely to drive incumbents to step up investments to remain competitive. Our telecom research team forecasts over 6X increase in 3G/4G enabled towers by 2025E. 4T 4T 4T 4T 4T Goldman Sachs Global Investment Research 4T 28 8 20 1. The incremental spend is likely to be on towers.7 6.3bn from US$5. Goldman Sachs Global Investment Research.90 1. Indonesia and India (Idea + Bharti) (‘000) 6T Base transceiver stations (‘000) 6T Total BTS ('000) 500 450 400 350 300 250 200 150 100 50 0 1. we expect industry capex to rise 55% over the next 3 years to US$8.83 0. Non-spectrum capex way behind China: China Mobile has spent US$34.2 20. its average has been US$25bn vs. better in-building solutions.17 0.3bn in FY12-FY14. For the past five years.0 3.0 20. Goldman Sachs Global Investment Research.25 0. 2015 India: Technology: Internet Exhibit 37: Telcos ramping up their tower coverage in anticipation of 3G ramp up Exhibit 38: India still lags China in 3G/4G tower coverage BTS of China Mobile (4G only). However.6 0 FY11 FY12 FY13 FY14 Bharti Idea Vodafone R‐Jio Tower co's China Mobile FY15 RCOM Source: Company data.50 0.15 15 0.29 34.000 431 387 268 200 21 2025E India 4G 400 126 2014 India 3G 600 170 31 India 2G Indonesia total 800 283 China Mobile 4G 2014 Bharti 0 2025E 2013 Idea 2014E 2015E Note: 2013 corresponds to FY14 for Indian and CY13 for China/Indonesia Source: Company data.83 10 0. Goldman Sachs Global Investment Research. Indian companies spending US$4-5bn.93 0.4 35 2.May 4.1 6.4bn of non4T 4T spectrum capex in 2014 as it ramps up its 4G footprint in China. Exhibit 40: Non-spectrum capex of Indian telcos in the past 5 years is less than 20% of China Mobile’s Exhibit 39: Per capita BTS penetration too low at present in India.7 3.00 BTS per thousand subs 30 3G/4G BTS per thousand subs 25 1. and new network equipment.50 30.200 3G/4G BTS ('000) 1.00 0. Source: Company data. in our view BTS per thousand subscribers Capex (US$ bn) 6T 2.50 6T 40 2. Goldman Sachs Global Investment Research 6.3 21.00 China (China Mobile) US (average) Indonesia (Telkomsel) Bharti Idea Source: Company data. 29 .68 5 0.16 0. We think this coupled with the national rollout of fiber optic network by the Indian government could be a game changer.25% of which broadband penetration only at 6%. Speed of laying fiber at 500km per month against target of 30km per month Internet penetration of c. 4T 4T R-Jio to reportedly launch coverage in 800 cities: Recent media articles (such as Business Standard.000 village councils and deliver bandwidth of 100Mbps by Dec 2016.300k towers – sufficient to provide network in 800 cities.000 Gram Panchayats (Village Councils) by Dec 2016 Bandwidth Deliver 100 Mbps bandwidth at every Gram Panchayat Non-discriminatory access to all service providers Open access 28 20 11 Additional capacity 8 5 4 In addition 400. BTS: population ratio in India much lower than in China Source: Goldman Sachs Global Investment Research. More than 90% of the 260mn internet users access it from wireless devices Challenges Complicated Right of way procedures and high ROW charges.500. Paucity of spectrum leading to low speeds Poor network coverage.May 4. in our view 120 Roadmap of National Optical Fibre Network (NOFN) 113 Tower sharing agreement of R‐Jio with different operators ('000) 100 80 60 45 40 42 36 Connectivity Connect 250.000 Km of existing fibre to be leased 0 Source: Company data.000 . 3 Mbps in China and 10 Mbps in the US Lack of data spectrum. Different rules in different states for getting clearances Lack of investments in infrastructure by private telecom operators. It could accelerate internet penetration and significantly boost data consumption especially in the sub-urban and rural demographics. 2015 India: Technology: Internet #5 Fiber: R-Jio launch and NOFN to act as catalysts for ‘fiberization’ NOFN to ensure pan India fiber network: The national optical fiber network rollout plan (NOFN) by the Government of India plans to connect 250.000 Km of incremental fibre to be laid Source: Dept. Spectrum in the Lack of digital literacy and consumer awareness in rural areas about advantages of internet highly efficient 700 MHz is unused Average broadband speeds of around 1 Mbps in India vs. in our view. only about one third of the available spectrum in the 2100 MHz band assigned to telcos. 4T 4T Exhibit 42: Indian government’s National Optical Fiber Network (NOFN) likely to be a key enabler Exhibit 41: R-Jio has tied up with various tower operators for c. of Electronics and Information Technology Exhibit 43: Roadmap to ‘Fiberization’ Current Status The government plans to connect 250k gram panchayats with broadband by Dec 2016. the government has now put this plan on priority and advanced the rollout targets. Copper wire network mostly owned by PSUs Low smartphone and PC penetration For 3G. 2014) have stated that R-Jio is set to launch its TD-LTE based 4G services across 800 cities over the next 12 months and that it may augment its 4G launch with FTTH (Fiber to the home) broadband and Wi-fi based devices. Dec 17. 500. Goldman Sachs Global Investment Research 30 . While the progress was slow until FY14. Coverage of fiber to carry data in India is currently at 9% penetration but a combination of Jio and NOFN may expand it at least to a 40%+ over the long term. 2014 Alibaba Alibaba backed Ant Financial Twitter Twitter buys Indian takes 25% stake in Paytm marketing services provider ZipDial for $30‐$40mn Feb.0 $2.757 $3. Business Standard dated Jan 16. 2014) Goldman Sachs Global Investment Research Source: News articles (including The Economic Times.24 $0.4bn $1. Source: News articles (including The Economic Times dated Apr 16.33 Latest round (US$ bn) Restaurants & Food $0. 2015 Jan. besides other global companies such as Google Capital deciding to set up shop in India.600 $1.No Investor 1 2 3 4 5 6 7 8 9 10 Sequoia Capital IDG Ventures India Tiger Global Management Helion Venture Partners Accel Partners Nexus Venture Partners Blume Ventures Kalaari Capital Intel Capital Norwest Venture Partners # VC Investments made in India 74 58 43 41 40 38 37 32 32 30 Capital flows (US$ mn) into e-commerce industry 6T $2.000 $1. and the trend continued in the first half of CY2014.800 mn $1.15 $0. nearly US$700mn of capital has come into e-commerce companies in India.457 $1.May 4. Big ticket investment announcements like those into Flipkart (US$1bn investment in July 2014 by investors including Tiger Global. Business Standard).20 $4.96 $0. In 2013.0 Note: This is not an exhaustive compilation of capital raising activity in India Source: News articles (including Business Standard dated Jul 31. 2015).0 $8. These were followed by some major announcements with large amounts of capital commitment from Softbank ($10bn) and Alibaba (through Ant financials).0 $6. However.58 $0. GIC and Naspers) and Amazon India (US$2bn commitment by Amazon Inc.18 $0. Exhibit 45: Large capital inflows accelerated in the past 69 months Exhibit 44: Venture capital (VC) firms continue to invest in India Top 10 VC investors in India (as of April 2015) 6T S. 2014 Jun. CEO Jeff Bezos in the medium term) kickstarted the first major leg of capital inflows into the e-commerce industry. 2015.36 Total raised (US$ bn) Travel & logistics Classifieds $0. The Economic Times dated Oct 28. Crunchbase Exhibit 46: Global majors have begun committing capital to Indian start-ups Exhibit 47: E-tail attracted the most capital followed by classifieds Google Capital Google's first investment in India ‐ Freshdesk ‐ infuses $31mn along with existing investors US$ 10bn SoftBank announces plans to invest US$10bn in India in coming years Oct.22 Social/ Entertainment etc.63 $1.000 $800 $503 $600 $400 $200 $94 $181 $322 $304 $115 $0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2013 2013 2013 2013 2014 2014 2014 2014 2015 Source: Crunchbase. 2015 India: Technology: Internet Ecosystem #2: Capital infusion accelerating as global firms enter Global venture capital (VC) and private equity (PE) firms have been active in India over the past few years. we note that a pick up in global internet companies’ valuations in 2013-2014 led by China provided the first trigger for increasing capital inflows in India. 2015 Jul. $0.71 $6.200 $1. Crunchbase 31 .400 $1. 2014 US$2bn Amazon announces an additional US$2bn investment in India Google Capital Google provides fresh funding to CommonFloor ‐ India's online real estate company Capital raised by internet firms in India (US$ bn) Financial services/ Others $0. 2014.0 $4.24 e‐commerce $0. the capital commitment towards e-commerce companies in India has been about US$6bn. We believe that investment opportunities in the e-commerce derivate sectors such as warehousing. with about 85% of it coming in the second half of CY14. T Rowe. financial and other business services are likely to take center-stage. DN estate. Steadview Capital Tiger Global Management SAIF Partners. distribution and logistics. Accel Greenoaks Capital. Omidyar Network SoftBank Hillhouse Capital. Lightspeed Ventures. Nexus. Smile Group. Nexus.500 $2. Sequoia Amount (US$ mn) Total raised US$ mn $4. Steadview Capital Amazon SoftBank Ant Financials (Alibaba Group) Tiger Global Management Sequoia Capital.May 4. Steadview Capital. 2015 India: Technology: Internet In 2014. Accel Partners Multiples Alternate Asset Management. We expect the capital infusion to continue into 2015 as internet penetration picks up pace backed by economic reforms on the horizon such as potential rollout of GST reforms. Norwest. Tiger Global. Intel Capital. Temasek.com CarDekho Komli Media Others Travel & logistics OLA Delhivery Yatra TaxiForSure OYO Rooms Others Mobile ads Community (C2C) Real estate Automobile aggregator Advertising Automobile. Nokia. Sequoia Capital Intel Capital. TR Capital. Real SoftBank Tiger Global Management. e-tail has captured a major share of capital flows followed by classifieds and travel/logistics. Times Internet Norwest Venture Partners Helion. Bessemer. Norwest Tiger Global Management.198 $216 $346 $140 $50 $97 $350 $585 $400 $35 $23 $30 $25 $72 $960 $677 $43 $45 $44 $26 $126 Capital. logistics DST Global. IDG Ventures. Matrix. Exhibit 48: E-tail dominated capital raising in the past 2 years Key investments made in India over the past two years 6T Company Industry Latest round of investment Investors e-commerce Flipkart Amazon India Snapdeal Paytm Shopclues Urban Ladder CaratLane Others Marketplace/Retail Marketplace Marketplace Mobile Marketplace Marketplace Lifestyle Shopping (Furniture) Lifestyle Shopping (Jewellery) Lifestyle Shopping (Furniture.000 $1. Community.241 $700 $2. Canaan Partners. Kalaari Fashion. Peepul Capital. Blumberg. Peepul Capital. The Economic Times). Within e-commerce. Nokia etc Classifieds InMobi Quikr Housing. Steadview Capital. Tybourne Capital. baby products etc) Capital. education. Helion. Inventus Capital Partners. Sudeep Bhandari (Datavision) Note: This is not an exhaustive compilation of capital raising activity in India Source: News articles (including VC circle.000 $627 $525 $100 $50 $31 $208 $6. deals Capital. Helion. Bessemer Venture Partners. Info Edge Transport Logistics Transport Transport Travel/Accommodation Transport. Crunchbase. Qatar Invesment. Sequoia Capital Nexus.712 $2. Goldman Sachs Global Investment Research 32 .100 $525 $116 $77 $52 $342 $628 $200 $150 $100 $50 $30 $98 $1. recruiting etc. This has led to large e-tailers like Flipkart. Capital raising = Discounting. As is typical in e-commerce industries across the globe. the “winner takes all” phenomenon is taking hold in India as well. we note that these 3 e-tailers now account for nearly 80% market share in the e-tail space. discounts. Flipkart acquiring Myntra (fashion/apparel e-tailer) for approx US$300mn in May 2014. warehousing and distribution. Snapdeal and Amazon India offering heavy discounts to gain market share.g. led by Flipkart at 45%. consolidation As capital flowed into e-commerce companies. Nearly all global majors have established a presence in India in recent months Key investments in Indian internet companies by leading private equity/venture capital firms in the past 3 years 6T SoftBank Sequoia Capital Tiger Global Management Accel Partners Naspers Other Investors Intel Capital Twitter Google Capital Tencent Holdings Newshunt Investee Companies Source: Company data.May 4. e. free shipping.. companies have also spent money on consolidation. Impact of capital across spectrum of industries We believe the rise of e-commerce in India is likely to have a significant derivative impact on complementary industries like online and print media and advertising. Further. With this discounting strategy. In addition to utilizing cash to offer discounts and acquire customers. advertising. it could adversely affect traditional vendors besides the IT services industry (higher attrition) as both the industries recruit from a similar talent pool. We expect the trend to continue going forward with a high possibility of horizontal e-tailers acquiring niche vertical e-tailers. most of them used it to acquire customers through heavy discounting including incentives such as cash backs. 2015 India: Technology: Internet Exhibit 49: Global pioneers in the internet sector are now eyeing investments in India. Goldman Sachs Global Investment Research 33 . bonus reward points. g. Goibibo acquired Redbus Companies Niche/vertical companies E.: Blue dart. finance and administration levels which would impact recruitment consultants and classified companies such as Info Edge (Naukri. in our view.g. more so due to the bottlenecks in Indian infrastructure. traditional vendors and capital providers. GATI.: Naukri. Aramex. Randstad. companies may look to acquisitions with the help of capital raised.g. We are already in the middle of the first phase of consolidation where companies with better funding are acquiring peers in the space. Higher competition leading to better customer service quality Sectors Consumers Traditional vendors Capital providers Source: Goldman Sachs Global Investment Research. Google. Times Jobs. Consequently. Policybazaar etc. logistics firms as well as real estate firms providing warehousing facilities are likely to be impacted. consolidation bound to happen IT/ITES industry suffering high attrition rates leading to higher retention/ recruiting costs Several acquisitions happened in last few months. InMobi etc. management. Pepperfry. Logistics Current logistics infrastructure covers less than 10% of the country’s postal codes Multiple tax structure leading to decentralized warehouse networks Consolidation Consumers Rapid growth leading to talent hunt Recruitment As industry grows. Consumption: The side-effects of heavy discounting and investments are impacting 4T offline channels of economies such as offline retail stores. DLF etc. Start ups and companies which have gained a reasonable scale are being impacted by this trend. Further.: Zovi. Urban Ladder.: Times Group. LinkedIn. 2015 India: Technology: Internet Advertising: Heavy advertising spends to attract new customers is becoming a trend 4T 4T which could not only impact print media companies but will also be quite important for online advertisers. Logistics: Logistics and distribution are the key enablers of e-commerce in India.com). in our view. there is a need to advertise “Winner takes all” phenomenon accelerating advertising spends Companies Media companies Search providers Social media advertisers E. Exhibit 50: Key sectors and companies impacted by capital flows into e-commerce Advertising Most Internet companies’ business models are either B2C or C2C. combat competition and acquire niche offerings 4T 4T such as personalized deals. Hike.g. Just Dial. Recruitment: A surge in the internet sector and significant capital inflows has resulted in significant demand in workforce across technology.: Flipkart acquired Myntra.g. Facebook. Increasing capital inflows are ensuring investments in logistics and last mile delivery infrastructure. Zomato. Goldman Sachs Global Investment Research 34 . 4T 4T 4T 4T Consolidation: In order to gain scale. India Post. Team Lease etc.May 4. Colleges/ Universities Students/Job seekers E. E. Delhivery. Internet companies incentivizing consumers through heavy discounts Companies Companies Warehousing and distribution solution providers Talent search firms Real estate firms E. Hence. This has helped push online commerce to the Indian consumers and propelled it to attain critical mass. but debit cards’ rose as banks offer them for free Exhibit 51: Cash on delivery is most preferred mode for Indian online shoppers. implying 1. 2%/30% in the US/China.) Higher costs of handling cash (theft.7% penetration. in our view. However. have emerged across the payment landscape offering several inexpensive and innovative transacting solutions. 2015 India: Technology: Internet Ecosystem #3: Payment landscape evolving across channels This section includes the views of our India financials team of Tabassum Inamdar and Shyam Srinivasan Low card penetration makes case for evolving payment landscape: Credit card 4T penetration in India is quite low. with only 20mn cardholders as of Sep 2014. Cash on Delivery (COD) is the most preferred mode: Our interactions with multiple e4T commerce firms suggest the most preferred way for Indian consumer to transact still remains cash as about 60% transactions in e-commerce as of 2014 are being done on cash on delivery (COD) mode. unlike in China or the US Mix of online transactions by mode of payment (2014) Credit and debit cards outstanding and growth 6T EMI/3rd party wallets 1% Net Banking China 18% 12% mn DC yoy (%) [RHS] 60% 431 37% 300 40% 25% 100 60% 50 80% 331 22% 278 19% 19% 75 50 23 17 0 102 28 17% 11% 182 137 ‐2% 7% ‐2% ‐2% 18 30% 20% 10% 0% ‐10% ‐10% 25 50% 40% 228 200 60% 394 32% 19% 150 40% 34% 33% 350 26% 30% 30% 20% Debit cards (DC) CC yoy (%) [RHS] 450 250 2% Credit cards (CC) 51% 400 16% 0% India 34% 0% Cash on delivery US 500 12% Debit Cards Credit Cards 9% 10% 6T 18 ‐26% 18 20 19 20 ‐20% ‐30% Note: China wallet mix assumes Alipay’s wallet users as the total wallet users in China Source: Central Banks.May 4. We believe the rise of the internet economy in India would not be possible without a commensurate improvement in the ease of payments for consumers. multiple niche companies. It is so successful in India because it is convenient and enhances customer trust initially. Goldman Sachs Global Investment Research Source: RBI.) Elongated working capital cycles (time for cash to reach the merchant from consumer increases) Higher delivery costs as third party logistic providers charge extra for such deliveries Exhibit 52: Credit card penetration barely changed since 2006. Goldman Sachs Global Investment Research. while there are 431mn debit cards as of Sep 2014. we believe the online payment landscape in India needs to evolve to propel the growth of e-commerce. in addition to enabling consumers who do not have access to credit card/debit cards/net banking etc. vs. Hence. loss of cash due to mishandling etc. besides banks. 35 . a lot of these may be used only for cash withdrawals and not for commercial transactions at all. to buy goods/services online. non-serious buyers etc. Further. cash on delivery is an expensive option owing to a variety of reasons: Higher return rates for goods (customer refusal to take deliveries due to lack of cash. RBI. it is increasingly denting profitability. telecom companies and specialized firms focusing on disrupting the payments landscape Payment system landscape and key companies 6T Telcos Consumers Visa Mastercard RuPay American Express Point of Sale Terminals Mswipe Ezetap Ingenico SBI MAB Acquirers ICICI Merchant Services Merchant Solutions (Axis Bank) ACH based systems Banks/ Card issuers Telco wallets Wallets Airtel Money Vodafone M-Pesa ITZ cash Paytm cash Citrus cash NACH remit2India State Bank of India Axis Bank ICICI Bank HDFC Bank Payment aggregators Gift cards Bank e-wallets CCAvenue BillDesk SBIePay direcpay PayU Zaakpay Citrus HDFC Bank Chillr ICICI Bank Pockets Shoppers Stop Lifestyle Merchants Networks Retail Banks Technology Payment Banks Paytm Vodafone Mobikwik eWallets ngpay PayUMoney Google wallet Government/Regulator Note: Payment banks are not set up yet. zaakpay etc. electronic fund transfers etc. IMPS live member banks (~59 banks currently) Rs25‐80 per 0. cash cards. RuPay etc.75% to 3% Only 4 banks charge. mobile POS (point of sale). Exhibit 53: Mobile based payments fast evolving. Companies listed have applied for Payment bank licenses with the RBI. Vodafone as high as 60% ‐ High cost structure ‐ open up paid‐app download market Indirect operator billing (charge to mobile bill) Boku. Sometimes. Zong (owned by PayPal) as high as 30% ‐ High cost/fee structure ‐ Low merchant adoption in digital Source: Company data. could eventually help reduce high cost/high risk cash on delivery (COD) transactions Payment approach Providers Cost structure Comments Cash on delivery (COD) Aramex. it was also due to regulatory requirements such as in the case of Uber/Paytm where the RBI regulations resulted in Uber using a mobile wallet.5kg packet or 2%‐4% of invoice value 0. 0. Goldman Sachs Global Investment Research. Delhivery etc. payment gateways. CCAvenue. merchants/service providers are opening up for tie-ups with mobile wallet providers. Rest offer for free ‐ Expensive solution for sellers ‐ Improves customer reach ‐ Low penetration ‐ Less convenient ‐ Limited customer base ‐ Merchant tie‐ups necessary ‐ Low merchant adoption ‐ Long drawn sign‐up process 0. Itzcash. Visa. credit/debit cards. NACH = National Automated Clearing House Source: Company data. American express. JAVAS. Citrus. Citrus. Exhibit 54: Digital payment landscape evolving rapidly in India with banks. Blue Dart. Oxigen etc. m‐pesa.May 4. 2015 India: Technology: Internet Expensive COD acting as a catalyst for innovative payment mechanisms: As the merchants have to typically bear most of the overhead expenses arising out of COD. banks and credit/debit card providers.7% to 3% + convenience fee to users ‐ Scale is an issue ‐ Customer skepticism Credit/debit card/net banking Payment gateways ‐ card linked IMPS (Immediate payment system) Mobile only based payments Mobile pre‐paid wallets Airtel money. net banking. Hence. PayU. Paytm. Diners club. SBIePay. Goldman Sachs Global Investment Research 36 . FedEx. Indian banks and start-ups space are looking to present consumers and merchants with numerous transacting choices including mobile/electronic wallets. Goldman Sachs Global Investment Research. MasterCard. Billdesk.75% to 5% Direct operator billing/ Direct‐to‐bill Airtel. 2) Allows for withdrawal of cash from wallets.May 4. following which a large number of companies have applied. penetration Key payment bank applicants 6T No Applicant JV Partner 1 2 3 Aditya Birla Nuvo Bharti Airtel Cholamandalam Investment and Finance Fino Paytech Future group GI Technology Oxigen Paytm Reliance Industries Vakrangee Ltd Vodafone Idea Cellular Kotak Mahindra Bank NA 4 5 6 7 8 9 10 11 NA IDFC NA RBL Bank NA State Bank of India NA Yes Bank Source: Reserve Bank of India. respective Central banks. Reserve Bank of India – the facilitator and regulator moving in the right direction: 4T Over the years. 3) Allows wallet companies to pay interest to customers on money stored in the wallet. Exhibit 57: Reserve Bank of India actively taking steps to increase cashless transactions Timeline of regulations on cashless payments 6T Date 1986 1994 1998 Jun‐01 Nov‐05 Dec‐07 Jun‐08 Apr‐09 Mar‐12 Oct‐14 Nov‐14 Nov‐14 Dec‐14 Payment related milestone Introduction of MICR based cheque clearing Electronic Funds transfer system (EFT) launched Introduction of debit card RBI allowed banks to offer internet banking facilities National electronic funds transfer (NEFT) launched Parliament clears the Payment and settlement systems act Operating guidelines for mobile payments released by the RBI Operating guidelines for prepaid instruments put out by RBI Launch of Rupay ‐ domestic card payment network 2‐factor authentication mandated for all credit card transactions RBI releases final guidelines for licensing of Payment banks Guidelines for bharat bill payment system EMV Chip and Pin mandated domestically Source: RBI Goldman Sachs Global Investment Research Exhibit 58: We think the grant of payment bank licenses to wallet companies would improve trust. the Indian banking regulator has also been taking incremental steps to increase cashless transactions not only in the internet space but also offline.will let more people sign up for electronic wallets. once issued. we expect it to rapidly scale up Electronic (mobile) wallet users (2014) 6T Volume of transactions (mn) Wallet users (mn) 169 25 350 160 100 250 200 15 84 77 80 10 40 20 1 2 44 47 39 40 34 33 26 26 23 16 20 20 10 10 12 11 13 14 50 50 5 10 6 0 ‐ Mar‐11 Mar‐12 Mar‐13 Apr‐13 May‐13 Jun‐13 Jul‐13 Aug‐13 Sep‐13 Oct‐13 Nov‐13 Dec‐13 Jan‐14 Feb‐14 Mar‐14 Apr‐14 May‐14 Jun‐14 Jul‐14 Aug‐14 Sep‐14 Oct‐14 Nov‐14 Dec‐14 Jan‐15 Feb‐15 Mar‐15 ‐ 152 100 Alipay 60 162 150 Paypal Australia 113 102 120 300 Citrus 140 300 20 Source: RBI Paytm 141 129 Kakao talk 180 Paypal Value (Rs bn) 6T Source: Company data. It has also released guidelines and invited applications for payment bank licenses. regulatory control and ease of payments for small ticket items. 37 . We believe that payment bank licenses. More recently it has released guidelines for a universal bill payment system called Bharat Bill Payment System (BBPS). could act as a catalyst in pushing the Indian consumer towards a cashless economy for the following reasons: 1) Enhanced customer trust -. 2015 India: Technology: Internet Exhibit 55: Mobile banking transactions have picked up in recent months Mobile banking transactions Exhibit 56: Wallets are as yet a new phenomenon in India. 4) Lower cash balance. 974 1. We believe the same reasons could act as a catalyst for heightened adoption of e-commerce in India – a counter trend to that in developed countries. we estimate that a significant opportunity awaits the logistics industry. These aggregators do not have their own distribution network. key issues such as lack of enough warehousing and distribution space and sub optimal (or lack of) last mile connectivity still hinders the ecommerce industry. As most of these specialized providers suffered from limited reach across India (Exhibit 48). They assist merchants in choosing cost/time effective way of shipping merchandize to their customers. Also. Aramex. would assume significance for long distance travel.000 500 43 74 UK USA 233 425 0 China Brazil India Source: Euromonitor. so are new entrants: While incumbent logistic providers 4T 4T like India Post.500 60% 2. Fedex have specially added ecommerce solutions to their offerings. Blue Dart.000 80% 2. e-kart etc. Traditional vendors evolving. This led to the emergence of specialized e-commerce logistics companies like Delhivery.500 1. related logistics market grew at a 105% CAGR in 3 years. 2.May 4.500 100% 3. 2015 India: Technology: Internet Ecosystem #4: Logistics – Within the bottleneck lies the opportunity This section includes the views of our India infrastructure team of Pulkit Patni and Mohit Soni Lack of infrastructure is a blessing in disguise: Lack of retail outlet infrastructure. Moreover. Blue dart. while organized air/ground express industry grew 14%/19% Market size and growth Data as of 2014 6T 6T Market size (US$ mn) FY11‐FY14 CAGR 750 700 105% 650 600 550 500 690 # people per Hyper market ('000) 120% 3. uncertainty around tax regulations for marketplace providers (such as Amazon. Avenues Capital. the e-commerce industry still faced challenges in terms of handling cash on delivery orders. DTDC. modes of transportation like the railways which are currently underutilized for logistics. WS retail) who handle warehousing and distribution for SMEs that sell merchandize on their platforms is causing further roadblocks.000 680 40% 450 400 500 350 19% 14% 20% 0% 300 e‐comm. This could lead to third party logistics companies (3PL) emerging in the market place resulting in much lower logistics cost and lesser bottlenecks. logistics Organized Air Express Organized Ground Express Source: Holisol Logistics. return orders and customer service. in our view Exhibit 59: E-comm. Exhibit 60: Lack of retail outlet infrastructure in India (hypermarkets) is a big catalyst for faster adoption of online commerce. it saw the emergence of logistics aggregators such as Kart Rocket and Zepo. high 4T 4T rentals and poor connectivity have limited the presence of organized retail (less than 10% according to EY in 2013) in India. E-Com express. GST may be a potential trigger: Even with the emergence of multiple competitors. 4T Clarity on tax and regulations needed. However. 4T We believe the passage and potential implementation of GST starting April 2016 (goods and services tax) could result in seamless working of the hub and spoke model in the Indian logistics industry. Goldman Sachs Global Investment Research 38 . we believe logistics and last mile delivery are key bottlenecks that need to be addressed for faster adoption of e-commerce in India. but instead rely on the incumbent’s network. With our forecast for e-tailing market to grow to US$220bn in size by 2030. except India Post Key logistic solutions providers in India and their current reach 6T Company eCommerce solution Type Description CoD offered (Pincodes) Pre-paid reach (Pincodes) Blue Dart E-business solutions B2B and B2C Provides shipping tools that businesses can incorporate in their e-tail stores 3. Goldman Sachs Global Investment Research.000 16.000 FedEx FedEx B2B and B2C Provides shipping tools that businesses can incorporate in their e-tail stores 2. Exhibit 62: Most logistics companies do not have enough Pan-India reach.000 25. assign an airway bill number.100 8.550 India Post Express Parcel B2B and B2C 50 cities 50 cities India Post Business Parcel B2B and B2C Door-to-door service available to both retail as well as business (corporate) customers in major cities using air mail service Offers total mailing solutions to businesses from mail preparation to mail delivery using surface transport system 25.000 6. Own and operate fulfilment centers 2. among other facilities Offers complete logistic assistance to small businesses looking to sell online Source: Company data.600 DTDC Dotzot B2B and B2C Third party logistics service provider focused exclusively on e-retail delivery fulfillment 7.000 9. pick a courier company.saving taxes rather than operational efficiency Proposed GST Large scale / 3rd party warehousing will get a big boost Source: Goldman Sachs Global Investment Research Goldman Sachs Global Investment Research 39 . Kart Rocket.300 4.May 4. and print a shipping label.220 Shipping solutions Logistic aggregators KartRocket ShipRocket B2B Zepo ZePost B2B Enables e-tailers to dispatch a shipment.650 5.600 2. 2015 India: Technology: Internet Exhibit 61: COD is more than twice as expensive as regular delivery. Exhibit 63: Potential GST implementation could ease logistics bottlenecks for companies with large scale warehousing facilities and multi-modal logistics firms How GST will change things Central taxes Excise Customs duty CST VAT Octroi State Cess Current tax structure State taxes Manufacturers do stock transfer between inventory stocking points To avoid duplication of taxes Hence.100 8.100 Delhivery Delhivery B2B Fulfilment and logistics network for non-contact retail. but remains the preferred option for consumers 140 Cash on delivery (COD) Rs 120 100 68 80 130 60 40 62 58 20 0 Non‐COD total COD shipment charge charge COD cash collection charge COD total charge Note: Delivery of 500g Source: Zepo. they have multiple small warehouses in each state Target . of Commerce Regulation ‐ 2 factor authentication is mandatory for card / online payments Payments Landscape ‐ Allowing payment banks licenses which will allow acceptance of deposits upto Rs100k.US$19bn. Dept. offering financial products like MFs. of Industrial Policy and Promotion. businesses should be able to focus more on expanding their business. Digital India – a key cog in the wheel to increasing penetration By pursuing its ‘Digital India’ initiative which entails a capital expenditure of c. issuance of debit cards. Foreign Direct Investment (FDI) ‐ 100% in B2B e‐commerce ‐ 100% in single brand retail (offline) ‐ 51% in multi‐brand retail (offline) Value Added Tax Dept. e‐commerce companies. Insurance. Wi-Fi in 250k schools and all universities) and easing bottlenecks as enabling private investments in technology. While the NOFN and Digital India rollout has been gradual to date. of Revenue M&A Dept.May 4. Of Information & Broadcasting Ministry of Statistics and Programme Implementation Ministry of Home & Finance Source: News Articles (The Economic Times.). Although India does not have a separate regulator for the ecommerce industry yet. Exhibit 64: No separate regulator in place for e-commerce yet. Goldman Sachs Global Investment Research 40 . of Information Technology All e‐tailing companies ‐ Complete restriction on foreign online retailers to sell Foreign ecommerce products sourced by themselves ‐ should rely on marketplace companies model which is 100% allowed ‐ Distributable profits in at least 3 out of past 5 years and positive net worth in the past 3 years Listing / IPO Affected Companies All B2C ecommerce companies Mobile wallets. We believe that while regulation is necessary. there have been concerns around lack of clarity on various regulatory /legal issues such as taxation. Goldman Sachs Global Investment Research. we believe the Indian government could accelerate the spread of internet connectivity in India by improving infrastructure (broadband connectivity to 250k village councils. payment gateways. telcos Ministry of Corporate affairs Loss making e‐commerce companies ‐ For goods sold by online retailers like Amazon under their own risk (fulfilment). still governed by existing rules/laws Regulatory landscape for e-commerce and related businesses in 2014 6T Category Reserve Bank of India Dept. foreign investment. the government has identified nine different agencies which would monitor the development of this sector going forward. In the past few years. 400k internet access points. Business Standard etc. of Consumer affairs ‐ Lack of GST leads to inefficient taxation of sales tax and VAT in each state and resulting in multiple warehouses in different All e‐tailing companies locations and lack of economies of scale Logistics Dep. the central government seems to be focusing on the same and have advanced the timeline to execute the Digital India initiative by almost a year. they should be paying VAT rather than All e‐tailing companies the merchant ‐ Current tax regime and unclear M&A regulations for online All e‐commerce companies companies make the M&A process complicated Dept. 2015 India: Technology: Internet Ecosystem #5: Government initiatives likely to pick up This section includes the views of our India economics team of Tushar Poddar and Vishal Vaibhaw Lack of clarity around the regulatory environment The regulatory environment in India has not been very clear around e-commerce till now. payments landscape and vertical specific concerns. logistics. Indian Railways – IRCTC portal is the largest online portal in India 4T The Indian government runs one of the largest e-commerce portal in the country — IRCTC (Indian Railway Catering and Tourism Corporation) — measured in terms of number of transactions (463. in our view IRCTC India Post # of Post Offices (PO) # in rural areas % in rural areas People served per PO Avg. Telecom & Electronic jobs 17mn direct employment.1 254.015 139. area served by each PO Employees COD orders (Rs bn . 2015 India: Technology: Internet Exhibit 65: Digital India initiative proposes to connect 250k village councils to broadband via National optical fiber network Digital India highlights 6T Impact of Digital India by 2019 Broadband in 250.000 2.0 345. Passengers tickets per passengers (mn) day ('000) per day ('000) 209.8 Note: Data as per latest available Source: IRCTC. of Electronics and Information Technology. The government could leverage this reach and look to provide e-governance and eservices across various departments.7 463.FY14) FY12 FY13 FY14 # of tickets (mn) 116.175 2 21.000 per day in FY14). owned IRCTC runs one of the largest online ticketing agencies in the world Exhibit 67: India Post is looking to launch an e-commerce portal in marketplace model in 2015.2Km 460.144 89. education. It is the online railway ticketing platform used by the Indian Railways. Avg.000 schools. It provides the first touch point of e-commerce for the vast rural and suburban population.0 947. which is otherwise untouched by the current e-commerce industry in India.000 public internet access points Wi-Fi in 250.May 4. we believe the Indian government has several other channels through which it can accelerate the penetration of internet and e-commerce. banking Source: Dept. market.8% 7.0 155. 41 .1 575.2 697. in our view. We list below a few of those avenues. 85mn indirect employment e-governance & e-services across government Leader in IT use across health. all universities Public Wi-Fi hotspots for citizens 17mn trained for IT. in some of which the government already has a major head-start.1 140.6 169. Its infrastructure reach could help deepen the e-comm. Government channels may contribute in a big way Besides helping build network connectivity across the country. Goldman Sachs Global Investment Research Source: India Post.4 385. Exhibit 66: Indian govt.000 villages Universal mobile phone connectivity Costs Net zero electronics imports by 2020 New Schemes Ongoing Schemes Rs130 bn (US$ 2bn) Rs1 tn (US$ 17bn) 400.0 # of Avg.9 318. 0 Aadhaar cards issued 773mn 63% Total 125. P P Further. It is the only logistics service provider in India currently that can deliver parcels and goods to nearly 25. We believe this increases the target market for online commerce in India as well as helps propel India towards a cashless economy. As part of this initiative. like Amazon and Flipkart among others.5 Rupay debit card 110.0 40. Ministry of Finance 4T Goldman Sachs Global Investment Research 42 . JAM Number trinity: The Indian government envisages the JAM Number trinity – Jan Dhan Yojna (Bank account number). it could enable safer and easier way of payments for its customers. India Post plans to launch an e-commerce marketplace of its own that could significantly aid in improving internet and e-commerce penetration into the hinterlands of the country. As such. 2015) P P Exhibit 69: ‘Jan Dhan Yojna’ launched in late August.0 Aadhaar seeded 45. Source: UIDAI. 2015 India: Technology: Internet India Post – The widest distribution reach in the country 4T The Indian government possesses a massive logistics network through India Post . in our view.0 80. Exhibit 68: Unique Identification Authority of India (UIDAI) issued identification cards to nearly 2/3rd of Indian population (Feb. Aadhaar ID card number (UIDAI).000 postal codes in India (nearly a 4th of total pin codes). 2014.May 4.0 mn 140. 110mn account holders were also issued debit cards potentially arming them with the necessary tools to be able to transact online. 2014. we note that if they were to get a payments bank license from the RBI.0 120. India Post is already aiding as a catalyst in the penetration of e-commerce. Moreover. 2015) India 160.its postal service arm. Several large e-tail companies in India. Jan Dhan Yojna – The biggest drive for financial inclusion in India The PMJDY (Pradhan Mantri Jan Dhan Yojna) scheme intends to bring banking to every doorstep in the country.0 20. As highlighted in our “India’s Digital Dividend” report dated Sep 24. have partnered with India Post to take advantage of its deep reach. Of 125mn accounts.8 60. We believe this could potentially bridge the per capita income gap that India has with China/US at a faster pace fuelling consumerism. the government has opened nearly 125mn bank accounts as of Jan 2015 since the program started on Aug 28. 2014 has added c.110mn debit card holders in 5 months Jan Dhan bank accounts (Jan 31. the delivery of governance services through the use of technology could eliminate wastage of resources as well as drive productivity growth in the country.0 ‐ Source: UIDAI.0 Rest of population 463mn 37% 100. and Mobile number – to help effectively target public resources (such as direct cash transfer of subsidies to the poor) and deliver other governance services. a key catalyst for e-commerce growth. 7mn in FY10) Graduate output in India Exhibit 71: 150K+ digitally skilled employees are readily available (FY15) Digitally skilled professionals 6T 6T 50.000 cloud.May 4. more or less matching demand.100 startups focused on technology have emerged in India. Since 2010. bridging parity help: Availability of talent is 4T 4T improving driven by: (1) increasingly tougher immigration norms in the US. Within e-commerce. and collaboration skilled talent 0. Travel/ticketing and classifieds have closely followed while financial services start-ups have been relatively fewer.5mn industry ready professionals > 50. 3. Apart from more than 1mn engineers that graduate in India every year.8mn science graduates 1mn engineers Source: NASSCOM. McKinsey. most of the interest has been in the e-tail category – probably a reflection of the vast opportunity in the space. while c. talent supply to the industry has grown significantly. As a result. This has led to an increasing number of graduates looking to equip themselves for recruitment by this industry. social media. (2) reducing purchasing power parity in India as salaries for good talent are at global levels.000 analytics professionals 75000+ Post graduates 30. there are more than 150. catapulting India to be among the top start-up nations across the globe. Of these. As capital from around the globe begins to flow into Indian entrepreneurial ventures.000 digitally skilled high end employees that can cater to the supply side dynamics for the industry. industry participants such as NASSCOM estimate that nearly 3. 4T Goldman Sachs Global Investment Research 4T 43 .200 are digitally focused. Source: NASSCOM. 2015 India: Technology: Internet Ecosystem #6: Talent driven start-up ecosystem fast emerging Indian IT services sector has a pool of tech talent: Over the past couple of decades.8mn are estimated to graduate in FY15 (vs. McKinsey. it is estimated that nearly 2. we see a virtuous cycle of entrepreneurship and employment generation taking shape in India.000 mobility specialists 1. 4T 4T Exhibit 70: 5. Start-ups boom as funds become freely available: Of late. Tougher immigration norms in the US. the abundance of talent has driven a start-up boom. the Indian IT-BPM sector has been the key driver of employment in India.500 in the e-commerce space. and (3) potential upside in compensation from stock options in Indian start ups after they get listed or acquired. 300 3. 20+ Other online services 50+ 0 50 100 150 200 250 Source: NASSCOM. of which nearly 500 are in the e-commerce space Exhibit 75: E-tail and ticketing dominate e-commerce start-ups in India P P Indian Start-ups breakdown as of 2014 Start-ups by category as of 2014 6T etail ~3.100 3.000 805 6. Zinnov.2bn spent annually on training and re-skilling 50% of the spend is on new employees ~5% of man hours spent on average in training $4K spent on training a new recruit Training focused on emerging technologies like cloud. Exhibit 76: Most start-up businesses in India are consumer centric as of 2014 Exhibit 77: Indian IT industry investing significantly in augmenting workforce (data below as of 2014) B2C 1.000 3.820 59% B2C/B2B 120 4% B2B 1. analytics.000 590 525 41. Zinnov.500 3. mobility.200 Digital focused Classifieds 60+ Financial services ~500 e-comm. social.500 7.000 1.000 0 2010 2011 2012 2013 2014 US UK Israel India Canada Source: NASSCOM.May 4. Global firms increasingly shifting product/engineering development to India Source: NASSCOM.700 2. Zinnov.000 4.100 Startups 200+ Travel/ticketing 70+ ~2.140 37% Source: NASSCOM.000 2. Zinnov. Source: NASSCOM. Exhibit 74: 2/3rd of start-ups focused on digital. Goldman Sachs Global Investment Research $2. Zinnov. Source: NASSCOM.000 680 480 P 5. 2015 India: Technology: Internet Exhibit 72: Abundance of talent driving start-up boom in India Exhibit 73: India is now the 4th biggest start-up hub in the world (as of 2014) Technology product/start‐ups by inception year Tech product/digital start‐ups by key countries 900 800 700 600 500 400 300 200 100 0 P 8. McKinsey 44 . robotics. artificial intelligence etc. there is a risk of oversupply of ideas in the medium term which may make the market extremely competitive and potentially alter the profitable trajectory for some of the better business models. we highlight some of the risks/challenges that the sector may face going forward: Lower investment in telecom infrastructure: In addition to the high spectrum capex incurred recently. However. we believe logistics and last mile delivery are key bottlenecks that need to be addressed for faster adoption of e-commerce. we believe the pace of growth may not be as strong. Delayed execution of 4G services and Digital India: Some of the key risks that can delay the successful execution of 4G services and Digital India initiative are clarifying right of way for laying fibre. payments landscape and vertical specific concerns. Goldman Sachs Global Investment Research 45 . and Info Edge have not been very high. foreign investment. we think the English speaking population may have increased over the past decade. However. Oversupply of start-ups funded by private equity: The recent rise in private equity fund flow has resulted in a significant increase in startups/new entrepreneurs. logistics. high rentals and poor 4T connectivity have limited the presence of organized retail (less than 10% according to EY in 2013) in India. Hence. there is a risk of demand outstripping capacity. promoting capital expenditure and incentivizing local manufacturing of network equipment.. Language is an entry barrier – SMS adoption is a case in point: SMS adoption could not take off in a big way in India during 2001-2010 (despite rising wireless penetration rates) due to the low percentage of English speaking population (only 10% in 2001). Any adverse regulatory change could be a risk for the sector. Lack of logistics infrastructure: Lack of retail outlet infrastructure. relatively mature segments (such as OTA) and smaller addressable markets in some cases (such as online recruitment classifieds). This may not necessarily hold true for the larger verticals such as e-tailing where growth rates have been high. telecom companies would need to spend significant capex for laying out backhaul/fiber network. China Mobile (Exhibit 40)). there have been concerns around lack of clarity on various regulatory/legal issues such as taxation. In the absence of adequate capex investment. We note that growth rates of some of the listed internet companies such as MMYT. despite being first movers in their space. If the ecommerce firms are unable to adapt to the language diversity in India.May 4. Further. 2015 India: Technology: Internet Risks to our view: Execution is key We believe the India internet opportunity is predicated on the successful execution of some of the key ecosystem enablers. Just Dial. providing more backhaul spectrum.g. due to slow pace of online adoption. incentivizing operators to share infrastructure. Clarity around regulatory environment: The regulatory environment in India has not been very clear around e-commerce till now. In the past few years. Non-spectrum capex in India is significantly lower than that being spent in China for 4G rollouts (e. May 4. 2015 India: Technology: Internet This page has been intentionally left blank Goldman Sachs Global Investment Research 46 . May 4. 2015 India: Technology: Internet Addressable markets: US$300bn opportunity Addressable markets: US$300bn opportunity Goldman Sachs Global Investment Research 47 . growing at a 26% CAGR… GMV= gross merchandize value Penetration – online shoppers as % of population 150 110% 300 90% 250 70% 200 25% 18% $19 $27 $37 2015E 2016E 2017E 2018E 2019E 19% 13% 100 10% 50 2030E 2025E ‐10% Source: Company data (Flipkart. fragmented supply chain are some of the primary reasons for the low penetration of organized retail.May 4. media reports (such as The Economic Times). in our view. We estimate the Indian e-tail market to reach c. Goldman Sachs Global Investment Research 0 12% 4% 2% 24 49 72 98 20% 380 122 147 15% 10% 258 6% 168 5% 0% 2017E $12 $112 30% 9% 11% 8% 2016E $7 29% $47 150 2015E $3 2014 36% 2020E 44% 50% 2014 57% 50 0 350 30% 25% $220 71% 100 130% Penetration (%) [RHS] 2030E CAGR 2015‐2020: 47% 2015‐2025: 32% 2015‐2030: 26% 200 Online shoppers (mn) 400 2025E 144% 150% 2020E Growth (%) [RHS] 2019E GMV (US$bn) 6T 2018E 6T 250 Exhibit 79: …driven by online shopping penetration increasing to 25% (from 4% in FY15E) Source: Company data (Flipkart. media reports (such as The Economic Times). but larger than the current US$134bn market in China.US$220bn by FY30E. Amazon). With the necessary ecosystem rapidly evolving as outlined earlier and internet penetration achieving critical mass. Exhibit 78: We estimate e-tail GMV to reach c. 48 .300 by FY30E. the Indian e-tail market in FY30E would be smaller than the current US$240bn e-tail market in the US. 2015 India: Technology: Internet TAM# 1: Indian e-tail market to reach US$220bn by FY30E US$220bn e-tailing market by FY30E: We estimate the Indian e-tail market to be US$7bn of GMV (gross merchandise value) in FY15E. US$47bn/US$220bn by FY20E/FY30E. Further. E-tail companies creating the ecosystem: Paucity of infrastructure. we estimate online shopper penetration to reach 25% levels. Comparison to US and China: At US$220bn. Goldman Sachs Global Investment Research. according to our estimates. from 4% currently. E-tail companies are looking to address these issues by organizing the supply chain (aggregating merchants via marketplace model) and debottlenecking infrastructure (such as establishing logistics solutions. we forecast average transaction value to grow from Rs1. The significant differential in per capita income between India and US/China partly explains the relatively small size of the Indian market. at 47%/ 26% CAGR. wireless penetration at 78%. driven by online shopping penetration rising to 12%/25%. Key assumptions for our long-term estimates for e-tailing market are: 1) Data penetration and online shopper penetration: We forecast the overall data penetration to reach 71% by FY30E (13% in FY14) vs. from 4% currently. we expect the e-tail market to continue its robust growth path.800 currently to almost Rs4.8% of India’s GDP or 11% of the Indian retail market by FY30E. respectively. assuming the developing ecosystem will help converge data and wireless penetration over time. high rental expenses. Further. Snapdeal. Goldman Sachs Global Investment Research. growing largely in line with inflation at about 6%. warehousing and distribution centers) to enhance the internet shopping experience. 2) Average transaction value and transactions per shopper: We forecast every shopper to increase the frequency of purchases from just about 4 transactions per year to about 8 transactions per year as the ecosystem evolves and more merchants come online. Nevertheless. Amazon). more than double the US$3bn market in FY14. the e-tail market is likely to become nearly 1. Snapdeal. a key driver of the market. as per Euromonitor 2013 Retail market split India Retail sales (US$ bn) 700 642 650 600 12% CAGR 550 Pharmacy 2% 578 463 450 Furniture and Others furnishing Footware 6% 2% 1% Consumer durables and IT 6% 519 500 400 Exhibit 83: Indian retail market is dominated by food & groceries. Exhibit 82: Indian retail market is likely to grow at 12% CAGR to c.527 1. Lack of adequate infrastructure.8% of GDP by FY30E Indian Retail and e‐tail in 2030 GDP $11. However. Euromonitor. Goldman Sachs Global Investment Research 2017 2018 Source: ASSOCHAM.0 13.350 1. 2015 India: Technology: Internet Exhibit 80: We estimate the Indian e-tail market in FY30E to be larger than the size of the China market today but smaller than the US Population (mn) Wireless subscribers (mn) Penetration (%) Data subscribers (mn) Penetration (%) Online shoppers (mn) As % of online users Penetration (%) Average transaction value (Rs) GMV per transaction (Rs mn) No of transactions per annum Annual GMV (Rs bn) India FY15 India 2030E China 2014 US 2014 1.227 91% 604 45% 302 50% 22% 320 328 103% 254 79% 191 75% 60% $7 $220 $135 $240 Annual GMV (US$ bn) Exhibit 81: We estimate the Indian e-tail market to grow to 1. is likely to grow at 12% CAGR till FY18.341 3. the retail industry is highly fragmented in India with organized retail accounting for less than 10% of the market as of 2014.228 1. 49 .268 932 73% 244 19% 49 20% 4% 1.7 416 1.US$415bn in size (FY14).813 $220 15% 2% Retail $2.047 8. Source: Goldman Sachs Global Investment Research.033 17% Note: GDP forecasts are from our Global Macro Research team Source: CNNIN. Goldman Sachs Global Investment Research.812 230 4. followed by apparel Jewellery 6% 415 370 Apparel 8% 350 300 Food & grocery 69% 250 2013 2014 2015 2016 Source: Euromonitor.196 78% 1. India Brand Equity Foundation (IBEF). as per Euromonitor. Indian retail market at US$415bn in FY14: The Indian retail industry which is estimated at c.950 Offline retail e‐tail $1. high rental expenses. US$640bn by FY18.086 71% 380 35% 25% 4. fragmented supply chain are some of the primary reasons for the low penetration of organized retail. as per the India consumer and retail team.May 4. 0% 3. marketing. we estimate that the e-tail industry will need at least US$20bn of incremental cash infusion to deliver sustainable growth before it reaches steady state in FY20E.0% 2. Exhibit 86: Currently.0% 100% 80% 12.0% 65% 60% 40% 20% 0% Vendors Discounts Marketing & Technology Promotions Logistics Warehousing Packaging Loss Source: Goldman Sachs Global Investment Research.May 4.0% 8. Based on our etailing market forecasts and assumptions of the e-tailing transactions becoming profitable only after the next five years (FY20E onwards) vs. E-tail industry needs US$20bn of incremental capital in next 5 years At present.0% 3.0% 7. a loss of 35% currently. As such.0% 5. driven by high discounting and promotions Current e‐tailer revenue split 160% 140% 120% 30. We believe this is likely to continue till the online shopping penetration reaches a steady state in about 5 years from now. Jewellery 10% Pharmacy 4% Source: ASSOCHAM. the Indian e-tailer on average incurs 1. companies are incurring almost 1. free shipping and handling.0% Payment Gateways Others 35. we estimate that e-tailers are likely to continue their cash burn to keep their growth intact while slowly working towards lowering and eventually eliminating aggressive consumer incentives. cash incentives and various other incentives that e-tailers give to attract consumers. This is due to the heavy discounting. 2015 India: Technology: Internet Exhibit 84: Organized retail market in India is less than 10% of the total Exhibit 85: Organized retail is more focused and is evenly spread across categories 2013 Organized Retail market split 2013 Retail market split Food & grocery 3% Organized 8% Others 9% Apparel 19% Footwear 27% Unorganized 92% Consumer durables and IT 20% Furniture and furnishing 8% Source: ASSOCHAM. IBEF. IBEF.35X of their GMV as expenses.35X of the GMV sold as expenses suggesting gross losses of 35%. Goldman Sachs Global Investment Research 50 . Goldman Sachs Global Investment Research.3 $15 $4.0% 2.4 $1. Exhibit 88: E-tailers’ steady state margins will be reached in 5-6 years’ time provided execution is reasonable Steady state e‐tailer revenue split 100% 3.0% 6.0% 90% 2.0% 7. 2015 India: Technology: Internet Exhibit 87: We estimate that US$20bn of incremental cash burn is needed to sustain GMV growth to US$47bn by FY20E E‐tailing: Incremental annual funding needed (US$ bn) $25 $20 $2.7 $10 $4.May 4.9 $0 2015E 2016E 2017E 2018E Source: Company data (Flipkart.0% 80% 10.0 $5 $2.0% 2. Goldman Sachs Global Investment Research 51 . Snapdeal. Amazon).0% Packaging Others 3.0% 70% 65% 60% 50% 40% Vendors Marketing & Promotions Technology Logistics Warehousing Payment Gateways Margin Source: Goldman Sachs Global Investment Research.5 $20 2019E 2020E FY15E‐FY20E $4. 0 16.0 10.000 village councils by 2016 combined with the permeation of digital wallets to the masses in India is likely to drive growth in online rail travel penetration. is highly fragmented in India.5 16.2 OTA airline market Source: PhoCusWright. the Indian OTA 4T market is dominated by airlines which contribute 55% of the total revenues. we expect the airline contribution to OTA market to decline to 40% by FY30E.0 40. it is one of the least online penetrated markets among the travel categories with 17% penetration in FY14. As a result.8 79.0 71. a CAGR of 12% over 15 years. in our view.5 12.1 56. With Indian OTAs like Makemytrip.0 41% 42% 43% 40% 30. we estimate the online rail market to increase from US$3. a CAGR of 8% over 15 years. largely linked to GDP growth in India. 4T Online hotel market to reach US$4. the hotel market. 2) higher online penetration among the target passenger segment.5 Online penetration (%) 45% 35.6bn by 2030E: Although railways is under state control and is the dominant source of transportation for the masses in India. However. Source: PhoCusWright.May 4. Exhibit 89: We estimate OTA penetration to reach c.0 40.7 20% 35% 20% 34% 22.0 23. 2015 India: Technology: Internet TAM# 2: Online travel market to reach US$40bn by FY30E Online travel market to reach US$40bn by 2030E: We estimate the online travel agency 4T 4T (OTA) market to grow nearly 5X to US$40bn by FY30 from US$8bn in FY14 implying 11% CAGR.6bn by FY30E.0 18.6bn by 2030E: The other big piece of the travel 4T 4T market pie.4 22.1bn in FY15 to US$16bn by FY30E.9 14.0 FY14 Hotel market OTA hotel market 40% 30. the online market is not as big due to the low level of internet penetration compounded by the limited access to online payment options for the average Indian traveler. Goldman Sachs Global Investment Research.4 40.0 49% 70. Yatra etc.1 16.0 India FY15E 8.3 44% 31. As such.8 40.7 41% 50% 20% 43% FY30E FY25E FY20E FY19E FY18E FY17E FY16E FY15E Online penetration (%) Total travel market 0.7 28. we believe that the Indian government’s ‘Digital India’ initiative to provide broadband access to 250. we estimate the online air travel market to increase from US$5.50% by FY30E Total online travel market (US$ bn) Exhibit 90: India’s OTA penetration in FY30E to be higher than where China/US are today US$ bn Total travel market (US$ bn) Online penetration (%) [RHS] Airline market 79.5 10.4 25.3 132.6 6. and 2) 9% CAGR in the travel market from US$22.2 136.0 India China US FY30E 2014 2014 10.5 13.5 9.2bn in FY15 to US$18. we Goldman Sachs Global Investment Research 52 .2 55% 90. Goldman Sachs Global Investment Research.1 29. 4T Online air ticketing business to reach US$16bn by 2030E: At present.9 4.5 50% 80.5 116.2 318.1 45. By FY30E. as online penetration improves in other travel categories. However. Online railway bookings to reach US$18. As such.0 60. Further.0 34. we believe online penetration for the hotel market is likely to pick up in the medium term.0 50.8 20. beginning to aggregate hotels and roll out real-time online hotel reservation systems.1 51% 55% 28% 54% 4. most hotel operators in India do not have the necessary systems in place to take an online reservation.9 132.4 35% 30% OTA market Online penetration (%) 0. The growth is likely to be driven by: 1) the shift of travel ticketing from offline to online with online travel penetration growing from 41% in FY15 to 50% by FY30E. This is despite relatively low airline passenger traffic growth in India and can be attributed to: 1) higher average ticket size. and 3) relatively low fragmentation of the airline industry in India.8bn in FY15 to US$80bn by FY30E.0 20.1 45% 46% 50% 62.1 9.2 5. Hence. the Indian OTA market in FY30E would still be much smaller than the current US$137bn OTA market in the US but higher than the current US$23bn market in China.0 Hotel market (US$ bn) Online penetration (%) [RHS] FY15E Online air travel (US$ bn) Exhibit 92: We expect 25% hotel market penetration by FY20E and 35% by FY30E Source: PhoCusWright.7 0.9 8.0 FY30E FY25E FY20E FY19E FY18E FY17E FY16E 5.6 3.0 11.4bn by 2030E: The car rental market is highly 4T fragmented in India.2 0.0 54% 29.5 45% 40% FY15E 4. by FY30E. most car operators in India do not have the necessary systems in place to take an online reservation or payment.2 13.1 7.0 12.8 1. Meru which are rolling out real-time online car hailing or reservation systems. We expect this to improve to 55% by FY30E Online Hotels (US$ bn) Air travel market (US$ bn) Online penetration (%) [RHS] 4. Carzonrent. Orix.5 6.7 30% FY14 10.5 23% 22% 4.1 2.6 6.0 13.1 8. we estimate the online car rental market to reach US$1. Goldman Sachs Global Investment Research.May 4.4 Source: PhoCusWright.2 55% 23. Exhibit 91: Online air travel penetration is already at 50% in India. 4 Exhibit 94: Rail is likely to overtake airlines as the largest market in OTA Exhibit 93: Airlines currently dominate the OTA market in India primarily due to the higher ticket size OTA market mix OTA market mix in FY30E 6T 6T FY15E FY30E Hotels 11% Rail 34% Car rental 3% Rail 46% Airline 55% Hotels 10% Airline 40% Car rental 1% Source: Goldman Sachs Global Investment Research.0 60% FY25E 35.0 9.9 1. Comparison to US and China: At US$40bn.0 FY16E 30.0 5.8 21% 35% 45% 0% FY30E 5. Online car rental market to reach US$1.6 5% 0. Further.3 25% 20% 4.0 24% 6.0 8.0 FY20E 15. multiple car rentals or taxi hailing companies have emerged such as Olacabs. 40% 35% 15% 10% 1.5 16.4bn growing at a CAGR of 18%.6bn. Goldman Sachs Global Investment Research. The significant differential in per capita income between India and US/China partly explains the relatively small size of the Indian market.6 10.0 FY14 20% 17% 4.3 16.8 12. 2015 India: Technology: Internet estimate the online penetration in hotels to reach 35% with online hotel market reaching US$4. Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research. Uber.0 20.1 10.9 10.0 55% 13.1 55% FY19E 51% 53% 55% FY18E 50% 52% 55% FY17E 25.0 50% 6.1 5.1 5.0 0.2 1.0 14. 53 . However.0 1.3 14.0 30% 25% 7. Source: Statista. Indian consumer companies (including banks) are increasingly looking to take advantage of this phenomenon and beginning to engage consumers by building communities and platforms on social media to highlight their brands. social networking activity accounts for the greatest share of time (25% of total time) spent online by Indians.0% 95. social media engagement by Indian firms is not too focused on generating leads for sales as much as it is used for highlighting brands and/or building communities. with messaging platforms among the most popular means of communication.0% 43% 0% 10% 20% 30% 40% 50% Source: EY Social Media Marketing India trends study 2014 54 .2% Source: EY Social Media Marketing India trends study 2014 Goldman Sachs Global Investment Research 6%‐10% marketing on social media 48% 1%‐5% marketing on social media 38.1% 50.9% 11%‐15% marketing on social media 5% Platform to highlight brand Research 0. we believe this is likely to change as online consumerism evolves and digital payments become seamless. we believe social media advertising is likely to emerge as a strong growth engine for digital advertising in India. However. Hence.9% 16%‐20% marketing on social media 5% Customer services 42. Exhibit 97: Indian companies are currently looking to build brands than generate leads (2014) Exhibit 98: Even social media-savvy firms are not spending much on social advertising yet (2014) Social media engagement by Indian companies Build community/advocates Social media budgets of social media‐savvy organizations 20%+ marketing on social media 76.0% 12% 100. Exhibit 96: Messaging services are among the most popular services in India (2014) Exhibit 95: Social networking dominates share of minutes spent online in India (2013) Penetration in India Share of minutes spent online Services 23% Other 35% Viber 4% Pinterest 4% LinkedIn 5% WeChat 5% Twitter 6% Google+ News 3% Retail 3% Entertainment Social networking 25% 7% Skype 8% FB 8% FB messenger 9% Whatsapp 11% 0% 11% 2% 4% 6% 8% 10% Source: comScore. 2015 India: Technology: Internet TAM# 3: Digital ad market to reach US$15bn by FY30E Social networks are likely to drive online ad-revenues in India According to comScore.2% 0% Generate leads 42. as per EY Social Media Marketing: India Trends study 2014. Currently.May 4. 26% in the US (as per Magna Global) in 2014. 2015 India: Technology: Internet Exhibit 99: Social network in India dominated by US based companies like Facebook. As in markets across the globe. as of 2014 6T US Facebook LinkedIn Twitter Tumblr 2001 ‐ 1. led by search (30%) and display (23%) Exhibit 101: Digital ad market to grow at 26% CAGR till FY30E driven by offline to online shift FY14 Email $14 3% Total online ad spend US$ mn Video $54 12% Online ad as % of total [RHS] US$ mn 13% CAGR 14. LinkedIn.219 $1. Goldman Sachs Global Investment Research. IAMAI. As such. Exhibit 100: Digital ad market in India is currently at c.043 36% CAGR 6. IAMAI. Company data.000 Goldman Sachs Global Investment Research 20% 15% 7% 8% 452 596 2.) internet is fast turning into the medium of choice for consumers. Twitter. We believe these companies are likely to benefit as more Indians gain access to internet and adopt internet commerce. plays.000 30% 24% CAGR 10. India is also witnessing the trend of internet battling with print and television media for eyeball share. Goldman Sachs Global Investment Research. Significant shift to online advertising to drive US$15bn spend Although social networking dominates the Indian online activity landscape.US$450mn. 55 . there are very few Indian origin social networks of scale. movies. with rising internet penetration and changing patterns of content consumption (news.000 Search $136 30% Social Media $81 18% Mobile $63 14% 16. Currently. the trend in India is not as profound as in other markets with digital ads accounting for only 7%-8% of total advertising spend vs.000 Source: IMRB International.000 0 15.189 2003 347 ‐ 2004 ‐ 284 2007 420 ‐ 2010 ‐ 300 $12.000 Display $104 23% 37% 10% 8. However. the Indian social scene is dominated by the likes of Facebook.May 4. Hike is the only Indian social network with decent scale Competitive landscape for social networking sites. However. the demand for advertising in the digital channel keeps rising at a solid pace resulting in 25% CAGR in digital ad spend to Rs28bn in FY14 from Rs17bn in FY12. GigaOm.000 12.403 ‐ ‐ Usage Founded Registered users (mn) Monthly active users (mn) Monetization 2014 Revenue ($mn) Use cases Public Private message Photo Video News Predominant Instagram Pinterest RenRen Weibo Kakao* 2010 70 ‐ 2006 219 44 2009 600 ‐ 2010 150 ‐ ‐ $83 $334 $203 Available Asia Pengyou WeChat Hike 2010 260 ‐ 2011 ‐ 438 2012 35 ‐ ‐ ‐ ‐ Europe/Russia VK WhatsApp* 2006 280 ‐ 2009 ‐ 700 $10 Not available * denotes 2013 revenue ($ mn) Source: The Wall Street Journal.467 $2. 40% 35% 31% 8. music etc.093 5% 0% FY25E FY30E Source: IMRB International.767 FY14 FY15E FY20E 2.000 25% 19% 4. EY. Twitter etc. TechCrunch. the global online ad spend stands at 23% currently and is expected to go up to 36% over the next five years.177 8% 37% Source: IMRB International.256 15% Social Media $4.6bn by FY30E) and social media advertising (US$4. Exhibit 102: Indian digital ad market to reach US$20bn or 50% of total market by FY30E India digital advertisement market (US$ mn) Split of digital ad market by revenue 6T US$ mn Search Display Mobile Social Media Email Video Total online ad spend Growth rate (%) Total ad spend Online ad as % of total FY14 $136 $104 $63 $81 $14 $54 452 9% 6.May 4.513 30% Search $2. We believe this will be driven by mobile advertising (US$4. Comparison to global ad-spend penetration: As per our US team.5bn) and the shift from offline to online advertising.663 $4. We forecast digital ad spend market to grow to US$15bn by FY30E from c. (2) Mobile and social media to garner highest share: We forecast mobile and social media to garner almost 61% of the overall online ad-spend in India as of FY30E as we believe that these media are going to be a lot more relevant and effective against the backdrop of increasing data penetration in India.767 36% 14.US$0.468 11% 31% FY30E $2.093 24% 26. Goldman Sachs Global Investment Research.753 14% 19% 6T FY25E $1.509 $2.214 $607 $2. by FY30E.043 13% 40.663 31% Source: Goldman Sachs Global Investment Research.428 $121 $1. we estimate 37% of advertising spend to be directed towards digital channels from 7% currently. We also assume a similar online ad-spend penetration in India by FY30E.128 $4.513 $226 $2.350 16% 8% FY20E $415 $208 $858 $830 $42 $415 2.317 2% 7% FY15E $161 $110 $107 $125 $15 $77 596 32% 7. social media and improvement in internet speeds are resulting in ad spend shift towards these media. 56 . in line with the nominal GDP growth as per our Global Macro Research team.256 $1.5bn now. Key assumptions for our long-term estimates for ad-tech market are: (1) Overall and online ad spend market in India: We forecast the overall ad-spend market in India to reach US$40bn by FY30E assuming a CAGR of 12%. 2015 India: Technology: Internet Within the digital ad market.214 8.256 15% Display $1.256 15. IAMAI. However. Further. Goldman Sachs Global Investment Research Exhibit 103: Mobile to be the largest segment in digital ad world by FY30E FY30E US$ mn Email $226 1% Video $2. the growing relevance of mobile internet. search currently dominates with 30% of revenue followed by display at 23% in FY14.128 8% Mobile $4. Mobiqwik. Kotak Mahindra Bank) and peer to peer money transfers (such as ICICI Pockets. social network banking (such as ICICI Bank.5% currently to 0. the electronic payments market is set for rapid expansion in India. 2015 India: Technology: Internet TAM# 4: Electronic payments market to reach US$5bn by FY30E This section includes the views of our India financials team of Tabassum Inamdar and Shyam Srinivasan Confluence of banking and technology evolving payments landscape With multiple companies emerging in the payments landscape bringing in disruptive changes.5% in FY15E as the ecommerce market in India grows at 23% CAGR over FY15E-FY30E to US$282bn. Indian government’s initiative to extend banking facilities to its previously unbanked citizens through the ‘Jan Dhan Yojna’ scheme has added significant number of debit cards (over 110mn) thereby providing these customers access to electronic payments. HDFC Chillr) are all aiding in enhancing electronic access to funds. Further. mswipe). just 8% in FY15E.May 4. (3) Share of modes of payments: We assume share of CoD in e-commerce transactions will go down from 60% in FY15E to 45%/35% by FY20E/FY30E and will be taken up by credit/debit cards and emergence of mobile wallets and/or payment banks which will garner 25% of e-commerce transactions by FY30E vs. HDFC). only US$50bn of annualized transactions go through the point of sale mode (credit/debit cards) but it has been growing rapidly at 28% CAGR in the past five years. Freecharge. US$5bn market from payments processing by 2030E We estimate the overall payments market in India to grow from just US$80mn in FY15E to US$5bn by FY30E at a CAGR of 23% largely driven by migration of offline retail to: (1) ecommerce as data penetration improves in India and (2) electronic modes of payments such as credit/debit cards. as of Dec 2014. the launch of electronic wallets (such as Paytm. and 3) increased velocity of transactions due to ease of payments via electronic channels. Also. suggesting increasing adoption of electronic mode of payments in India. As per RBI. 1. in line with global trends. in our view. 2) shift of online transactions from cash-on-delivery to an electronic payment system (wallets). (4) Blended commissions on e-payments: We believe that the overall commissions in the e-payments will continue to shrink from a blended 1. Key assumptions for our long-term estimates for payments market are: (1) Overall point of sales: We forecast the overall point of sales to grow from US$51bn in FY15E to US$153bn by FY20E (25% CAGR) and US$510bn by FY30E (16% CAGR) largely driven by increased adoption of electronic payment mechanisms and increasing penetration of e-commerce transactions.82% by FY30E. We believe this will be driven by: 1) shift of offline commerce to online. (2) Online point of sales: We forecast e-commerce transaction through online POS to become 12%/17% of overall POS transactions in FY20E/FY30E vs. mobile POS (point of sales) machines (such as ezetap. Goldman Sachs Global Investment Research 57 . mobile wallets and net banking. 02 1.2% 11. Exhibit 106: Interchange fee in India relatively higher than in China Exhibit 107: Electronic payments set to pick up.3% 2025E 2.42 0.0% 26% 30% 10.9% 2014 1.0% 3. revenue for payments industry to reach US$3.50 0.8% 14.5% Total payment: 13% Online payment: 23% Offline electronic payment:11% 4.66 0.18 40% 0. Goldman Sachs Global Investment Research.83 2015E 0.4 80% 1.6 0.0% 0% 40% 16% 2% 18.5% Credit card Offline electronic Payments revenue (US$ bn) Debit card 6.4bn by FY30E Interchange fees on card transactions (2014) Break up of offline vs.18 0.0% Net Banking Credit Cards China 10% 3.7% 0.25 13% 12% 20% 25% 17% 17% 13%13%15% 11% 10% 10%10% 20% 10% 15% 8% 1%1%1% Source: RBI.08 2030E 40% 33% 0.50 2020E 0. Goldman Sachs Global Investment Research 2030E 2025E 2020E 2019E 2018E 2017E 2016E 0% 2015E 35% 19% 0.2% 1.33 0.4% 6.0% 1% EMI/3rd party wallets 1% 12% Debit Cards 66% Cash as % of GDP 17.52 0. online payments revenues Interchange fees (%) 3.5% 1. Source: Company data (Flipkart.0% 1.4 2020E 57% 60% 49% 0.62 0.2 100% 60% 0% COD Credit Cards Debit Cards Net Banking EMI / Others Wallets Source: Goldman Sachs Global Investment Research.80 2019E 0.0% 1.12 0.07 5.5% 1.7% 8.25 2.9%0.90 1.5% 1. Amazon).7% 2.0% 12.04 0.4% 11.0 Revenue CAGR (2015‐2030) 2.0% 20% 40% 60% 80% Source: Respective Central Banks.0 5.4% 6.May 4.5% Online Payments revenue (US$ bn) 3.0 2014 45% 30% 0.0 2.7% 0. Source: Respective Central Banks.39 1.0% 8.33 0. Goldman Sachs Global Investment Research. Goldman Sachs Global Investment Research.0%3.57 2018E 0. Snapdeal.3%0.5% 1.7% 3.8% 13.9% 1.0% 11.86 1.9% 2.0% 7.92 2030E 2.6 50% 1.0 1. 2015 India: Technology: Internet Exhibit 104: India has disproportionately large number of e-commerce transactions settled in cash Exhibit 105: High incidence of cash usage in India is a possible reason for higher proportion of cash on delivery e-commerce transactions payment distribution (2013) Cash as % of GDP (2013) 6T 20.0 0.0 0.0 0.81 3.70 0.24 1.30 2017E 0.8 1.0% 3.0% 8% 0.08 1.0% India 18% 12% Cash on delivery US 16. Exhibit 108: E-commerce driven payment revenue to grow at 23% CAGR till FY30E to US$1.0 2016E 0.12 1.0% 1.3%2.3% 2.62 1.8% 4.8 26% 0.5% 0.58 0.0% Source: Respective Central Banks.06 0.0% 60% 0% 3.42 0.6bn… Exhibit 109: …driven primarily by shift of e-commerce payments from COD to wallets Online payment revenues in US$bn e-commerce transactions payment distribution 6T Online Payments revenue (US$ bn) 6T Growth (%) [RHS] 2015E 1. 58 .0% 0.7% 7.92 43% 0.5% 2.45 2.2 40% 62% 1. 2015 India: Technology: Internet India’s increasing importance for global firms India’s increasing importance for global firms Goldman Sachs Global Investment Research 59 .May 4. which has now become an extremely prominent and critical part of Alibaba’s ecosystem. This is the model adopted by King. To monetize the vast SME customer base. Further. This idea originated and evolved in China for a long time and then spread to the rest of the world. Alibaba now has a widespread presence today: e-commerce.com and Candy Crush wherein players pay for virtual items to improve their standing in a game. social network. Alibaba then realized that the only way to get more customers to transact on its platform was to have escrow accounts for payments until the customer was happy with the products. Alibaba has resorted to advertising. internet finance. 2015 India: Technology: Internet Evolution of unique business models and internet giants in China The rapid and substantial internet infrastructure build out in China led by telecom giants such as China Mobile led to a significant rise in internet penetration. maps and logistics. 2015 Rise and rise of Alibaba: Alibaba. Further. creating a differentiated model vs US e-commerce companies such as Amazon which has not tried to monetize search. has led to the rise of local internet giants which look to fill this gap. Virtual identity or status is very important for the Chinese consumer and Chinese online gaming companies capitalized on this trait. We think this sticky user base and the ability to control the user experience is what made Tencent so dominant on the mobile platform in China. they would be able to maintain their dominance on their customer base. such as Google. This section is sourced from GS Fortnightly thoughts Issue 87 dated April 6. a pattern now being adopted around the world. grew to displace eBay in China by starting a free C2C proposition that appealed to small merchants. The ban on consoles pushed gaming online and the need to monetize online gaming led to what is now called the “freemium” model. Deeper monetization through vertical focus: Many Chinese internet companies have been innovative in adapting their business models and coming up with alternative monetization techniques by moving into more verticals rather than focusing on horizontal expansion making them quite different from US internet companies. which originally began as a search engine in the ecommerce space. This has resulted in Chinese internet companies developing much deeper monetization models and far richer content. and came at a time when younger internet users preferred the less formal messaging tool to the relatively more formal email. Being the single most prominent messaging app in China allows Tencent to always stay in touch with its users. the competitive advantage of the Chinese companies has evolved such that in the event that they have to compete with US firms. Its free QQ messaging platform was quite early to move from the consumer market to the enterprise space.Messaging its way to success: Tencent started as a communications company with a messaging service for PCs. Tencent . When the QQ customer base assumed significant mass. Birth of the “Freemium” model: China has been extremely innovative in the gaming industry aided in part by the Chinese government due to its ban on gaming consoles. a key driver of the internet market seen in recent years. Goldman Sachs Global Investment Research 60 . Tencent messaging dominance went mobile leading to social and messaging products years before the likes of Facebook added messaging to their platforms. lack of a significant presence of global internet giants in China. mobile browser. As a result.May 4. Tencent leveraged the platform to enter the online games segment and has eventually become the pre-eminent gaming platform in the world. And that’s the genesis of Alipay. and Ikuo Matsuhashi The impending rise of internet penetration in India and the rapid strides made by the ecommerce industry has caught the attention of most of the major global internet companies including Google. 2015 India: Technology: Internet India coming to the fore for global majors This section includes the views of our global analysts – Heather Bellini. Gartner. Facebook. Amazon. the Asian companies such as Samsung. Exhibit 110: India emerging as a key market for global companies Global companies’ website positioning (latest rank) in India in the past 3 months T Note: Size of bubble represents unique visitors from India for global websites * For Samsung. Alibaba. Xiaomi. dominated by users under the age of 35 years. Size of bubble represents smartphones shipments in India in 4Q2014. Xiaomi and other Chinese companies would be looking for the bigger pie of smartphone market in India. Tencent. and Softbank are finding ways to grab a slice of the pie. and Alibaba.May 4. While US giants such as Google. Bill Shope. handset makers such as Samsung. Facebook and Twitter may want to tap the ad revenue market as well as online payments market. Apple and Xiaomi. Y-Axis = Market share of smartphones in India in 4Q2014. Goldman Sachs Global Investment Research. along with handset makers such as Samsung. Goldman Sachs Global Investment Research 61 . While Google. Twitter. Marcus Shin. comScore. Facebook. Apple. and Amazon are already making inroads and count India as their second largest market by user base. India is set to become the target for these global majors with its potentially large internet population. Apple. Xiaomi and Apple: X-Axis = market positioning in India based on smartphone shipments in 4Q2014. With higher entry barriers in China for foreign companies and several domestic internet firms emerging in the past decade such as Alibaba. Source: Alexa. Heath Terry. 9% 2. in our view.May 4.6% 8.8% 30% 24% 24.6% 5% Furniture ‐71% Japan Brazil 3. Goldman Sachs Global Investment Research. Exhibit 113: Google’s market share gains in global online advertising are likely to be affected with competition and advertising shift towards mobile and social Exhibit 114: Paid clicks growth decelerated in 2014. the global market leader in the US$142bn digital advertising market (2014) gets over 10% of visitors from India.1% 35% 34.3% 0.4% 43.0% 0. Source: Company data.1% 11.1% 38. At present.0% 29. Exhibit 112: Prices for adwords in India are a fraction of those in the US (2014) Exhibit 111: About 10% of Google’s global visitors are from India Size of bubble represents internet users in the country (2014) 6T 45% Restaurants ‐55% USA 35% % of Global Visitors Discount on CPC rates for keywords in India vs. Goldman Sachs Global Investment Research 6% ‐4% ‐2% 0% ‐6% ‐12% ‐6% ‐6% ‐8% ‐4% ‐3% ‐7% ‐9% ‐11% 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 ‐8% ‐12% Source: Company data.1% 11. 2015 India: Technology: Internet Google: Multi-pronged opportunities across verticals in India Digital ad revenue opportunity to rise in coming years Google.5% 25% 10% Google (yoy growth) 36% Twitter 10.0% 42. while CPC continues its decline from 2013 Global advertising revenues market share 45% Google Facebook 40% 42. Google charges for ad words in India are a fraction of those charged in the US (Exhibit 68).5% 1. In most of the popular keywords.3% 0. US Google Visitors 40% Movies ‐90% 35.3% 37. the need for digital advertising is going to rise as well.9% 5.0% 42. As India’s online penetration and e-commerce rise significantly in the next few years.8% Cars ‐77% 0% ‐5% 0 1 2 3 4 Rank in the Country 5 Apartments 18% Airline tickets ‐78% 6 ‐120% ‐100% ‐80% ‐60% ‐40% ‐20% 0% 20% 40% Source: Alexa.2% 2.3% 0. Hence.9% Mobile ‐98% 30% Insurance ‐95% 25% Hotels ‐65% 20% Games ‐68% 15% India 10% 9.3% 30% 15% 18% 23% Paid clicks 26% 31% 12% Cost per click [RHS] 26% 25% 8% 17% 14% 20% 4% 13% 0% 12% 18. Google cost per click (CPC) rates in India are on average 75% lesser than that in US.1% 36.8% 3.0% Iran 2.7% 4.7% 41.5% 0.5% 2. 62 .9% 1. second only to the US (source: Alexa).9% 20% 5% 41. MAGNA Global. online traffic and CPC rates for ad words may rise in India as currently about 35%40% of traffic for some of the large internet portals in India is driven by Google.2% 0% Source: Company data. local content and tie up with local handset distributors such as Spice and Karbonn.5x 1. android OS. Further. We believe that Google is well positioned in the Indian context given that: 1) majority of Indian smartphones run Google’s Android operating system. Korea Taiwan 6 Mexico UK 7 Turkey France 8 Indonesia Hong Kong 9 Germany Australia 10 Thailand Russia Micromax Karbonn Spice Company smartphone market share 13% 11% 5% Model Price (Rs) Canvas A1 Sparkle V Dream UNO 7.7x 10 2.5x Google India Mobile app revenue by country 35 300 Rs bn Revenue (Rs bn) 30 250 25 200 70% 60% 21 47% 150 100 15 3.2x 50 3. To counter this trend.May 4. Ministry of Corporate Affairs.2x 8. 80% CAGR: 41% 20 1.999 6. AppAnnie. Exhibit 117: Revenue from mobile apps is likely to grow 8.8x 90% YoY (%) [RHS]31 79% 10% 9% 0% 0 FY10 FY11 FY12 FY13 FY14 Source: Registrar of Companies. Android One.7x 8 5 Brazil Russia India Canada France S. but revenue lags P P Exhibit 116: Android One phones launched in India with some of the top Indian smartphone distributors P Company Google Play top 10 countries in 2014 Rank Downloads Revenue 1 US Japan 2 Brazil US 3 India S. Source: Company data. 2015 India: Technology: Internet Google Play and Android One are other opportunities With digital advertising shifting away from desktop towards mobile. Korea Germany UK Japan US Goldman Sachs Global Investment Research 50% 40% 12 36% 30% 9 20% 3. Gartner.2x 0 Source: IDC.7X by 2017 from 2013 Exhibit 118: Google India’s revenue crosses US$0.5x 3x 2.990 7.499 Note: Market share of companies based on smartphone shipments into India in 4Q2014 Source: AppAnnie.5bn in FY14 Google India revenues 6T Indexed mobile app revenue 400 350 3. Google may look to improve monetization from the mobile ecosystem. and 2) India is already the 3rd largest market for apps download via Google Play (source: AppAnnie). 63 . Google’s Android One project has started well in the country in the past one year and may pose a challenge to the cheap and crowded smartphone market in India due to its value proposition of low price. our US technology research team expects Google’s market share gains of the past decade to marginally reverse as competition from the likes of Facebook and Twitter intensifies. P Exhibit 115: India is the 3rd largest in terms of app downloads via Google Play. Korea 4 Russia Germany 5 S. analyze and optimize an app's performance 43rd by Facebook. according to eMarketer P Size of bubble represents internet users in the country 6T Facebook (FB) users 6T 35% Facebook visitors India FB mobile users (mn) 225 30% USA % of Global Visitors 25% 211 13. as per our US tech research team Exhibit 122: FB demonstrated that its open to acquisitions in India with its purchase of Little Eye Labs in 2014 Facebook's India acquisition Global advertising market (US$ bn) $250 US$ bn Desktop Mobile $200 $150 $100 $50 $2 $60 $3 $72 $4 $82 $9 $17 $30 $46 $65 $85 $105 Who? When? What? Acquisition # How much? Little Eye Labs Feb. 2014). According to eMarketer.5% 0% 0 1 ‐5% 100 Brazil UK 78 4.7% 175 20% 150 15% India 10% 125 8. Exhibit 121: Global online advertising shift towards mobile is favorable to FB. 2014 Tool to measure. All these factors put together suggest that India is likely to become a sizable market for Facebook in the medium to long term.0% 58 50 5.6% 5% 3. Goldman Sachs Global Investment Research.5% Germany 3. the trend of digital advertising shift towards mobile is only likely to gain traction. 1st in India approx.0% 2013 Rank in the Country 2014 2015 2016 2017 2018 Source: Alexa. Goldman Sachs Global Investment Research.3% 2 75 3 4 81 7.0% 109 102 8% India FB users (mn) 200 24. 64 . News articles (including The Economic Times dated Jan 8. Goldman Sachs Global Investment Research Source: Company data. Exhibit 119: Facebook is the 3rd ranked website in India. India is set to overtake US as the largest mobile user base for Facebook by 2017 suggesting robust penetration of the FB platform into the Indian internet user community.May 4. Further. Source: eMarketer.0% 146 10% 136 9% 124 9. $15mn $132 $112 $117 $123 $128 $93 $104 $0 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E Source: MAGNA Global. 2015 India: Technology: Internet Facebook: India set to become the largest subscriber base globally Largest subscriber base offers a big revenue opportunity Facebook (along with its subsidiary WhatsApp) has been the social network of choice in India as evidenced by the number of users and web traffic ranking by Alexa.0% Indians as % of mobile FB users [RHS] 13% 185 12% 168 162 11% 11. which contributes 9% of its user traffic (2014) P Exhibit 120: India set to overtake US as the largest mobile user base for Facebook by 2017. As India’s online penetration and e-commerce rise significantly in the next few years.741 1.000 10.865 6.0 5.4 2.000 15.000 US$ mn 2014 8.396 49% 1.8 ROW 1.0% 2.0% 0 1.695 55% 3.958 80% 70% Europe Source: Company data.1 Asia‐Pac Europe US & Canada Worldwide Source: Company data.374 921 59% 3.000 1. As such.0 60% 30% 974 Asia‐Pac 90% 40% 0 ROW 70% 60% 5.May 4.0% 19.0% 29.173 3. Asia-Pac ARPU still among the lowest worldwide ARPU (2014) Ad revenue 2013 6.0 0.0% S.5% 20 0 India Indonesia Japan YoY (%) [RHS] 80% US$ mn 5. in our view.0 20% US$ 7. Keeping that metric in mind.0% % of total 160 2013 7. 65 .831 50% 40% 30% 2. Exhibit 125: Revenue growth was driven primarily by ads Exhibit 126: However.0 50% 4. Source: Company data.0 0% 0.0% 1.0 YoY (%) [RHS] 79% 5. eMarketer. Goldman Sachs Global Investment Research US & Canada 7.000 35. 2015 India: Technology: Internet India is a key geography in the underpenetrated Asian market Asia Pacific region contributed only 15% of Facebook’s 2014 global revenues even though its user base is as big as 28% of global users as of 4Q2014.000 1.6% 40 4.335 881 1.0% 3.000 2.000 20.285 5.Korea Australia Others 2014 2.1% 140 30.131 3.3% 40. Exhibit 123: More than 1/3rd of FB users in Asia-Pac region are from India P mn 180 Exhibit 124: Asia-Pac showed the most growth in revenue for Facebook in 2014 P Total Revenue Facebook users in Asia Pacific region (2014) Users (mn) 35.000 0.000 52% 3.000 67% 60% 4.9 3.063 10% 0% ROW Asia‐Pac Europe US & Canada Source: Company data.000 5. India’s contribution to the revenues may be disproportionately lower despite the large number of users in the country as the ad rates in India are much lower than developed markets.2 6.000 72% 4. the need for digital advertising is going to rise as well.0% 3.0 10% 1. Facebook may benefit form this trend in line with our US team’s views on increasing market share of FB in global digital advertising market.0 2.0% 120 25.5% 100 80 60 8.193 20% 1. 3% How much? 0. ZipDial is an innovative pull-based marketing tool that sends marketing information to users who give a ‘missed call’ to a pre-disclosed number through SMS. Clients Unilever. Goldman Sachs Global investment Research. Twitter has also set up a system “Twitter Samvad” (meaning Twitter dialogue) for Indian politicians and government agencies to send tweets to followers using SMS. Facebook.2% 0% 0 18% 20 India Spain 5% as % of social network users 2014 2015 2016 2017 2018 Source: Alexa. with eMarketer expecting Twitter users to grow to 19% of social network users in India by 2018 from 16% now. 2015). Disney.0% 0.4% ‐5% 5 15 19% 19% 17% 16% 40 28 14% 17 12 34 15% 14% 22 13% 5 12% 2013 Rank in the Country 20% 18% 16% 10 10 19% 17% 15 4. Exhibit 127: India is the 3rd largest source of traffic for Twitter globally P Exhibit 128: Twitter expected to reach 19% penetration of social network users in India by 2018 P Size of bubble represents internet users in the country (2014) Twitter users in India 6T 40% 6T Twitter visitors India Twitter users (mn) 35% % of Global Visitors 45 USA 30% 30. Goldman Sachs Global Investment Research. Exhibit 129: Our US tech research team estimates Twitter to capture 2% of ad market share globally by 2016E Exhibit 130: Twitter made its first acquisition in India in Jan 2015 Global advertising revenue market share Twitter acquired ZipDial of India in Jan 2015 6T 6T Twitter's India acquisition Twitter advertising market share (%) 2. 2015 'Missed call' marketing ‐ Customer calls and hangs up before he is charged. By sending tweets through SMS.9% 10% 8.0% 2012 2013 2014E 2015E 2016E Source: MAGNA global.5% 0. News articles (including LiveMint dated Jan 20. approx. Gillette.0% Who? When? What? ZipDial Jan. Twitter etc. Goldman Sachs Global Investment Research Source: Company data.0% UK 3. 2015 India: Technology: Internet Twitter: Picking up pace in India Twitter.5% 2.May 4. 66 . $30mn 1. Twitter is fast becoming a key news disseminating network in India with the government also actively using Twitter to disseminate information.0% 2.9% 0.5% 1. Source: eMarkerter. Company sends info to the 'caller'. Twitter expects to expand its reach to consumers who do not even have a data plan. is the other popular social networking platform in India.1% 40 25% 35 20% 30 15% 25 Japan 10.5% 0. although not at the scale of Facebook. Amazon. Twitter began to actively monetize its healthy user base in India with its recent purchase of ZipDial.3% 1. Ministry of Corporate Affairs.0 30.0 10.5 0.90x 1.0 40% Shopclues 30% 7. Exhibit 133: Amazon is the 2nd largest e-tailer in India by net revenues Exhibit 134: However.40x 2. setting up warehouses. 67 .0 2.Korea Canada 5.6% 1. Goldman Sachs Global investment Research.2 1.1 eBay 10% India S. Amazon CEO Jeff Bezos’ announcement in July 2014 that Amazon is looking to invest US$2bn in its India operations is an indication of the opportunity for growth that it sees in India. Source: comScore.60x 1.1 0. Ministry of Corporate Affairs.5 2. 2015 India: Technology: Internet Amazon: A giant with global expertise and balance sheet Amazon Seller Services Private Limited.5 0. Exhibit 132: Nearly 25mn unique users visit Amazon’s online store in India in a month Exhibit 131: Amazon is ranked among the Top 20 websites in India Size of bubble represents internet users in the country(2014) Unique visitors 6T 70% 6T Amazon visitors 60% Unique visitors in India (Oct 14) in mn USA Bookmyshow 4.40x 0.4 Amazon Rank in the Country 24.0 Source: Alexa.00x 1.7 1. Amazon in India has grown to be among the top 3 e-tail companies (in terms of GMV) along with Flipkart and Snapdeal.0 0.72x 1.5 2. Further.3% 10 ‐10% 20 21.20x 1.3% % of Global Visitors 50% Homeshop 18 6. if needed. However.8 1.0 15.2 3. Indian regulations prohibit foreign companies to sell multi-brand products directly to consumers in India.2 0.0 20.May 4.5 1.3 Myntra 20% 11.60x 3.8 1.0 5. launched its operations in India in June 2013 through the marketplace model. a 100% subsidiary of Amazon.2% China 3.80x 3.0 25.).76x 1.0 Flipkart Amazon Snapdeal Source: Registrar of Companies.80x 0.20x 0.7% 5. under the marketplace model. Goldman Sachs Global Investment Research eBay India Amazon Flipkart Snapdeal eBay India Source: Registrar of Companies. The rapid rise for Amazon could be attributed to its investments in establishing a merchant ecosystem.9 56.0 Flipkart 0% 0 12.00x 0.0 1.77x 0.00x Loss (Rs bn) 1. building out distribution and fulfillment network (through partnerships with India Post etc. its customer acquisition costs are the highest in India P P Net revenue and loss (Rs bn) Loss to net revenue ratio (FY14) 6T 6T Loss to revenue ratio (FY14) Large e‐tailers in India (FY14) Revenue (Rs bn) 3.6 1.0 Zovi 6.7 Snapdeal 30 40 22. Within a year of operations. Amazon also does fulfillment for merchants selling on its platform. The Economic Times).com in 2004 for about US$55mn (source: Business Standard).0 Revenue (Rs bn) YoY (%) 69% 0.8 70% 1.2 1. was one of the first global majors to start operations in India with the acquisition of Bazee.72x 1. News articles (including Business Standard.3% 2. Goldman Sachs Global investment Research. Further.60x 50% 20% 0.6% 20 40 60 80 China 2. 2014 S. 2011 54. Snapdeal and Amazon in terms of gross merchandize value (GMV) sold on its marketplace platform as well as revenue. This appears to be due to its less aggressive discounting stance as evidenced from its low loss ratio (loss/net revenue .77x 0.6% 100 120 Snapdeal Invested in US$60mn Series G funding round Apr.40x 40% 30% 1.00x eBay India Snapdeal Amazon Flipkart Source: Registrar of Companies. Source: Crunchbase. 68 .0 FY13 1.60x 0. 2013 Invested in US$75mn Series D funding round Reportedly invested US$50mn in US$134mn Series F funding round Feb.90x 1.4 80% 0.Korea 10% Comments ‐10% Rank in the Country Source: Alexa.00x FY14 Source: Registrar of Companies. a 100% subsidiary of eBay Inc.8% 50% % of Global Visitors Investment Date May. eBay also operates a marketplace only platform in India due to regulatory reasons. 2014 140 Acquired for US$55mn Invested in US$8mn Series D funding round Invested in US$32mn Series E funding round Invested in US$90mn Series F funding round Sep. eBay’s exposure to the Indian ecommerce opportunity extends beyond its own marketplace through its investments in Snapdeal (2nd largest e-tailing company in India) and Quikr (one of the biggest online classifieds company in India).. Exhibit 137: eBay India’s revenue growth healthy but on a declining trajectory as competition is rising Exhibit 138: However.80x 1.2 1.1% 0% 0 Russia India 3.20x 0% 0. eBay India currently lags market leaders Flipkart. eBay’s participation in multiple rounds of fund raising by the companies suggests that it is looking to play a significant role in the rapidly evolving ecommerce landscape in India.76x 1. 2015 India: Technology: Internet eBay: Early entrant building a diversified portfolio eBay India.20x 1. 2014 20% 5.5 FY12 2. Ministry of Corporate Affairs.80x 0.40x 10% 0.1 0.6 33% 0.8 0. As is the case with Amazon.00x 60% 59% 0. Ministry of Corporate Affairs. 2012 40% Quikr India 30% Mar.May 4. Exhibit 136: eBay diversifying its portfolio in India through investments in Snapdeal and Quikr Exhibit 135: eBay is ranked among the Top 100 websites in India Size of bubble represents internet users in the country(2014) eBay investments in India 6T 70% 6T Investee Company eBay visitors Bazee USA 60% 2004 May. Goldman Sachs Global Investment Research 0.See Exhibit 105). its loss ratio is lowest among large e-tailing companies in India Net revenue (Rs bn) Loss to net revenue ratio (FY14) 6T 6T Loss to revenue ratio (FY14) eBay India 1. 500 17.2% 48.1% 30. 69 . 39% CAGR for its whole India business.0% 50% ‐3% 1. its growth in recent years has been driven by the mobile devices segment with revenues growing at 60% CAGR between FY10-FY14 vs. Ministry of Corporate Affairs.: 60% 200 100 13.7%35.4% 50. not just on smartphone shipments Rs bn 450 Samsung India Mobile phone rev. Samsung’s focus on the Indian market continues as is evidenced by the launch of its Tizen powered mobile device ‘Samsung Z1’ first in India. has resulted in Samsung yielding market share in the mobile devices segment. Source: Gartner. Exhibit 141: Revenue growth in India for Samsung driven primarily by mobile Exhibit 142: Overall market share in phone shipments is slipping in India.000 300% 60.8% 39.500 110 107 Mobile phone shipments ('000s) Market share (%) 23.000 8.2% 35.0% 8. 2015 India: Technology: Internet Samsung: Market leader facing stiff competition Samsung India Electronics.0% 5.000 89% 84% 59% 57% 58% 2. Although Samsung has a range of products that it sells in India across various consumer appliance categories.000 CAGR Revenue: 39% Samsung 000's 66 7.0% 11% 11.0% 200% 40.May 4.0% 250% 50.0% 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Gartner.9%35.0% 14% 13% 14.2%49. Goldman Sachs Global Investment Research FY14 Source: Gartner.0% 150% 3. and global firms such as Apple and Xiaomi. However.000 180 141 150 50 278 Mobile rev. Karbonn etc.8%49.0% 0 FY10 FY11 FY12 FY13 Source: Registrar of Companies. Samsung’s ability to offer mobile phones to Indian consumers at multiple price points has been a key contributor to its success in India.0% 21% 22% 21% 21% 20% 18% 18% 20. Nevertheless. has been a leading competitor in the Indian mobile phone space with a dominant presence in smartphone shipments for the past several years.000 61% 100% 42% 23% 54. but dipping… Exhibit 140: …as new entrants impact market share Samsung 000's 6.0% 17% 17% 10.9% 17. a subsidiary of the global electronics major Samsung.000 276% Smartphone Shipments ('000) YoY (%) [RHS] 238% 5. (Rs bn) Revenue (Rs bn) 404 400 350 300 250 198 279 42 11.6% 28.5% 20. the entry of domestic companies like Spice.0% 0% ‐50% 0 0.000 Samsung Smartphone market share in India 10.0% 21.000 203% 4. Exhibit 139: Samsung shipments strong. 1080p@60fps Yes. Xiaomi has now tied up with other e-tailers Amazon and Snapdeal and also with offline mobile retailer Mobile Store.500 Dual Single Dual Single Single Single Manufacturer Launch SIM 2G N/W 3G N/W 4G N/W Display . 2015. Recently. Goldman Sachs Global Investment Research 70 . 1 GB RAM 13 MP. 2 GB RAM 4 GB. 3264 x 2448 pixels 1080p@60fps. 768 MB RAM 8 GB. 1080 16/64 GB. but going full throttle now Xiaomi. Exhibit 145: Xiaomi phone features comparison with other similarly configured phones Model Z1 Redmi Note 4G Canvas A1 One Mi 4 Samsung Xiaomi Micromax OnePlus Xiaomi Apple Jan-15 Aug-14 Sep-14 Jun-14 Jul-14 Sep-14 OS Tizen Android Adroid One Oxygen OS Android iOS Price (Rs) 5. 2015 India: Technology: Internet Xiaomi: Unique marketing style. Ratan Tata announced buying a stake in Xiaomi (source: The Economic Times.3% market share in smartphone shipments within six months of its entry into India. It has launched more than 4 models in the past 4 months. is targeting India as its next growth frontier.0% 2.999 9.0% 2014 Q3 2014 Q4 Source: Gartner. 720p@30fps No No No Yes 16 GB. 3 GB RAM Yes 16 GB. Xiaomi managed to capture c. Mr. 2 MP.@30f 3 GB RAM 13 MP. 1080p@30fps 8 MP. the Chinese smartphone and electronics manufacturer.5% 164 0 0.15 MP. 2015) as it plans to aggressively expand operations in India with a first India-specific handset model – Mi4i at Rs12.999 12. Source: Company data.5% 300 100 5.999 53.May 4.8% 200 Price (Rs) Initial Sales strategy 0. 720p@240fps 1.2% 800 700 Redmi 1S Redmi Note 4G Mi 3 Mi 4 16 GB Mi 4 64 GB Mi 4i 16 GB 3. Despite the online only strategy.999 17.0% 0. Company data. 4128 x 3096 pixels Yes. 1080p VGA 5 MP Yes.999 9.999 19. 2048 x 1536 pixels Yes 13 MP. 2592x1944 pixels Yes. 1 GB RAM Yes 1500 mAh 3200 mAh 1700 mAh 3100 mAh 3080 mAh 1810 mAh Up to 8 hours (3G) Up to 14 h (3G) Up to 6 hours na na Up to 14 h (3G) Source: GSM Arena. 4128 x 3096 pixels 1080p@30fps. After the initial buzz through its exclusive online flash sales.999 23.999 9.999 Online sales via Flipkart Sold through Bharti Airtel stores Online sales via Flipkart Online sales via Flipkart Online sales via Flipkart Online sales via Flipkart 1.
[email protected] 13. 720p 4 GB. It followed a distinct strategy of entering India by exclusively selling through online store Flipkart via flash sales which required users to pre-register. 5 MP. HDR 8 MP.999 – launched in India on April 23.5% 3.Resolution Camera Video Secondary Camera Memory (Internal) NFC Battery Capacity Talktime iPhone 6 GSM 850 / 900 / 1800 / GSM 900 / 1800 / 1900 GSM 850 / 900 / 1800 / GSM 850 / 900 / 1800 / GSM 850 / 900 / 1800 / GSM 850 / 900 / 1800 / 1900 1900 1900 1900 1900 HSDPA 900 / 2100 TD-SCDMA 1900 / HSDPA 2100 HSDPA 850 / 900 / HSDPA 850 / 900 / HSDPA 850 / 900 / 2000 1700 / 1900 / 2100 1900 / 2100 1700 / 1900 / 2100 na TD-LTE 1900 / 2300 / na LTE 700 / 2600 / 2300 / LTE LTE 2600 2100 / 1800 480 x 800 pixels 720 x 1280 pixels (267 480 x 854 pixels 1080 x 1920 pixels 1080 x 1920 pixels 720 x 1334 pixels (326 (233 ppi) ppi) (218 ppi) (401 ppi) (441 ppi) ppi) 3.5% 600 2.999 19. April 27. Exhibit 144: Xiaomi initially sold through online store Flipkart via flash sales which required users to preregister Exhibit 143: China based Xiaomi grabbed 3%+ smartphone market share in India with 6 months of its launch Model Xiaomi in India 000's Smartphone Shipments ('000) 900 3.2 MP.0% 500 400 779 1. 4128 x 3096 pixels 1080p@30fps 5 MP. 0 15.5% 2.2% 2.0 4. and while it’s relatively small as a market for Apple. media reports (including The Times of India dated Jan 27.0 0.0 10.5 6. 2015 India: Technology: Internet Apple: Growing shipments.0 25. 2015) suggest that Apple is looking to grow its market share in India by partnering with global retail major Brightstar to sell its devices in India. However.0 20.0 Revenue (Rs bn) YoY (%) [RHS] 250% 200% 150% 45. We believe this could be due to: (1) discounted pricing for the prior models targeting the emerging markets.5% 0.0% 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Gartner.0% 3.5% Apple India 3.0 30.0 5. it has not been able to make inroads in terms of market share even as the shipments have increased in absolute terms.7% 3.0% 2.0 40.2 FY10 FY11 0% FY12 FY13 FY14 Source: Registrar of Companies. and (2) offering several financing models in emerging markets including India.0% 2.6 50% 20.0 35. Both these factors have likely captured new iPhone users.2% 2.7% 1. share improvements were seen whenever it introduced new models.9% 4. Gartner. Exhibit 148: However. 71 .0 45.5% 0. Goldman Sachs Global Investment Research 50. 6 Plus launched 150 100 ‐100% 50 ‐200% 0 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 iPhone 5 launched 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source: Gartner. market share remains at around the 2% level Exhibit 149: Apple India revenues grew 10X in a period of 5 years Apple Smartphone market share in India 4.9% 2. Apple’s market share in the Indian smartphone market over the years has remained within the 1%-2% range which may be attributed to its restricted distribution structure.2% 1.0% 0. besides India not being a huge market for premium phones currently. Exhibit 147: Share improvements seen around new model launches Exhibit 146: Apple shipments into India have seen a steady rise Apple 000's 500 YoY (%) [RHS] 459 450 400 295 288 300 225 180 200 205 237 231 136 150 100 600% 500 500% 450 400% 350 250 75 33 0 Smartphone Shipments ('000) 400 iPhone 5C. However.1% 1.9% 1. Ministry of Corporate Affairs.7% 1. but not significant strides in India yet While Apple has been selling its iPhones in India for several years. 5S models launched 350 300% 300 200% 250 100% 200 0% 71 50 Apple India 000's Smartphone Shipments ('000) iPhone 6.8% 1.0% 1. Source: Company data.May 4.5% 2.0 100% 30. it has also begun to tie up with network operators such as Vodafone and Bharti and offer EMI payment option to grow sales. Besides. new users far outnumber replacements in India at this early stage. VC Circle). the company that owns Paytm –a mobile only commerce platform and e-wallet company.5% 5% India USA 6. Exhibit 151: India is the 2nd highest source of traffic for Aliexpress (international arm of Alibaba selling merchandise P P Size of bubble represents internet users in the country (2014) 6T 35% Aliexpress visitors % of Global Visitors 30% 25% 20% Brazil 15% 13. Exhibit 150: With its investments in 2014.1% 0% ‐50 0 50 100 Rank in the Country 150 200 Source: Alexa. SoftBank’s CEO Masayoshi Son has announced that it is looking to invest nearly US$10bn in India over the next 10 years. Oct 28 and Nov 27. Further. has bought a significant share in One97 Communications in India. indicating his interest in the country’s internet opportunity. In addition to this investment. 7% of its traffic coming from India as of Dec 2014. Alibaba/Softbank and their major shareholders may increase their presence in India through strategic investments in various horizontal and vertical plays as per media reports (The Times of India. News articles (including The Economic Times. in which SoftBank owns 32% stake. Goldman Sachs Global Investment Research 72 . Jack Ma has already made a few visits to India with big contingents. Goldman Sachs Global Investment Research.Korea 6.9% 6. 2014). meeting the government and companies across the board.7% 10% Russia 6. SoftBank has become the largest investor in the Indian internet space SoftBank’s investments in India (direct and indirect) Source: Crunchbase. Alibaba.May 4. 2015 India: Technology: Internet SoftBank/Alibaba: Strategically entering India through investments SoftBank is one of the largest investors in the Indian e-commerce space with the company directly or through its subsidiaries investing approximately US$1bn in 2014 alone. Business Standard. We note that Softbank’s investments in India and other South-East Asian countries accelerated over the past 9 months since the appointment of the new Vice Chairman.3% S. Alibaba’s international arm Aliexpress also has a decent presence in India with c. May 4. 2015 India: Technology: Internet Private companies dominant in the Indian market Goldman Sachs Global Investment Research 73 . Binny Bansal (COO). The company is currently focused on 4T 4T expanding number of merchants on its marketplace platform. Sanjay Baweja (CFO) 4T 4T Headquarters: Bengaluru. Letsbuy. owned by WS Retail. fitness equipment. It also plans to enter the hyper local grocery business in 2H2015 per media reports (The Economic Times. Iconiq Capital. Key metrics: Flipkart has about 60mn registered users and gets nearly 8mn page visits daily.com (2010). Sofina. Chakpak. when a Chinese smartphone manufacturer entered India recently. and may not be exhaustive. Flipkart also does exclusive product launches. Steadview Capital. Singapore GIC. Gross merchandize value (GMV): Estimated by management to reach US$3bn in FY15 and US$8bn in FY16. Business Standard) Goldman Sachs Global Investment Research 74 .May 4. dated Apr 8 2015).000 sellers by 2HCY15. Mukesh Bansal (CMO). India 4T 4T Business Model: Hybrid of Inventory-based e-tailing and marketplace model. the company is looking to partner with more 3rd party logistics companies to expand reach and scale.com (2011).000 employees including contract employees mostly used for delivery. Naspers. Green oaks Capital Management. 2015 India: Technology: Internet Private companies dominant in the Indian market today We give an overview of a few large private companies dominant in their respective categories in the India internet space. books & media. For example. Morgan Stanley. aiming to reach 50. Founders: Sachin Bansal. auto accessories etc. Source: Company data. It has 13 warehouses 4T 4T and over 25. Vulcan Inc. home & kitchen appliances. Acquisitions: WeRead. However. Myntra. Flipkart Company description: Flipkart started operations in October 2007 selling books via internet. Qatar Investment Authority. K 4T Funds raised to date: US$2.5bn. At 4T T present.5bn in 11 funding rounds 4T 4T Funds raised in latest round: US$700mn in Dec 2014 4T 4T Estimated market value: US$12. as per media reports such as The Economic Times (March 31. DST Global. Flipkart has the unique distinction of being the first billion dollar Indian e-commerce company and is the first to offer an annual subscription service called Flipkart First. Baillie Gifford.com (2011). Dragoneer Investment Group. baby care products. It is now India’s leading 4T 4T e-commerce marketplace with over 20mn products across 70+ categories including electronics. Tiger Global Management. We note that grocery business constitutes nearly 65% of total retail sales in India. apparels.com (2012). Crunchbase. it did so through an exclusive partnership with Flipkart. according to IBEF. The company operates exclusively in India. Binny Bansal 4T 4T Key executives: Sachin Bansal (CEO). and branded stores.com 4T 4T (2014) Key investors: Accel Partners. currently accounts for about 80% of Flipkart shipments. Media reports (including The Economic Times. Mime360. 45% of units and 20% of the GMV is contributed by the marketplace channel. Fulfilment: E-kart. 2015) 4T 4T Note: The above information has been sourced from various media reports and company websites. Media reports (including The Economic Times. Gross merchandize value (GMV): Estimated to be US$2bn in FY15 (as per Business Standard report dated Feb 18. Crunchbase.com (2012).May 4. Rohit Bansal (COO). IndoUS Venture Partners. The company has over 5mn unique products listed on its website across various categories like Mobiles & Tablets. Kalaari Capital. Exclusively. Rohit Bansal 4T 4T Key executives: Kunal Bahl (CEO). eBay. Vivek Patnakar (Sr.000 merchants on its platform selling goods and 4T 4T products across 500+ categories. 4T 4T Nexus Venture Partners. Jewelry etc. esportsbuy. Founders: Kunal Bahl. 2015 India: Technology: Internet Snapdeal Company description: Snapdeal started operations in February 2010 as a daily deals platform inspired by US-based 4T 4T Groupon. Smartprix (2015).com (2010). According to the company.1bn in 8 funding rounds 4T 4T Funds raised in latest round: US$627mn in Oct 2014 4T 4T Estimated market value: US$5bn as per media reports (The Economic Times dated Feb 14. The company also sells apartments. Blackrock. India 4T 4T Business Model: Snapdeal follows a marketplace only model and the company claims it is the largest online 4T 4T marketplace in India. Business Standard) Goldman Sachs Global Investment Research 75 . over 65% of its orders come from outside of the top 10 Indian cities currently. Home & Living. Ru-net. the company expanded to become an e-commerce company via the marketplace model. Softbank Capital. is the largest in the Indian e-commerce space to date. The company has about 15-20 fulfilment centers across the country.in (2015). Softbank Internet and Media.in (2013). In September 2011. Abhishek Passi (CSO). Apparel. Shopo. PremjiInvest. Temasek Holdings. Funds raised to date: US$1. The acquisition of Freecharge for a reported valuation of c. VP Finance) 4T 4T Headquarters: New Delhi. over 100.com 4T 4T (2014). Key investors: Bessemer Venture Partners. Acquisitions: Grabbon. Intel Capital. Source: Company data. and may not be exhaustive. raise over Rs500mn in loans through its capital assist initiative (per company press release dated Mar 26. 4T 4T 2015) Key metrics: Snapdeal has over 40mn registered users. Doozton. Snapdeal has also recently helped over 150 sellers on its platform.com (2014). Freecharge is a mobile commerce platform that allows users to recharge their mobile connection and pay utility bills across major operators. 2015) in cash and stock. Ratan Tata. Tybourne Capital Management. Freecharge (2015). Wishpicker.US$400mn (Source: The Hindu dated April 8. 2015) 4T 4T Note: The above information has been sourced from various media reports and company websites. 2015). Saama Capital. automobiles and yachts on its site. 2015). Business Standard. Steadview 4T 4T Capital. TaxiForSure is present in 47 cities across India.000 employees. Ola Cabs does not own or operate its own fleet. Ankit Bhati 4T 4T Key executives: Bhavish Aggarwal (CEO). 2014) 4T 4T Key metrics: Ola operates in 67 cities across India and has over 60. It brings taxi/cab 4T 4T services online by partnering with private taxi owners. Tiger Global Management. Matrix Partners India. Ola reportedly acquired TaxiForSure for US$200mn in a cash and stock (Source: 4T 4T Livemint dated Mar 2.000 cabs on its platform (as of Feb 2015).15. SoftBank. Falcon Edge Capital. Livemint) Goldman Sachs Global Investment Research 76 . It is India’s first aggregator of car rentals and point-to-point cab services. this service is only available in 4 cities and limited areas within those cities currently.May 4. Customers can access Ola services through the web. Source: Company data. Crunchbase. a mobile-only food delivery service where customers can order food through their mobile app from restaurants in the near vicinity. VC Circle. Accel Partners. The company recently launched Ola Café. 2015 4T 4T Estimated market value: US$2. Sequoia Capital. and may not be exhaustive. Key investors: DST Global. The deal reportedly adds c. India 4T 4T Business Model: Ola provides an online marketplace for valid permit holding drivers of rental cars and auto 4T 4T rickshaws (a three-wheeler vehicle) Gross Transaction value (GTV): Estimated to be US$350mn in FY15 (VC Circle article dated Nov 19. Mitesh Shah (CFO) 4T 4T Headquarters: Mumbai. mobile app or through a customer service center. SoftBank Capital. In addition it has 30. It has 4T 4T about 3. but aggregates small fleet operators and single vehicle owners. However. Funds raised to date: US$677mn in 6 funding rounds 4T 4T Funds raised in latest round: US$400mn in Apr. 2015) 4T 4T Note: The above information has been sourced from various media reports and company websites. Media reports (including The Economic Times. Acquisitions: TaxiForSure (2015). Ankit Bhati (CTO). 2015 India: Technology: Internet OLA Cabs Company description: Ola cabs (ANI Technologies Pvt Ltd) started operations in January 2011.000 cabs to its fleet.000 auto rickshaws on its platform.4bn as per media reports (VC Circle dated Apr 16. Founders: Bhavish Aggarwal. Cab owners benefit from Ola Cabs’ network and technology platform which helps them procure customers. Manish Dugar (VP of Finance & Legal). Kleiner Perkins Caufield Byers (KPCB). Acquisitions: Sprout (2011). MMTG Labs (2012). Sherpalo and Softbank 4T 4T Funds raised to date: US$220mn in 5 funding rounds 4T 4T Funds raised in latest round: US$5mn in Dec 2014 4T 4T Estimated market value: US$2bn as per media reports (Economic Times dated Mar 11. and may not be exhaustive. Later it changed into a performance based mobile ad-network. Amit Gupta. Metaflow Solutions (2012). Founders: Naveen Tewari. InMobi competes directly against Google’s AdMob and Apple’s iAd. Anne Frisbie (VP. Mohit Saxena. 43% of unique mobile devices on InMobi’s network come from advanced markets in North America and Western Europe while 38% come from Asia-Pac. Abhay Singhal 4T 4T Key executives: Naveen Tewari (CEO).2015) 4T 4T Note: The above information has been sourced from various media reports and company websites. Global Alliances) 4T 4T Headquarters: Bengaluru. Source: Company data. 30. Softbank. It provides advertising solutions. Media reports (including The Economic Times. India 4T 4T Business Model: Proprietary cloud based technology enables remote deployment of mobile ads with the click of a 4T 4T button on sites and apps of the customer’s choice Key metrics: Inmobi has grown into the world’s largest independent ad network reaching 1bn unique mobile 4T 4T devices. Business Standard) Goldman Sachs Global Investment Research 77 . consumer insights to advertisers and other related services.000+ publishers across 200 countries and serves c. Crunchbase.000 strong employee base. 2015 India: Technology: Internet InMobi Company description: InMobi began operations in 2007 as an SMS-based search platform and was then known as 4T 4T mKhoj. InMobi employs over 800 people. It ties up with web publishers to enable brands and app developers to seamlessly integrate their products into mobile content. mobile app analytics.May 4.6bn daily ad impressions (as of Dec 2014). and Overlay Media (2013) 4T 4T Key investors: Mumbai Angels. It builds mobile-first customer engagement platforms and operates from 17 offices across the globe with a nearly 1. Competition: In the global mobile advertising market. India 4T 4T Business Model: Paytm offers a mobile marketplace for digital goods and an electronic wallet offering payment 4T 4T services. Sapphire Ventures. It has over 1. Business Line) Goldman Sachs Global Investment Research 78 . Paytm has tied up with Axis Bank and Yes Bank enabling its customers to load their Paytm wallets by depositing cash.May 4. 2015) Annualized GMV: Estimated by management to cross US$4bn by Dec 2015 (Livemint dated Apr 25. customers are limited to depositing a minimum of Rs2. SAIF Partners. Business Standard. Crunchbase.000 merchants on its platform and it reportedly expects to increase it to 100. However. The company clocks over 60mn transactions every month with an average user transacting four times in a month on its platform. In February. 2015) 4T 4T Key investors: Alibaba Group.200 employees and has offices in Mumbai. (Source: Livemint dated Apr 13. Paytm has recently (Apr. The Economic Times. Similarly. 2015) 4T 4T Note: The above information has been sourced from various media reports and company websites. Paytm also offers mobile wallet solutions and has an exclusive tie up with the taxi hailing app ‘Uber’ in India. Media reports (including VC Circle.5mn currently. Paytm expects to increase the number of wallet users to 100mn by the end of 2015.5bn as per media reports (Business Standard dated Jan 16. (Source: Business Insider dated Apr 24.000 merchants by the end of 2015. Pune. Softbank. a firm that delivers mobile content and commerce services to mobile consumers through its cloud platforms. Middle East and Southeast Asia. Founders: Vijay Shekhar Sharma 4T 4T Key executives: Vijay Shekhar Sharma (CEO) 4T 4T Headquarters: New Delhi. Paytm mobile marketplace has about 33. Chennai. Source: Company data.000 and a maximum of Rs10. and may not be exhaustive. Europe. Intel Capital. It has now transformed 4T 4T itself into a digital goods and mobile commerce platform. Alibaba Group through its affiliate Ant Financial bought a 25% stake in One97 Communications. Silicon Valley Bank 4T 4T Funds raised to date: Unknown 4T 4T Funds raised in latest round: US$575mn for 25% stake 4T 4T Estimated market value: US$1. In April 2015. Key metrics: Paytm has about 50mn Paytm wallets and about a 1/3rd of them transact on Paytm in a month on 4T 4T average. Livemint. It is run by One97 Communications. 2015 India: Technology: Internet Paytm Company description: Paytm started by offering mobile recharge and utility bill payments. 2015). it expects to increase the number of units sold on its commerce platform to 100mn a day by the end of 2015 from 8. 2015) entered the typically hyper local grocery segment and plans to launch in 10 cities in 2015. Bangalore and Kolkata with global presence in Africa. Reliance Capital.000 in cash at a bank’s cash counter. Abhimanyu 4T 4T Dhamija. 2015 India: Technology: Internet Housing. Ravish Naresh. India 4T 4T USP: The company states that its site contains 100% verified listings. Since then it has expanded presence to 60 major cities in India and offers an online real estate platform which allows customers to search for housing based on geography. Slice View enables users to take a virtual walk through houses. Founders: Rahul Yadav. number of rooms and various other filters. It also provides several additional features such as CFI (Child friendly index) heat maps. and may not be exhaustive. Snehil Buxy. Business Standard) Goldman Sachs Global Investment Research 79 . Source: Company data. 2014) 4T 4T Note: The above information has been sourced from various media reports and company websites. by providing 3-D renderings of apartments. Advitiya Sharma. It is looking to provide respite to home-seekers 4T 4T and home-owners from endless site visits to explore properties by providing genuine pictures of properties. Softbank 4T 4T Funds raised to date: US$140mn in 4 rounds 4T 4T Funds raised in latest round: US$100mn from Softbank Capital in Nov 2014 4T 4T Estimated market value: US$250mn as per media reports (Times of India dated Dec 17.000 listings in a day. an online discussion site for a reported US$1. Nexus Venture Partners. Neeraj Bhunwal. The Economic Times. Rishabh Agarwal. Further. Jaspreet Saluja. It was launched as a 4T 4T rental service finder in Mumbai. 2015). Amrit Raj.2mn (Source: VC Circle. Azeem Adil Zainulbhai (CFO) 4T 4T Headquarters: Mumbai. Key metrics: Housing. Vaibhav Tolia Key executives: Rahul Yadav (CEO). Crunchbase.May 4. Media reports (including VCCircle. Abhishek Anand.com does nearly 4. Housing acquired Indian real estate forum. Housing launched an interactive home booking platform called “Slice View” and partnered with Tata Value Homes (TVH) to launch an exclusively online-only inventory across four of TVH’s projects. Softbank. Sanat Ghosh. In November 2014.com Company description: Housing.com is an online real estate platform started in June 2012. 4T 4T Key investors: Helion Venture Partners. it allows customers to book their homes online. demand flux maps. March 26. Acquisition: Indian real estate forum (2015). 25 Personnel D&A Payment Gateway Rs 1.5 Rs 5 GDS Fee (depends on volume) Rs 3 SG&A Rs 100 + C. Goldman Sachs Global Investment Research 80 .Fee + Commissions + volume incentive + GDS Rs 98.5 Global distribution system (GDS) like Amadeus/Sabre Listing fee Rs 6 Rs 98. Convenience or service Fee 2.May 4.Fee) Rs 2 Rs 98. Airline commission + volume incentives C.5 1% commission + volume incentives Rs 5 * Convenience Fee ‐ independent of gross booking amount Note: This is for illustration purpose only assuming a gross booking value of Rs100.Fee Customer confirms a purchase Rs 2 Gross booking amount Rs 100 + convenience fee (C. Fee from GDS partner 3. all numbers are indicative. 2015 India: Technology: Internet Appendix Exhibit 152: Transaction map for an airline ticket issuance via an OTA Online Travel Agent (OTA) Source of revenue for OTA 1. Source: Goldman Sachs Global Investment Research.5 Direct route Airline Marketing Rs 0. 5 * Convenience Fee ‐ independent of gross booking amount Note: This is for illustration purpose only assuming a gross booking value of Rs100.65 (DC) Network fee Rs0. SBI. 2015 India: Technology: Internet Exhibit 153: Transaction map for hotel booking via the agency/ merchant model through an OTA Source of revenue for OTA Agency model via Travel aggregator: Aggregator takes inventory from hotels. CCavenue. Rupay Payment aggregator Billdesk. Goldman Sachs Global Investment Research 81 . OTA gets paid in GDS fee (volume dependent) Merchant model: OTA gets preferred rate and rooms.May 4. Citrus Clearing & Settlement Acquiring banks Transaction amount (minus interchange fees) HDBK. SBI.Fee) 2) GDS Fee (volume dependent) Rs 10 Hotel 1 Hotel Payment Gateway 3) Merchant model Rs 80 Hotel n Rs 1.Fee Rs 100 Customer confirms a purchase Online Travel Agent (OTA) Hotel 1 Inventory Offline Travel agents/ aggregators Hotel n Global distribution system (GDS) Hotel Chains Listing fee Rs 15 Booking amount Rs 100 + convenience fee (C. ICBK. ICBK. Exhibit 154: Transaction flow of a standard debit/credit card transaction Goods and services Consumer Merchant Card payment Customer pays Rs100 CC = Credit Card DC = Debit Card Merchant Receives Rs98(CC)/ Rs99(DC) Merchant service charge Interchange fee Rs1. Mastercard. BOB Note: This is for illustration purpose only assuming a gross booking value of Rs100.15 (DC) Capture & Authorisation Payment network Visa. Source: Goldman Sachs Global Investment Research.15 (CC) Rs0. all numbers are indicative.50 (CC) Rs0. OTA sets price and makes the margin 1) Agency model Rs 85 Rs 100 + C. all numbers are indicative. OTA takes commission for bookings made Agency model via GDS: Hotel lists with GDS and pays listing fee. Hotel sets its own price.10 (DC) Authorization & Fraud Issuing banks HDBK.10 Transaction processing fee Rs0. Source: Goldman Sachs Global Investment Research.25 (CC) Rs0. BOB Clearing & Settlement Transaction amount (minus interchange fees) Acquiring fee Rs0. May 4. Source: Goldman Sachs Global Investment Research. 2015 India: Technology: Internet Exhibit 155: Most Indian e-tailers are running the marketplace model. all numbers are indicative. with some like Flipkart preferring a hybrid model Customer orders Rs 100 Inventory model Online store Customer Online store delivers Rs 90 Customer orders Rs 100 Online store Customer Order confirmation to ship to customer Rs 95 Marketplace model Product information Offline seller delivers to customer Rs 90 Offline seller 1 Offline seller 2 Offline seller n Customer orders Rs 100 Online store Customer 1. Goldman Sachs Global Investment Research 82 . Online store delivers Rs 90 Hybrid model Order confirmation to ship to customer Rs 95 Product information 2. Offline seller delivers to customer Rs 90 Offline seller 1 Offline seller 2 Offline seller n Note: This is for illustration purpose only assuming a gross booking value of Rs100. 85). Growth. Youku Tudou Inc. KT Corp. Tech Mahindra Ltd. LG UPlus. Rishi Jhunjhunwala.com..g.. Qihoo 360 Technology Co. EBITDA. (Rs1. social and governance issues facing their industry). PT XL Axiata. SmarTone. industry positioning and management quality (the effectiveness of companies' management of the environmental.30) Goldman Sachs had a non-securities services client relationship during the past 12 months with: Info Edge India Ltd. (Rs1. Volatility is measured as trailing twelve-month volatility adjusted for dividends. returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe.. and ROE. Tarena International Inc. Tencent Holdings. Goldman Sachs Global Investment Research had investment ratings on 3. Info Edge India Ltd. e. EV/EBITDA. Investment Profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. Idea Cellular. SK Telecom. Leaders are identified based on quantifiable analysis of three aspects of corporate performance: cash return on cash invested. Indian IT Services: HCL Technologies Ltd.. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists. Far EasTone.com Inc. 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