When start-up investors became wary

This piece originally appeared on Livemint.com

 

In April 2015, the Indian unicorn club—start-ups with a valuation over a billion dollars—got two new members: Paytm and Zomato. They joined the earlier elite of Flipkart, Snapdeal, Ola, Mu Sigma and InMobi, among others.

2016 turned out to be different, as international competitors, especially Amazon and Uber, got more aggressive in India. Amazon recently launched Prime Video and Uber CEO Travis Kalanick joked that he would apply for Indian citizenship, even as Indian entrepreneurs complained about capital dumping from their competitors abroad. Zomato, a restaurant search service with global ambitions, and Flipkart, one of India’s earliest to breach the $1 billion club, saw investors such as Morgan Stanley and HSBC Securities lower their valuations (see charts 1 and 2).

The concern about a low ratio of online shoppers/spenders to Internet users loomed large, and demand for online services were not picking up pace the way fund houses had hoped. Of course, Indian companies were not the only ones drawing flak. Global companies also saw markdowns. Investors’ wariness reflected in their average investments in 2016 (see chart 3).

 

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News in Numbers, May 9, 2016: Unequal access to education, Haryana’s land allotment case…

23%

What is it? The percentage of the poorest (the bottom 20%) who go to higher secondary schools in urban areas, compared with 66% for the richest fifth of the population.

Why is it important? An indicator of unequal access to education and increase in disparities between rich and power as we go higher up the ladder of education. Underlines the need for better-focussed government spending in education. India spent 3.8% of its GDP (gross domestic product) in 2012, which is lower than the spend (as a percentage of GDP) in some poorer countries such as Nepal (4.7% in 2014) and Vietnam (6.3% in 2012).

Tell me more: This percentage is expressed as net attendance ratio – the number of students attending a particular class-group divided by the total number of people in that age group.

 

~ $500 million

What is it? Restaurants listings company Zomato Media’s valuation, according to brokerage HSBC Securities and Capital Markets India – slashed by half since its last round of funding in September.

Why is it important? Though the reduction is not by its investors, it keeps alive the concerns about overvaluation of Indian unicorns (startups valued at over $1 billion). Flipkart’s major investors – Morgan Stanley and T Rowe Price – cut the value of their stakes by 27% and 15% respectively while two minor investors slashed it by around 30-40%.

Tell me more: HSBC’s reasons for the marking down include: Zomato being non-profitable in any of the 23 markets it operates in, increasing competition and the firm’s heavy reliance on advertisements as an intrinsic part of its business model.  Zomato, which has raised $224 million since its inception in 2008, has disagreed with HSBC’s estimates terming them “valuations markdown speculations of third parties” and said it is on course to becoming profitable soon. Zomato laid off 10% of its 3,000-strong workforce last year.

 

121%

What is it? Lok Sabha’s productivity in the second half of the ongoing budget session (up to May 5) while that of Rajya Sabha is 98%.

Why is it important? This is despite the NDA and Congress training their guns on each other with issues (especially in the Rajya Sabha) such as Uttarakhand political crisis, Panama Papers and the AgustaWestland deal. The Lok Sabha has passed six bills while the Upper House has passed seven.

Tell me more: The ones passed by the Lok Sabha include: the Compensatory Afforestation Fund Bill, 2015 and the Insolvency and Bankruptcy Code, 2015 while those passed by the Rajya Sabha include: The Industries (Development and Regulation) Amendment Bill, 2015 and the Constitution (Scheduled Castes) Order (Amendment) Bill 2016.

 

10%

What is it? The share of women candidates contesting in four state elections – West Bengal, Kerala, Tamil Nadu and Assam.

Why is it important? Except for Tamil Nadu, which has seen an almost doubling of share of women contestants since 2011, the share has remained almost the same in the other three states. Only 9% of the seats won in these four states in 2011 were by women. A women’s reservation bill that would set aside 33% of seats in the Parliament and state assemblies is pending.

Tell me more: The national average of women legislators in state assemblies is just 9% with states such as Bihar, Haryana and Rajasthan having 14% representation while some other states such as Nagaland and Puducherry have no women MLAs. In the Lok Sabha, just 12% of the members are women.

 

Rs 62 lakh

What is it? The alleged loss to Haryana state government in a land allotment case connected to National Herald.

Why is it important? This is the first FIR filed in the land deal and is likely to have a bearing on the case filed by BJP leader Subramanian Swamy against Sonia Gandhi, Rahul Gandhi and others for allegedly acquiring AJL (Associated Journals Limited promoters of National Herald) and its assets reportedly worth Rs 5,000 crore through a private firm. This adds further trouble to Congress, which finds itself embroiled in the AgustaWestland scam, as it readies to face elections in five states/UTs this year.

Tell me more: Haryana State Vigilance Bureau has filed a case against former Haryana chief minister Bhupinder Singh Hooda, senior Haryana Urban Development Authority officials and trustees and directors of AJL, on charges of criminal breach of trust, cheating, conspiracy and violation of the Prevention of Corruption Act. The officials reportedly re-allotted the plot measuring 3,360 square metres to AJL at 1982 rates instead of selling it through an open auction. The current market value of the plot is estimated to be about Rs 100 crore.

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News in numbers, Apr 15, 2016: VC & PE investments in startups, India’s remittances…

$1.15 billion

What is it? Venture capital and private equity investments in Indian startups in the January-March quarter of 2016.

Why is it important? This is the second consecutive fall in startup investments, indicating continued investor caution. The number of startup deals fell by 4% to 116 possibly on concerns over startups’ business models, valuation and economic slowdown.

Tell me more: The data by KPMG and CB Insights show that startups received investments worth $2.9 billion in the July-September quarter of 2015, which declined by 48% to $1.5 billion in the three months to December last year.

$68.9 billion

What is it? The remittances to India in 2015, according to World Bank.

Why is it important? They declined by nearly $1 billion (2.1%) from 2014, the first drop since 2009 during global financial crisis. Last year’s decline came on the back of low oil prices in the Middle Eastern countries, a major remittance-generating source for India. However, India retained its top spot in inward remittances.

Tell me more: After India, China and Philippines topped the list of remittance-receiving countries with $64 billion and $28 billion respectively. Mexico with $25 billion and Nigeria with $21 billion in remittances came in at the fourth and fifth positions respectively.

130

What is it? The number of people who died due to heatwaves this year.

Why is it important? It might get worse, with the weather department warning eight states of facing heatwave conditions in the next two days. Telengana and Andhra Pradesh, which had reported over 2,000 deaths due to heatwave conditions last year, are likely to see maximum temperatures increasing by 1-2 degree celsius in the next 2-3 days.

Tell me more: As many as 100 people have died due to heatwave conditions in Andhra Pradesh and Telengana and 30 in Odisha. Maximum temperatures are expected to increase by 2-4 degree Celsius over the north-western plains, 2-3 degree Celsius over central India and 1-2 degree Celsius over west India.

68%

What is it? The share of companies in which investors got better returns (on the shares allotted to them during the IPO) on the day of the listing rather compared to a year later. This corresponds to 198 companies of 292 analysed.

Why is it important? As many as 71 stocks closed lower on the listing day and declined further in one year from listing. Indicates that promoters tend to price their public issues with little or no room for growth, and might reduce appetite for IPOs.

Tell me more: Over 30% of the companies analysed eroded more than 50% of their offer price within one year of listing. The study included IPOs launched in the last 10 years and have completed at least a year since listing.

3 lakh

What is it? The number of rural habitations, nearly a fifth of the total, that have less than the prescribed norm of 40 litres per capita per day of safe drinking water.

Why is it important? The primary reason for lack of adequate supply of safe water is reportedly due to delay in over 3,000 drinking water schemes, some of them which are over 5-10 years old.

Tell me more: There are 66,093 rural habitations where drinking water is contaminated. According to World Bank estimates, 21% of communicable diseases are related to unsafe water and diarrhoea alone causes over 1,600 deaths everyday.

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