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).

 

strtup1

strtup2

strtup3

 

 

Read More

News in Numbers, Nov 30, 2016: Security breach…

7

What is it? The number of Indian Army personnel killed in a terrorist attack in Nagrota near Jammu on Tuesday.

Why is it important? This is the biggest attack on an Indian Army unit since the attack in Uri when 17 army men were killed on September 18. Heavily-armed terrorists stormed into an army unit and their attempt to create a hostage-like situation was foiled by the Indian army – 16 people were rescued. Three terrorists were killed in this incident. This raises questions as to how the terrorists managed to travel to Nagrota, if the security measures taken by India are adequate and how effective surgical strikes carried out by India in late September have been in deterring militant groups operating from across the border.

Tell me more: In another strike, terrorists attacked a Border Security Force patrol at Chamliyal (Samba district) where four army personnel were injured. Again, three terrorists were gunned down here.

 

$5.54 billion

What is it? Flipkart’s valuation, according to a mutual fund managed by Morgan Stanley, one of the e-commerce firm’s investors.

Why is it important? Morgan Stanley has slashed down the value of its shares by about 38.2% to $52.13 a share from $84.29 a share in the June quarter. The e-commerce firm’s valuation is down from $9 billionin the June quarter and is about a third of its valuation ($15 billion) when it last raised funds in July 2015. This is the fourth time the investor has marked down the value of its shares in the last nine months and comes at a time when Flipkart is looking to raise funds (reportedly, about $500 million to $1 billion) by the end of the year to compete with cash-rich Amazon in India.

Tell me more: Two other investors Valic and Fidelity marked down the value of their shares in Flipkart earlier this month by 11.3% and 3.2% respectively for the quarter ended August. Meanwhile, Flipkart Internet’s vice-president and private label head Mausam Bhatt and senior vice-president of engineering Peeyush Ranjan have quit the company. At least seven Flipkart employees (at the level of senior vice-president) have left the company this year.

 

107

What is it? The number of seats the Bharatiya Janata Party (BJP) won out of a total of 123 in local bodies elections in different parts of Gujarat.

Why is it important? This comes about a year ahead of the state elections in Gujarat and at a time when people seem to be polarised on the issue of demonetisation. This was by gaining 40 seats from the Congress, which managed to bag just 17 seats. The victory follows BJP winning 851 of 3,705 seats across 147 municipal councils and 17 panchayats in Maharashtra. The party’s candidates also won in 52 councils in the state. BJP leaders including Prime Minister Narendra Modi attributed the victories to people supporting its demonetisation move.

Tell me more: Five states – Punjab, Uttarakhand, Uttar Pradesh, Manipur and Goa – are due for elections early next year and it remains to be seen how BJP fares in these polls.

 

$58 billion

What is it? Loss to India’s economy due to road accidents every year, according to a study by the United Nations Economic and Social Commission for Asia and the Pacific.

Why is it important? This translates to about 3% of India’s gross domestic product (GDP) annually. It follows Japan ($63 billion) in value terms among 19 countries covered by the study in the Asia Pacific region while in terms of percentage to GDP, it comes behind Iran (6%). Last year saw the greatest increase in the number of accidents in five years. On an average, 55 accidents were recorded per hour killing 15 people (or one death every four minutes). The top 13 states account for 86.7% of all road accidents in India.

Tell me more: In the Asia Pacific region, 15,000 lives are lost due to road accidents per week (or one person every 40 seconds) and the loss to the GDP of these countries is $293,568 million annually.

 

Rs 18,110 crore

What is it? The potential additional costs Indian banks would have to bear annually due to the central bank’s introduction of incremental cash reserve ratio (CRR) of 100% on all deposits between September 16 and November 11, according to CARE Ratings.

Why is it important? This means despite a surge in deposits following the government’s demonetisation move, banks would not be able to earn on them either by lending or investing in government securities and instead, would have to bear additional costs. This is likely to hurt the finances of banks, which are already reeling under increasing bad loans. Before the CRR move, there were hopes that banks would cut lending rates after they reduced the deposit rates but now, there is uncertainty as to what would follow. It remains to be seen if there is a cut in interest rates in the next monetary policy review on December 9.

Tell me more: The incremental deposits with the banks during the period mentioned above were around Rs 3.24 lakh crore and CARE Ratings estimates the banks’ potential earnings to have increased by around Rs 25,205 crore (from lending and investments in government-securities). The difference between earnings from these incremental deposits and costs incurred would have been around Rs 7,100 crore.

Read More

Chart of the Day | Unicorns by Sector

India added one more member to its Unicorn list recently, after messenger app Hike said it has raised $175 million mostly from China’s Tencent and Taiwan’s Foxconn at a valuation of $1.4 billion. With Hike India has 10 unicorns, or startups with over $1 billion in valuation – if we include InMobi (Singapore) and Mu Sigma (US) to the list. It’s important also to note that unicorns (across the world) are “paper unicorns” – private companies that have not yet tested their valuations at ‘liquidity events’ such as a purchase, merger or an initial public offering.

Still, it’s interesting to compare the sectoral distribution of Indian unicorns with global unicorns to get a sense of the markets that still hold promise of great rewards. The numbers show there are relatively fewer of unicorns in the following areas: internet software, big data, healthcare, on demand, social and cybersecurity.

Check out the charts below, and do a mouseover to get the absolute number of unicorns in different sectors. All numbers are sourced from CB Insight’s Unicorn List


Read More

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.

Read More