From Zomato’s IPO to Flipkart funding, India’s tech moment is coming, Auto News, ET Auto


Indian tech companies “can attract global investors who have burned their hands on Chinese tech companies,” said Nilesh Shah, group president and managing director at Kotak Mahindra Asset Management Co. in Mumbai. The successful listing of some loss-making startups could re-evaluate many existing companies and propel the market higher, he said.


Last week marked a turning point for tech startups in India when a record fundraising campaign drew attention to the world’s second most populous market just as investors were scared by crackdown on internet companies in China.

The food delivery app Zomato Ltd. became the nation’s first unicorn start an initial public offering (IPO) raising $ 1.3 billion with support from Morgan Stanley, Tiger Global and Fidelity Investments. The digital payments startup’s parent company Paytm submitted a draft prospectus for what may be India’s largest IPO at $ 2.2 billion, while retailer Flipkart Online Services Pvt. $ 3.6 billion raised at a valuation of $ 38 billion, a record round of funding for an Indian startup.

“Indian entrepreneurs have been quietly building startups for a decade, the country’s internet infrastructure has improved significantly during this time and there is a huge appetite for technology stocks around the world,” said Hans Tung, Silicon Valley-based managing partner of GGV Capital. who manages $ 9.2 billion in assets. “Investors are starting to see the huge upward trend and expect India to be a China.”

Lenskart, an online eyewear retailer, said the same on Monday it raised $ 220 million from investors like Temasek Holdings Pte and Falcon Edge Capital from Singapore. It previously raised money from KKR & Co. and the Japanese SoftBank Group Corp.

In contrast to China, where online usage is much more developed, many of India’s 625 million internet users are only immersed in the world of video streaming, social networks and e-commerce. Online shopping opportunities are particularly attractive, as e-commerce accounts for less than 3% of retail transactions. Tech startups in India are still paying to build supply chain and delivery networks.

India’s population is expected to overtake China’s in this decade, and investor sentiment couldn’t be more different in neighboring countries. China is curbing its tech companies, wiping over $ 800 billion off market valuations from a February high, and saving billions on the net worth of its most famous entrepreneurs. This month the government did pulled abruptly Ride-hailing service Didi Global Inc. from the app stores months after regulators forced Jack Ma’s Ant Group Co. to halt a blockbuster IPO at the eleventh hour.

The crackdown is expected to continue as regulators curb the power of internet companies and regain control of user data.

Indian tech companies “can attract global investors who have burned their hands on Chinese tech companies,” said Nilesh Shah, group president and managing director at Kotak Mahindra Asset Management Co. in Mumbai. The successful listing of some loss-making startups could re-evaluate many existing companies and propel the market higher, he said.

Record funding

India saw a record $ 6.3 billion in funding and deals for tech startups in the second quarter, while funding for China-based companies rose from a high of $ 27.7 billion, according to research firm CB Insights. Dollar declined 18% in the fourth quarter of 2020.

Flipkart, one of India’s two dominant e-commerce players alongside Inc., is one of a number of startups planning to enter public markets over the next 24 months, with a line-up that owns the parent company of the insurance marketplace Policybazaar , ETechAces Marketing & Consulting Pvt., Logistics Service Provider Delhivery Pvt. and the Ola Ride-Hailing Service from ANI Technologies Pvt. The IPOs will give private investors the chance to participate in startups that were previously only available to global private investors.

In these private markets, India has minted startups worth $ 1 billion or more at an unprecedented rate in recent months. In April, half a dozen unicorns were born within four days, while the intervals between fundraising rounds have shortened to weeks for many startups. A report by Credit Suisse Group AG this year found that there are roughly 100 unicorns in India with a combined market value of $ 240 billion, in sectors ranging from e-commerce and fintech to education, logistics and grocery delivery.

“$ 1 billion is the new $ 100 million,” said Krishnan Ganesh, a serial entrepreneur who is now promoting companies that have attracted investors like Sequoia Capital, Lightspeed Venture Partners and Qualcomm Ventures. “Global investors see the upside potential in India’s huge, poorly-penetrated market, and capital flows have increased tenfold.”

Optimism about India is dampened as one of the world’s worst coronavirus outbreaks, with over 31 million infections and more than 400,000 deaths, could wipe out decades of economic gains. At least 200 million Indians are making less than $ 5 a day, according to estimates by Azim Premji University, based in Bangalore, while the middle class has shrunk by 32 million in 2020, according to the Pew Research Institute.

Global investors see the upside potential in India’s vast, poorly-infused market, and capital flows have increased tenfold.Krishnan Ganesh, entrepreneur

Investors in India are also not free from political risk. Tech startups are also facing a tightening regulatory regime as Narendra Modi’s government cracks down on foreign retailers, social media giants and streaming companies. The government is expected to come up with a bill on property and data retention during the month-long parliamentary session starting Monday, which would restrict the handling of user information.

Additionally, some analysts fear that equity markets are a bubble waiting to burst and that many company valuations are well above their fundamentals. They warn that small investors in new-age companies who are not yet required to generate profits need to look beyond traditional measures of value such as EPS and P / E ratio and be able to consider factors such as investing in building a loyal customer base as the size of the start-up grows to evaluate above.

Habit forming

“Many of these companies are in the habit of acquiring customers, so losses can be brought forward,” said Ramesh Mantri, a director of investments at White Oak Capital, based in Mumbai. “What really matters is the potential to generate cash flows.”

The new companies also have competitive advantages over many traditional competitors from the stationary sector, who have high real estate costs and often suffer from disrupted distribution chains and complicated structures. These restrictions mean the many retail, banking, and health care chains haven’t even made it to the smaller towns, let alone the millions who live in remote rural areas.

“The proliferation of smartphones and the Internet has enabled tech entrepreneurs to develop new-age business models to reach the remotest corners of the country,” said entrepreneur Ganesh.

And the promise of attractive returns for large investors if startups increase the number of public share sales could stimulate further financing rounds. For example, SoftBank, which sold Flipkart for a profit three years ago, returned to invest in the last round.

“India’s consumer Internet companies have come of age,” said tech tycoon Nandan Nilekani, chairman of outsourcer Infosys Ltd., whose IPO in 1993 brought investors into an IT services industry that now has nearly $ 200 billion in annual sales and made their founders billionaires. “If these new startups convert their pole position into profit and cash flow, their future is assured,” said Nilekani.

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FedEx Express, a subsidiary of FedEx Corp and the domestic logistics and supply chain services company Delhivery, announced on Friday that they had signed a pact to unlock India’s international trading potential. FedEx will make a $ 100 million equity investment in Delhivery as part of the transaction.

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