#2: Knock Knock : not us talking about women's day
#2: Knock Knock : not us talking about women's day
PS - We at 1949 celebrate them everyday!!
(First things first: Thanks you for showing support to our first newsletter; May the force continue to be with us)
Last week, we also built a consumer-focused team to bring the best insights from the sector. You can read our first story here
In today’s edition we talk about challenged faced by P2P lending platforms, dynamic of value retail, agri-tech value chain, biosimilars, expanding office spaces & 3Cs chased by SaaS companies… Let us delve deep into each one of them:
Fintech & P2P lending platform saga:
1. Large fintech players have gathered millions of users but are still loss making and are wanting to turn to lending to monetize; Partnering with NBFC is costly as they ask for First Loss Default Guarantee (FLDG)
2. P2P lending platforms (where individual investors can lend to individual borrowers thereby eliminating all intermediaries such as banks / NBFCs) are struggling to scale due to high default rates and high CAC
3. Payment apps are partnering with fintech players (solving scale issue for P2Ps and enabling entry to low-cost lending for fintechs)
4. Examples: Mobikwik collab with Lendbox; CRED acquiring stake in Liquiloans; BharatPe launching “12% Club” in collab with Lendenclub
Value created through a value-retail play:
1. Value retail involves operating at low price-points (say <INR 600 for a Jeans)
2. Reasons why it works well despite lower selling prices:-
(i) Massive growth potential as the market is much larger (demographically and geographically)
(ii) Low cost of operations (low rentals and staff costs in Tier 3/4 cities)
(iii) Increased scope of selling own products vs 3rd party brands as consumers are less brand-conscious
(iv) High capital efficiency - lower capex (minimal store interiors) and inventory levels (high-volume play creates quicker turnaround)
3. Key players include Reliance Trends, Zudio (part of Trent), V-mart
Agri-tech ka time aagaya:
1) A $493B industry, Major segments – Meat, Poultry, Aquaculture, Dairy Farming and Food Crops.
2) Agri Value Chain–Pre-production, Production and Post-Harvest
3) Key Metrics
• Average farm size in India (1.2 ha) > China (0.7ha).
• Per Hectare yield in China (6029kg) is 2x of India (3161kg).
• Fertilizer consumption per hectare in China (504kg) is 3x of India (166kg).
4) Farm Mechanization
• Key to increasing farm productivity. India-largest tractor market in the world; 9Lac tractors sold every year. Market dominated by Mahindra, TAFE and Escorts.
5) Theme backed by VC Investors – Business models that cater to multiple touch points.
6) Key VC Investors -Omnivore, Omidiyar, Incofin, Ankur Cap, Orios, etc.
Biosimilars - an exciting space to watch out, albeit with a cautious eye:
- Kotak SSF closes INR 1,070 Cr structured investment in Biocon.
- The proceeds shall be used to complete the USD 3.3 Bn acquisition of Viatris’ biosimilars arm.
- BBL to become one of largest biosimilar player globally with combined revenue potentially crossing a billion dollars.
- Ponder Point (“PP”): Spectacular growth expected in the biosimilars space with more than USD 20 Bn market molecules going off patent in next few years.
- Multiple Indian pharma cos investing significantly in biosimilars play. Key item to track is which markets are they getting approved to sell. US and Europe continue to be most lucrative markets in that order.
Office as a Sector:
1. Offices showed a steep recovery in 2022 though in the short term the outlook seems cautious
2. The net absorption at an India level stood at ~40 mn. sf which surpassed the 5 year pre-covid average of ~37 mn. sf
3. Overall vacancies remained rangebound in most eminent markets except Hyderabad where vacancy peaked on account of meaningful new supply in the last 2 years which has not been fully absorbed
4. Rental growth is picking up in markets where there is strong absorption but still remain lower than pre covid levels
5. Many large RFPs are on hold in key markets given weak macro economic conditions in the west
6. Strong head count growth in the IT sector should translate into leasing once physical occupancies ramp up
Survival on priority for SAAS companies:
Key focus is revolving around 3Cs:
- Cost optimization, Capital efficient growth and Customer retention
SAAS companies facing hurdles from customers due to:
- Tighter tech. budgets leading to longer decision cycles
- Gartner reduces its forecast for world IT spending increase in 2023 from 5.1% in previous quarter to 2.4% for 2023;
- Customers are evaluating ROI of the solution very cautiously;
Companies have shifted attention from growth at all cost to profitable growth
- Emphasis on having a runway of 18+ months
- Capital efficiency benchmark is that growth stage companies should not spend more than $2 to gain additional $1 in new ARR; 80% of Indian growth stage companies spend less than $1.5
India Diagnostics: Good from far but far from good!
- Fragmented industry; organized players 15% mkt share,revenue mix, ~ 60% from pathology & ~40% from radiology segment
- Data is the driving force in the healthcare industry, new age health tech companies are bringing more efficiencies in this space from TEST to TREATMENT
- Competition is impacting the high-route margin segment (Routine tests) with the entry of digital health platforms leading to disruption in segment's pricing (> 70% discounts), EBITDA margins has already declined by 300bp (vs Pre-covid) levels
- In this space Balance Sheet strengthens via volume growth rather than value growth ( Price wars)
- Point-of care testing, genetic-based testing and molecular diagnostics are seen to be potential disruptors
Compiled by Hanu Bansal & Tushar Khandelwal
Contributions by Arnim Dhakad, Ashish Purohit, Anand Vadia, Mukund Maheshwari, Parin Detroja, Prachi Malpani, Tanay Lohia, Udit Bhandari.
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