E-commerce

For Internal Use Only – Not For External Distribution

 E-commerce has evolved in India with improving internet penetration
From news and email to food delivery, e-commerce growing Internet penetration increasing steadily
60%

50% 50%

40%

30%

20%
13%
10%

0%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Note: Internet penetration refers to the share of telecom subscribers who have access to the internet
Source: CRISIL Research
Source: CRISIL Research

Urbanisation in India at 34% in 2019

• Use of internet has grown significantly from e-mails to grocery
35%
34% shopping, food delivery, cab aggregator and many more
34%
33%
• Starting from travel ticketing, a plethora of products are now sold, re-
32%
31% 31% sold, and rented through e-commerce companies
30%
29%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2
Source: World Bank

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 Online retail penetration in India behind global level
Online retail accounts for ~14% of total retail in the US In China, e-retail penetration stands at ~18%
US e-retail penetration China e-retail penetration
16% 20% 18%
14%
14% 12% 15%
11%
12% 10% 15% 13%
10% 11%
8% 10%
6%
4% 5%
2%
0% 0%
2015 2016 2017 2018 2015 2016 2017 2018

Source: United States Census Bureau Source: National Bureau of statistics, China

Indian online retail penetration to be ~5% in medium term

India e-retail penetration
• High internet penetration, at ~90%, and urbanisation have led to higher 5.0%
~5%
online retail penetration in the US 4.0%
2.8%
3.0% 2.4%
• Low penetration in India provides significant room for growth 2.0% 1.5% 1.6%
2.0%

1.0%
0.0%
FY16 FY17 FY18 FY19 FY20 FY23P
3
Source: CRISIL Research

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Online retail
 Online the preferred medium of consumption during the pandemic
Focused funding, rationalisation of operations to normalise
Huge untapped opportunity for growth
growth for online
(Rs bn) Growth led by: high pricing
Growth to be led by:
discounts; social distancing on account of
3500 ease of shopping; Covid-19, focuced funding;
3,000-3,400
Slowdown in fiscal 2017 and customer stickiness; geographical
3000 fiscal 2020 on account of: diversification
demonetisation, funding slowdown
2,430-2,530
2500 and regulatory changes
1,900-2,000
2000 1723
1500
1000 780
500
0
2016-17 2019-20 2020-21P 2021-22P 2022-23P

Source : CRISIL Research

India’s data usage increased in Q1FY21 US e-commerce sales improved in Q1FY21 owing to
pandemic
14.0% 12.5% 50.0% 44.5%
11.3% 11.5% 11.6%
12.0% 10.1% 40.0%
10.0%
30.0%
8.0%
17.3% 16.6% 14.8%
6.0% 20.0% 13.8%
4.0%
10.0%
2.0%
0.0% 0.0%
Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20 Q1 FY21 Q1 FY20 Q2 FY20 Q3 FY20 Q4 FY20 Q1 FY21
Source : CRISIL Research Source: United States Census Bureau

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 Online grocery to be the fastest-growing segment in medium term
Electronics forms a major proportion in online retail Grocery to increase its share by 10 percentage points

5-6% 3-5% 7-9% 2019-20 5-6%

3-4%
2020-23P

17-19%

30-32%
45-50% 24-27%
45-50%

© 2018 CRISIL Ltd. All rights reserved.

3%
4%
Grocery Fashion Furniture Electronics Jewellery Others
Grocery Fashion Furniture Electronics Jewellery Others
Source : CRISIL Research
Source : CRISIL Research
Grocery will grow at fastest pace in FY21

Revenue growth FY21

Grocery

Rising investments, low penetration to propel

growth in online grocery segment Others
Furniture Fashion Electronics

-10% 0% 10% 20% 30% 40% 50% 60%

Jewellery

Share in overall retail (FY20)

Source : CRISIL Research

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 Renewed interest by players in the grocery industry
Segment to grow around four times in the next three years Major players looking to tap opportunity in the segment

(Rs bn) New

Description
600 entrants
490-535 Starquik This is an omni-channel foray by the Tata Group.
500

Reliance Jio Has started Jiomart to sell groceries online

400
330-340
D-Mart The company is also offering groceries online through DMArt Ready
300
225-235 Flipkart did a soft launch of online grocery delivery service Supermart
Flipkart
200 in Bengaluru
131
There have been reports of the company planning to enter the grocery
100 Quikr
segment.
22
0 Received approval to invest around Rs 3,500 crore into food and
Amazon
2016-17 2019-20 2020-21P 2021-22P 2022-23P grocery business

Source : CRISIL Research

• Where other sectors are expected to be hit on account of the pandemic, being non-discretionary, online grocery will continue to
witness healthy growth in fiscal 2021
• Segment to grow at 55-60% CAGR between fiscal 2020 and 2023 on account of
– Increasing investments
– Major players increasing their focus as well as new players entering the segment
– Strategies such as next day and same day delivery.

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 Investor participation remains robust
Top 2 account for majority of the investment pie Grocery finding renewed interest among investors

(Rs. bn.) (Rs. bn.)

450 100% 50
95% Funds dried for Renewed invester interest in F&G
400 90% 45
84% Initial F&G as investors
350 80% 80% 40 burnt their hands
investment
300 70% 35 and became
period in F&G
60% 60% cautious
250 55% 30
50%
200 25
40%
150 32% 30% 20
29%
100 20% 15
50 10% 10
0 0% 5

2020-21YTD
2014-15

2015-16

2016-17

2017-18

2018-19

2019-20
0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Investment (Rs bn) Top 2 player's share Online F&G Online furniture Online jewellery Online pharmacy Online fashion

Note: The data excludes investment into marketplace

Note: Top two players include Flipkart and Amazon; YTD refers till Q2FY21
Source: Industry, CRISIL Research
Source: Industry, CRISIL Research

Grocery players Major Investers

• Apart from grocery funding shown in chart, Amazon and Flipkart have
Alibaba group, Mirae Asset-Naver
already invested in the grocery segment BigBasket
Asia Growth Fund
• After marketplaces, online grocery got highest cumulative investment over Sequoia Capital India, Trifecta
Grofers
past four years, followed by fashion Capital Advisors, Softbank

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 Trust-building moves, modern offerings to aid online jewellery growth
Segment to de-grow in near term due to high prices and demand
Varied operating models of online jewellery
slowdown
(Rs bn)
160
145-165
140
120 100-110
100 96

80 70-75

60
40 35

20
0
2016-17 2019-20 2020-21P 2021-22P 2022-23P
Note: Companies in red sell imitations, while others sell real jewellery
Source : CRISIL Research Source: CRISIL Research

• Growth this fiscal to be impacted due to high prices and pandemic-led slowdown in demand, but improve
Q1FY21 revenue
in medium term Player
growth
• Online jewellery to see growth with sharper focus on consumer awareness about quality and safety
Caratlane (68)%
– Medium-term momentum to be strong as players reduce consumer resistance through technological interference
– Rising internet penetration, awareness among customers, modern offerings to aid growth

• 45-50% of volumes are from Tier-II, Tier-III cities, where getting jewellery with modern designs is difficult

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 Intense competition leads to cash burn for players
Net loss margin has reduced over the years
0%
Flipkart Amazon Snapdeal -20%
-42% -34% -75%
-200% -73% -148% -128% -119%

-400%

-600% -569%
FY17 FY18 FY19
Source : CRISIL Research

Players not expected to be profitable in the near to medium term

$11,568 mn

Established $35 mn
Established -Rs1,626 cr

Established -Rs5,685 cr

Established -Rs186 cr

1995 2003 2007 2010 2012 2019

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 Players expand in newer products/ territories via M&A
Major investments over the past two years

Timeline Target Investor Amount ($ mn)

Nov-20 UrbanLadder Reliance 24

Aug-20 Netmeds Reliance 83

Jul-20 Walmart Wholesale (India) Flipkart -

Apr-20 Reliance Facebook 5700

Jun-19 Yatra.com Ebix 338

Sep-18 More Amazon, Samara Capital 644

May-18 Flipkart Walmart 16000

Source : Industry Apr-18 Paytm SoftBank, Alibaba 446

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 Trends

12
 Players increasingly focusing on omnichannel
Caratlane Currently 95+ stores, plans Offline revenue-60%+
to add 50 stores every year

Launched Jiomart in 2020 to

sell groceries online

Currently 60 offline
Pepperfry Started offline studios where
stores in 20 cities, Plans
customers can touch, feel & Offline sales-30%+
opening of 25 stores in
experience products
FY21
Bought Mumbai-based
hyperlocal delivery company
Grab a Grub Services
Pilot project in Telangana to Kiosks rollout planned
Flipkart onboard Kirana stores for in Bengaluru to sell To set up first offline
pushing omnichannel private brands store in Bengaluru
strategy
Relisting its products on
acquired C-Square Info started listing nearly all its
Amazon through its
Solutions, a company that brands and products across
subsidiary
provides software solutions fashion, grocery and
Shoppersstop.com
for distributors and retailers electronics on Amazon

Amazon 5% stake in Shoppers Stop Stake in 'More' Started “Smart Stores”

concept recently

To launch new ecommerce Acquired Jaypore.com,

Exclusive flagship store on Launched Tathastu or Retail
platform in Gujarat by tying an e-tailer, selling
Amazon after 5% stake 3.0 which is an omnichannel
up with 12 lakh small apparel, home textiles
sale strategy
retailers and accessories online

Reliance Retail Shoppers Stop Future Retail ABFRL

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 Higher margins a major factor for pushing private labels

Fashion
• Lower no. of intermediaries in supply chain Koovs
Higher • Cost competitiveness 18% 55%
margins

Beauty
Nykaa
30-40% 40-60%
• Access to extensive data related to customer’s
Huge purchases, preferences and behaviour
database

Furniture
– National brands
Pepperfry
17% 50%
• By understanding consumer preferences, retailers
are able to enhance products and add features to – Private labels
Whitespaces fill gaps in the market

Babycare
Firstcry
25%
• With a readily available consumer base, a wide 10%-20%
geographic reach, negligible customer acquisition

Grocery
Market and retention costs, retailers gain greater market
reach for their private labels BigBasket
reach
18% 25-45%

Note: The above data gives margins for different players. For example, while Pepperfry fetches 50% margins, other
national brands fetch 17% margin
Source: CRISIL Research Source: Industry

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 Online ticketing

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 Restriction on travel to impact online ticketing in near term
Impact to be highest in airline, hotel & travel package and
Decline expected across ticketing segments in fiscal 2021 movies segments in fiscal 2021
(Rs bn)
0%
1800 1693 0-1% CAGR -10% 0% 10% 20% 30% 40% 50%
1650-1700 -10%
1600 -20% Rail tickets

Revenue decline (FY21)

1400 1310-1350
-30%
1200 -40% Bus tickets
1000 948
-50%
750-850
800 -60% Airlines
Movie tickets
600 -70%
400 Hotels and travel
-80%
packages
200 -90%
Others
0 -100%
2016-17 2019-20 2020-21P 2021-22P 2022-23P % share in online ticketing (FY20)

Source : CRISIL Research Source : CRISIL Research

• Decline in airline travel and travel packages to impact online ticketing in fiscal 2021
– Online airline ticketing expected to face an extremely tough time and de-grow by 50-55% due to Covid-19 impact on passenger numbers leading
to drop in revenues
– Strain on occupancy and travel restrictions to impact hotels and travel packages segment

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 Pandemic to impact travel package segment
After healthy growth over the last three fiscal, hotels and travel packages to witness decline due to restricted travel

2022-23P 38% 29% 1% 24% 3% 5%

2019-20E 37% 31% 1% 22% 3% 5%

2016-17E 44% 20% 1% 26% 4% 6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Airlines Hotels & travel packages Bus tickets Rail tickets Movie tickets Others
Source : CRISIL Research

Hotels and travel package segment fetches the highest margin

● Travel package witnessed significant rise in share between
Segment Gross margins (per cent)
Domestic air tickets 0-3 2016-17 and 2019-20
International air tickets 0-1
- Higher margin in the segment made the segment attractive
Hotels/cruises 12-15
Travel packages 15-20
- Segment to witness hurdle in medium term due to the pandemic
Bus tickets 3-5
Rail tickets 0-3
Movie tickets 8-10
Event tickets 15-20
Source : CRISIL Research

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