Macquarie Indian ECommerce+_+LONGTERMGRP+

Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com/disclosures.

INDIA

Inside

Indian E-Commerce – Tip of the iceberg 2 What do you get in this report? 8 India is on the cusp of E-Commerce revolution 9 Drivers of E-Commerce growth in India 12 Indian E-Commerce Eco-system 21 Look out for more IPOs 25 Regulation: Hurdle remains on FDI policy 26 Listed Company Profiles 27 Info Edge (INFOE IN, Not Rated) 28 Just Dial (JUST IN, Not Rated) 34 Online Travel: Lion’s share of Indian E-commerce 39 MakeMyTrip (MMYT US, Not Rated) 42 Yatra.com (Unlisted) 48 IRCTC (Unlisted) 51 Online E-Tailing: Growing the fastest… 53 Snapdeal (Unlisted) 54 Flipkart (Unlisted) 56 Myntra.com (Unlisted) 59 Jabong.com (Unlisted) 62 Fashionandyou.com (Unlisted) 64 Network 18 Media Investments (NETM IN, Not Rated) 66 Analyst(s) Atul Soni +91 22 6720 4089 [email protected] Nitin Mohta +91 22 6720 4090 [email protected]

13 January 2014 Macquarie Capital Securities India (Pvt) Ltd

Hunting Stocks Indian E-Commerce – Tip of the iceberg We believe e-commerce is the most exciting and fastest growing segment of

the Internet story in India and is likely to remain so for the foreseeable future. The growth over the last couple of years has been even faster than expected. In this report, we investigate several critical components along the e-commerce value chain and compare/contrast different business models and various market players.

India is at the cusp of the e-commerce revolution: US$18bn market by 2015E

Early Stages of Growth & Drivers in place. Indian E-commerce has shown strong CAGR of 30%+ since FY09 and we expect it to become an attractive Rs1.1 trillion (US$18bn) opportunity by FY15E. We believe that India will continue to witness high growth rates in e-commerce due to (1) rising internet penetration, (2) 300m+ middle class population, (3) increasing mobile penetration, (4) low levels of e-commerce activity.

Nature of Indian E-commerce Industry. Compared to the west, India’s e-commerce industry is still in its infancy. E-commerce contributes only 0.6% of the country’s GDP vs 1%-3% for other countries (Fig 16), with only 12% of India’s online population transacting online vs 64% for the US and 50%+ for China (Fig 3). Travel has the lion’s share of 71% of Indian e-commerce, but e-tailing has grown the fastest, at a 59% CAGR between FY09-13E, to reach 16% market share (Fig 7).

Look out for more IPOs

With only two listed internet companies in India, we believe the segment is going to see more companies come to the capital markets within the next 18-24 months. Our research on private equity data and the recent multi-million dollar fundraisings by some of the country’s top e-commerce players also corroborates the same thesis.

Valuations & Risks

Internet companies trade at high multiples. Internet companies tend to trade in a high multiple zone of 20x-50x 1 year forward earnings due to the basic nature of high growth estimates in future years. Pages 6-7 show a comparison of valuations across US, China and India for internet companies.

Risks – Finally a bet on model and company execution. It is easy to see that e-commerce will grow substantially in coming years, but picking which models and companies are going to be winners is much harder. We believe risks reside mostly with the different business models and execution of different players in the market.

Conclusion: Battle of business models

In this report, we have taken a deep dive into different e-commerce business models relevant to India – Inventory, Marketplace and Hybrid. We conclude, there is room for all models to exist, but it will be a race to the finish. Thus, the company which will emerge as the top player will likely do so based on its top management’s execution and capital management ability.

Macquarie Research Hunting Stocks

13 January 2014 2

Indian E-Commerce – Tip of the iceberg Executive Summary

In this report, we undertake a comprehensive study of the Indian e-commerce industry. We

believe e-commerce is likely to be one of the fastest-growing segments in the Indian

Internet space. And it is happening against a positively changing macro backdrop – the

Indian economy is forecast to grow 5–7% per annum over the next three years.

The Indian E-Commerce industry is a very recent phenomenon and has been in its infancy

for the larger part of the previous decade. However, in last four years, the industry has

witnessed an incredible CAGR in excess of 30%+ annually. As per IAMAI estimates, the

industry has increased from Rs192bn (US$3.8bn) in 2009 to Rs630bn (US$9.5bn) in

2013E. However, our estimates may ultimately prove conservative, as the adoption of e-

commerce in India has occurred faster than many had expected, and e-commerce growth

could follow the same trend.

Fig 1 Indian E-commerce industry to cross Rs1.1 Trillion (US$ 18bn) in 2015…

Source: IAMAI, Macquarie Research, January 2014

Huge Potential for growth. The various drivers of driving e-commerce in India are in

place, including rising income levels in middle class Indians, an increasing internet

penetration rate in the population, current low levels of online e-commerce activity and

development of the ancillary logistics and payments industries to drive online purchasing

activity. The chart below shows that the numbers of Indians on the internet and number of

Indians using e-commerce are still pretty low. This presents a unique opportunity where

one sees rising internet usage but still low levels of e-commerce activity.

Fig 2 Huge scope for increasing online buyers… Fig 3 …. With penetration rates of mere 12% !!!!

Source: IAMAI, Macquarie Research, January 2014 Source: IAMAI, Macquarie Research, January 2014

192 263 351 473 850 1,148630

36%

34%

35%35% 35%

33%

-

200

400

600

800

1,000

1,200

1,400

2009 2010 2011 2012 2013E 2014E 2015E

31%

32%

33%

34%

35%

36%

37%

Indian Digital Commerce Mkt (Rs bn) YoY growth rate (%)

320

1350

24

200

1220

245

538

2079

205156

270

11 27 25

0

200

400

600

800

1000

1200

1400

1600

USA China Australia Brazil India

Population (m) No. of Internet Users (m) No. of Online Buyers (m)

1.6x

2.0x

1.8x2.9x

8.2x

Ratio of Online Population to Online buyers (x)

64%

50%

55%

34%

12%

0%

10%

20%

30%

40%

50%

60%

70%


Online Buyers as % of Internet Users

We project Indian E-

Commerce Industry

to growth to

US$18bn

opportunity by

FY15E.


13 January 2014 3

Driver for growth in place. We list below the key drivers for driving growth in E-

commerce in India. We present a chart below giving a snapshot of the six key drivers and

then explain them in more detail one by one in the next pages.

Fig 4 Key Drivers of growth in Indian E-Commerce Sector

Source: Macquarie Research, January 2014

E-Commerce Models in India. E-commerce business models differ from traditional

models since they deliver the products directly to the consumer, eliminating multiple

players in the process. Various examples in the developing and developed world show that

top players have almost always outsourced forward logistics, while controlling the back-

end supply chain such as warehousing and inventory management. Most of the energies

of the global e-commerce players have been spent on establishing warehouses that are

capable of handling thousands of orders per hour. Currently, Indian e-commerce

entrepreneurs are looking at their business in three ways

Fig 5 Various approaches to Indian E-Commerce


Indian E-Commerce

Business Models

Inventory Led E.g. Flipkart.com

Niche Business E.g. Infoedge's

naukri.com

Mass Business E.g. Justdial.com

Marketplace E.g.

Snapdealcom

Hybrid E.g. Amazon.com

The drivers for

growth in E-

Commerce in India

are contributing to

its immense

potential.


13 January 2014 4

Travel has the lion’s share but E-Tailing growing the fastest. Indian E-Commerce is

dominated by the online travel segment, which contributes more than 70% of the country’s

e-commerce revenues. However in the last three years, we have seen strong growth in

the e-tailing segment (FY09-13 CAGR of 59%), which is expected to grow even faster in

the coming years on the back of rising mobile penetration and better payment

mechanisms. We expect these trends to continue, with E-tailing showing the strongest

growth amongst peer groups.

Fig 6 Breakdown of Indian Ecommerce Industry – 2013E

Fig 7 ..growth rates for E-Tailing the fastest…


Look out for more IPOs in 12-24 month time frame. In the Indian context, only two

internet-based companies are listed on the markets, including Infoedge (INFTEC IN),

which runs India’s largest job portal (naukri.com), and justdial (JUST IN), which is India’s

largest local search site. In our conversations with various founders and top management

leaders in Indian e-commerce companies, we got a sense that most companies would be

hitting relevant milestones with regards to revenues and profitability in 12-24 months’ time

frame. This should clear the way for multiple IPOs from this segment.

Global Phenomenon: 6 out of top 10 internet IPOs have come in the last three years. We

present a chart below showing the biggest internet IPOs in history.

Fig 8 2011-13 has witnessed 60% of the largest internet IPOs…...ever…..

Name Amount Raised (US$ bn) Year

Facebook 16.0 2012 Twitter 1.8 2013 Google 1.7 2004 Yandex 1.3 2011 Infonet Services 1.1 1999 Shanda Games 1.0 2009 Zynga 1.0 2011 Giant Interactive 0.9 2007 Renren 0.7 2011 Groupon 0.7 2011

Source: Bloomberg, Macquarie Research, January 2014

Online travel

industry

71%

Financial

services

6%

Classifieds

market

5%

Others

2%

E-Tailing

16%

150

16 15 8

449

100

36 31

-

50

100

150

200

250

300

350

400

450

500

Online travel

industry

E-Tailing Financial services Classifieds

market

Market Size (Rs bn) 2009 Market Size (Rs bn) 2013E

2009-13E

CAGR:

32%

2009-13E

CAGR:

59%2009-13E

CAGR:

25%

2009-13E

CAGR:

40%

E.g. MakeMyTrip,

Yatra, IRCTC etc

E.g. flipkart,

snapdeal, jabong,

myntra etc

E.g. various

telecom and

banks

E.g. Infoedge

ltd, JustDial

Indian E-Commerce

market is dominated

by travel but E-

Tailing is the fastest

growing segment.


13 January 2014 5

Higher Private Equity participation should lead to increased exits going forward.

Bain & Company states that out of the 225 IT& ITES deal in India in 2012, 98 deals were in

the e-commerce space. We have seen strong pick-up in private equity deals in the space

since 2011.

Fig 9 IT & ITES deals have climbed sharply in the last two years….

Source: Bain & Company, Macquarie Research, January 2014

Valuations. Compared to the west, India’s e-commerce industry is still in its infancy, but

we believe that it may become a bigger part of the entire retail universe than in the west.

Internet companies tend to trade at high multiples of 20x-50x 1 year forward earnings due

to the very nature of high growth estimates in comparison to traditional brick and mortar

businesses.

We believe that for many young Indians, online shopping may become their primary way to

shop throughout their lives. Whenever significant opportunities such as e-commerce

present themselves, many market participants compete aggressively to try to emerge as

undisputed leaders to gain brand recognition and customer loyalty, and oftentimes these

players change their business models along the way to grow with the market.

494448

216

380

531 551

70 85

30 30

135

225

38 47 29 30

86 98

14%

19%

14%

8%

25%

41%

-

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

PE activity in India - Total Deals IT & ITES Deals

Number of E-commerce deals IT & ITES deals as % of total deals

Internet company

valuations tend to

be in rich zone due

to high-risk/high-

return skew.

Ma

cq

ua

rie R

esea

rch

H

un

ting S

tocks

13 J

an

uary

20

14

6

Fig 10 Global E-commerce Comp Sheet: Indian e-commerce names are in nascent stage

Company Name

Analyst Name

Rec

BB Code

Price (lcy)

Market Cap

(US$M)

Currency

Revenues (lcy m)

Net Profit Margin (%)

FCF (lcy m)

Indian E-Commerce Companies FY14E FY15E FY16E FY14E FY15E FY16E FY14E FY15E FY16E

JustDial na Not rated JUST IN 1,339 1,439 INR 4,606 5,791 na 25 26 na na na na Infoedge na Not rated INFOE IN 465 782 INR 5,479 6,753 8,366 23 22 22 1,422 1,617 2,141 Makemytrip na Not rated MMYT US 19 698 USD 97 115 153 (12) 2 8 (23) 4 na Macquarie E-Commerce Coverage Universe - US companies CY13A CY14E CY15E CY13A CY14E CY15E CY13A CY14E CY15E Amazon Ben Schachter Outperform AMZN US 394 180,178 USD 75,334 92,124 111,325 1 2 4 2,353 4,389 7,550 eBay Ben Schachter Neutral EBAY US 52 67,034 USD 16,094 18,678 22,291 22 22 22 3,164 4,204 5,042 Google Ben Schachter Outperform GOOG US 1,117 373,283 USD 47,161 54,207 61,756 32 34 35 13,738 18,092 21,268 Yahoo Ben Schachter Neutral YHOO US 40 40,507 USD 4,427 4,388 4,269 15 15 16 812 507 542 OpenTable Tom White Neutral OPEN US 80 1,851 USD 189 225 260 25 25 26 59 70 84 Yelp Tom White Neutral YELP US 72 4,985 USD 229 361 532 (4) 2 6 9 46 81 Facebook Ben Schachter Outperform FB US 57 144,053 USD 7,621 9,636 11,682 28 29 30 2,944 4,270 5,280 Twitter Ben Schachter Underperfo

rm TWTR US 66 36,108 USD 630 1,052 1,482 (8) (1) 3 (90) (49) 25

LinkedIn Tom White Outperform LNKD US 204 24,349 USD 1,529 2,221 3,006 13 15 19 319 533 816 Expedia, Inc. Tom White Neutral EXPE US 69 8,989 USD 4,781 5,741 6,756 9 9 8 889 1,366 1,217 Tripadvisor Tom White Outperform TRIP US 80 11,419 USD 938 1,176 1,440 26 26 26 278 328 400 ValueClick Tom White Neutral VCLK US 23 1,515 USD 566 609 656 20 22 22 192 161 173 Groupon Tom White Neutral OPEN US 80 1,851 USD 189 225 260 25 25 26 59 70 84 Macquarie E-Commerce Coverage Universe - Asian Companies Yahoo Japan Nathan Ramler Outperform 4689 JP 592 32,577 JPY 342,987 386,299 409,859 34 33 33 129,186 122,656 132,471 E-commerce China Dangdang

Jiong Shao Outperform DANG US

9 721 CNY 6,291 8,178 10,468 (3) 0 3 (363) (0) 500

Vipshop Holdings Jiong Shao Outperform VIPS US 82 4,776 USD 1,632 2,736 3,717 3 3 4 223 298 344 Rakuten NathanRamler Underperform 4755 JP 1,638 20,680 JPY 525,415 575,806 634,718 10 12 17 (257,156) 11,799 46,257

Note: Prices as of 6 January 2014 close. Data for not-rated companies based on Bloomberg consensus estimates.



13 January 2014 7

Fig 11 Global E-commerce Comp Sheet: The group trades at expensive valuation multiples

Company Name

Bloomberg Code

Market Cap (US$ m)

PER (x)

Current P/FCF (x)

Indian E-Commerce Companies FY14E FY15E FY16E FY13A FY14E FY15E

JustDial JUST IN 1,439 80 64 na na na na Infoedge INFOE IN 782 45 36 29 34 30 23 Makemytrip MMYT US 698 -58 289 64 (0) 191 na

Macquarie E-Commerce Coverage Universe - US companies CY13A CY14E CY15E CY13A CY14E CY15E

Amazon AMZN US 180,178 490 85 38 77 41 24 eBay EBAY US 67,034 19 17 14 21 16 13 Google GOOG US 373,283 25 21 18 27 21 18 Yahoo YHOO US 40,507 27 25 24 50 80 75 OpenTable OPEN US 1,851 40 34 30 31 27 22 Yelp YELP US 4,985 nmf 612 156 568 109 62 Facebook FB US 144,053 67 53 42 49 34 27 Twitter TWTR US 36,108 nmf nmf 1,213 (399) (743) 1,424 LinkedIn LNKD US 24,349 123 73 43 76 46 30 Expedia, Inc. EXPE US 8,989 22 20 18 10 7 7 Tripadvisor TRIP US 11,419 48 39 32 41 35 29 ValueClick VCLK US 1,515 15 12 12 8 9 9 Groupon OPEN US 1,851 40 34 30 31 27 22 Macquarie E-Commerce Coverage Universe - Asian Companies Yahoo Japan 4689 JP 32,577 29 27 25 0 0 0 E-commerce China Dangdang

DANG US 721 nmf 135 12 (2) (2,316) 1

Vipshop Holdings VIPS US 4,776 83 43 27 21 16 14 Rakuten 4755 JP 20,680 43 32 21 (0) 2 0

Note: Prices as of 6 January 2014 close. Data for not-rated companies based on Bloomberg consensus estimates.



13 January 2014 8

What do you get in this report? In this report, we have analysed critical components of the e-commerce landscape and

how they are being impacted in the Indian context. We also highlight the various e-

commerce business models in use in India and a brief overview of the leading players in

each of the segments.

Infoedge Ltd.

•Leading bouquet of businesses including Naukri.com: Leading Indian player in job search, Jeevansathi.com: Top 3 matrimony site , 99acres.com: Leading real estate classified site etc.

•Strategic investments in sites like zomato.com, policybazaar.com etc

JustDial

• India's leading local search engine

Makemytrip.com

• India's #1 travel site

Yatra.com

• Leading competitor to Makemytrip

IRCTC

• 800 pound gorilla in rail bookings

Snapdeal.com

• India's #1 online marketplace

Flipkart.com

• India's #1 inventory based online store

Myntra.com

• India's #2 shopping site

Jabong.com

• Top 3 player: New kid on the block and growing rapidly

Fashionandyou.com

• India's leading flash sale site for lifestyle products


13 January 2014 9

India is on the cusp of E-Commerce revolution The Indian E-Commerce industry is a very recent phenomenon and has been in its infancy

for the larger part of the previous decade. However, in last four years, the industry has

witnessed an incredible CAGR in excess of 30%+ annually. As per IAMAI estimates, the

industry has increased from Rs192bn (US$3.8bn) in 2009 to Rs630bn (US$9.5bn) in

2013E.

Fig 12 Indian E-commerce industry could cross Rs1.1 Trillion (US$ 18bn) in 2015


We are at nascent stages of E-Commerce Industry lifecycle vs Rest of the World

We see huge potential for growth in content of the Indian e-commerce landscape. The

various drivers of driving e-commerce in India are in place, including rising income levels in

middle class Indians, increasing internet penetration rate in the population, current low

levels of online e-commerce activity and development of the ancillary logistics and

payments industries to drive online purchasing activity. The chart below shows that the

numbers of Indians on the internet and number of Indians using e-commerce are still pretty

low. This presents a unique opportunity where one sees rising internet usage but still low

levels of e-commerce activity.



192 263 351 473 850 1,148630

36%

34%

35%35% 35%

33%

-

200

400

600

800

1,000

1,200

1,400

2009 2010 2011 2012 2013E 2014E 2015E

31%

32%

33%

34%

35%

36%

37%

Indian Digital Commerce Mkt (Rs bn) YoY growth rate (%)

320

1350

24

200

1220

245

538

2079

205156

270

11 27 25

0

200

400

600

800

1000

1200

1400

1600



1.6x

2.0x

1.8x2.9x

8.2x


64%

50%

55%

34%

12%

0%

10%

20%

30%

40%

50%

60%

70%



We project Indian E-Commerce Industry

to growth to US$18bn opportunity

by FY15E


13 January 2014 10

Contribution to Indian GDP: Still early stages…

As per the McKinsey Global Institute, the Internet already has an immense impact on the

global economy, contributing an estimated US$1.7 trillion, or 3% of global GDP. Yet half

the number of Internet users live outside the advanced economies, often in countries that

are quickly developing, have significant economic potential and are socially and culturally

diverse, India being a prime example of the above. KPMG estimates that the E-Commerce

industry could contribute around 4% to the GDP by 2020 (vs less than 1% currently).

Fig 15 E-Commerce Industry in early stages in India…

Fig 16 … can lead to huge head room for growth..

Source: IAMAI, Macquarie Research, January 2014 Source: IMF, IAMAI, Macquarie Research, January 2014

How the pie splits in Indian Ecommerce Traffic

Indian E-Commerce is dominated by the online travel segment, which contributes more

than 70% of the e-commerce revenues in the country. However in the last three years, we

have seen strong growth in the e-tailing segment, which is expected to grow even faster in

the coming years on the back of rising mobile penetration and better payment

mechanisms. We expect these trends to continue, with E-tailing showing the strongest

growth amongst peer groups.

Fig 17 Breakdown of Indian Ecommerce Industry - 2009

Fig 18 Breakdown of Indian Ecommerce Industry – 2013E


224210

3019

11

0

50

100

150

200

250


Size of E-Commerce Industry (In US$ bn) - 2013

1.3%

2.4%

2.0%

0.9%

0.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


E-Commerce Industry as % of country's GDP (2013)

Online travel

industry

78%

E-Tailing

8%

Others

2%

Classifieds

market

4%Financial

services

8%

Online travel

industry

71%

Financial

services

6%

Classifieds

market

5%

Others

2%

E-Tailing

16%


13 January 2014 11

We explain the constituents of the e-commerce traffic in India:

Online travel includes booking rail, air, bus tickets, hotel accommodations and tour

packages. The largest players in this category include Indian Railways, Makemytrip,

cleartrip, yatra, goibibo etc.

E-Tailing includes purchases of various consumer products/services such as

electronics, apparel, footwear, jewellery, home & kitchen appliances, consumer

durables, furnishings. The largest players in this category include flipkart, snapdeal

etc.

Financial Services includes services such as paying insurance premiums and

renewals, paying utility and mobile bills, trading shares and securities. The largest

players in this category include various telecom and banking players.

Classified includes jobs, matrimony, car, real estate etc. The largest players in this

category include Infoedge, Timesjobs.com (part of Times of India) and Shine.com (part

of HT Media) etc.

Others include online entertainment ticketing, online food delivery, buying

discounts/deals/vouchers etc.

Fig 19 Online travel still the largest but E-Tailing growing the fastest…


150

16 15 8

449

100

36 31

-

50

100

150

200

250

300

350

400

450

500

Online travel industry E-Tailing Financial services Classifieds market


2009-13E

CAGR: 32%

2009-13E

CAGR: 59% 2009-13E

CAGR: 25%

2009-13E

CAGR: 40%

E.g. MakeMyTrip, Yatra,

IRCTC etc

E.g. flipkart, snapdeal,

jabong, myntra etc

E.g. various telecom

cos and banks

E.g. Infoedge ltd,

JustDial


13 January 2014 12

Drivers of E-Commerce growth in India We list below the key drivers for driving growth in E-commerce in India. We present a chart

below giving a snapshot of the six key drivers and then explain them in more detail one by

one in the next pages.

Fig 20 Key Drivers of growth in Indian E-Commerce Sector



13 January 2014 13

Driver 1: Number of Internet users to cross US by 2014

As per Internet and Mobile Association of India (IAMAI) and IMRB International, the

number of Internet users in India had reached 205m in October 2013, registering a YoY

growth of 40%. They expect the number to reach 243m by June 2014 and nearly 300m

users by December 2014, at which point of time it would have overtaken the US as the

second largest Internet base in the world. China currently leads with more than 550m

internet users, while the US currently has an estimated 245m internet users.

Fig 21 Overall Internet users growth gaining momentum….

Fig 22 ….though penetration rates still low which leaves room for upside…


Urban & Rural users showing strong growth. As per IAMAI, the number of internet

users in urban India was 137m in October 2013 and is expected to touch 158m by June

2014. Similarly, Internet users in rural India stood at 68m in October 2013 which is

expected to touch 85m by June 2014. Currently, urban users constitute ~65% of the total

user base in India.

Fig 23 Urban users contribute ~65% of user base…. Fig 24 ….though rural user growth faster…


106

137

190205 213

243

84

111

149162 169

192

0

50

100

150

200

250

300

Jun-11 Jun-12 Jun-13 Oct-13 Dec13E June14E

Claimed Users (m) Active Users (m)

Estimated CAGR of

32% during 2011-14

80% 78%

49%45%

40%

17%

0%

20%

40%

60%

80%

100%

Japan USA Russia Brazil China India

Internet Penetration Rate (%)

83.5

99

130.4137 141

158

66

80

108116 120

136

0

20

40

60

80

100

120

140

160

180



Estimated CAGR

of 24% during

2011-14

22.5

38

59.6

6872

85

18

31

4146

49

56

0

10

20

30

40

50

60

70

80

90



Estimated CAGR

of 56% during

2011-14


13 January 2014 14

Driver 2: Favourable Demographics: 300m+ middle class population

India has various demographic parameters working in its favour, namely:

One of the highest levels of youth population in the world. India’s population’s

median age is 25 years, which is among the lowest in the world. Further, 58% of the

population is under 30 years of age. This presents a large user base which would be

capable and willing to use internet commerce for its needs.

Fig 25 India is the 4rth largest economy globally...

Fig 26 … with low levels of ecommerce contribution to GDP..

Source: Makemytrip, Macquarie Research, January 2014 Source: KPMG, IAMAI, Macquarie Research, January 2014

Rapidly growing middle class. India’s middle class population stands at over 300m.

This is the world’s second largest middle population after China. As per the World

Bank, average GDP per capita stands at ~US$1,500 for India. With strong economic

growth, these per capita income levels have huge upside.

Rising levels of urbanization. As per the McKinsey Global Institute, the urban

population is already sizable by western standards at 377m (As of 2011) or ~31% of

India’s total population. By 2020, India is likely to have acquired an additional 112m

urban residents due to continued migration from rural to urban areas.

Fig 27 Non Metros contributed only 39% of internet users in India …

Fig 28 … which has risen to 47% in 2011…

Source: KPMG, Macquarie Research, January 2014 Source: KPMG, Macquarie Research, January 2014

16 15.9

12.6

4.8 4.7

2.6 2.4

0

2

4

6

8

10

12

14

16

18

European

Union

USA China India Japan Russia Brazil

2012 GDP at Purchasing Power Parity (In US$ trillion)

1.3%

2.4%

2.0%

0.9%

0.6%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


E-Commerce Industry as % of country's GDP (2013)

2006

Top 8 metros

41%

Other metros

20%

1m+ town

10%

Less than 1m

towns

29%

2011

Top 8 metros

35%

Other metros

18%

1m+ town

11%

Less than 1m

towns

36%


13 January 2014 15

Driver 3: Increasing Mobile Penetration

As per Internet and Mobile Association of India (IAMAI) and IMRB International, the

number of mobile internet users stood at 110m as of October 2013 and was estimated to

reach 130m by December 2013. The segment has been showing ~20% QoQ growth in the

past couple of quarters. We expect this trend to continue on the back of decreasing cost of

smartphones and internet usage charges in India.

Fig 29 Mobile internet users have grown 2.7x in 18 months…


The charts below show that while India has progressed considerably on mobile

penetration, there is still room for upside left on 3G/4G penetration. In our view, 3G/4G

internet penetration will increase due to decreasing costs of bandwidth and smart-phones

over time in the country.

Fig 30 While mobile penetration rates are healthy… Fig 31… 3G/4G penetration has room for upside…

Source: mobithinking, Macquarie Research, January 2014 Source: mobithinking, Macquarie Research, January 2014

48

91

110

130

37

70

85

103

1121

25 27

-

20

40

60

80

100

120

140

Jun-12 Jun-13 Oct-13 Dec13E

Mobile Internet Users (m) Mobile Urban User (m) Mobile Rural User (m)

70%

90%

106% 110% 113% 115% 118%

135%144%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Unite

d Sta

tes

Japa

n

Bra

zil

China

Vietn

am

Indo

nesia

Philip

pine

s

Mex

ico

Mobile subs as a % of population (2Q2013)

92%84%

39%29%

20% 18% 17% 16%7%

0%10%20%30%40%50%60%70%80%90%

100%

United States

Japa

n

Bra

zil

China

Vietnam

Indo

nesia

Philip

pine

s

Mex

ico

India

3G/4G subscribers as % of population (2Q2013)


13 January 2014 16

High speed internet connections set to expand at 44% CAGR during 2012-17. The

chart below shows the growth seen in 2G and 3Q/4G internet connections on mobile

phones in India. In our view, this will become a driving force for increasing e commerce

business in the country.

Fig 32 CAGR of 44% in 3G/4G connections in the next 5 years (2012-17)

Source: GSM Association, Macquarie Research, January 2014

The charts below show that India has a 77% share of mobile users from urban areas. A

large portion of the total mobile users are present in the 18-35 year category which would

be more amenable to e-commerce activity, in our view.

Fig 33 …. With Urban users contributing lion’s share of Indian mobile usage…

Fig 34 ….with more than 80% of Indian mobile users are in 18-35yr category…


347524

741855 798 812 811 791 776 750

1

1167 107 171 252 327 409

39

0

200

400

600

800

1000

1200

1400

2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E

(m)

2G Connections 3G/4G connections

CAGR of 44% in 3G/4G connections

Urban Users

77%

Rural Users

23%

9%

51%

30%

10%

0%

10%

20%

30%

40%

50%

60%

Less than 18 yrs 18-24 yrs 25-35 yrs more than 35 yrs

Demographics of Mobile Users (2013)


13 January 2014 17

Driver 4: Online Buying in nascent stages: Huge Scope for growth

The chart below shows that the number of Indians on the internet and the number of

Indians using e-commerce are still pretty low. This presents a unique opportunity where

one sees rising internet usage but still low levels of e-commerce activity. We believe that

the next 1-3 years will turn out to be an inflection point where this gap reduces

substantially.



Mobile directly contributes to higher frequency of access. The chart below shows that

more than 50% of urban internet users access the internet daily. This is a potent indicator

of the penetration that the internet has made in India. In our view, this will become a driving

force for increasing e-commerce business in the country.

Fig 37 More than 50% of urban users access the Internet daily…..


320

1350

24

200

1220

245

538

2079

205156

270

11 27 25

0

200

400

600

800

1000

1200

1400

1600



1.6x

2.0x

1.8x2.9x

8.2x


64%

50%

55%

34%

12%

0%

10%

20%

30%

40%

50%

60%

70%



Once a Week

10%

Less than once a

month

3%

2-3 times/month

4%

Serveral Times a day

15%

4-5 times/week

16%

2-3 times/week

13%

All 7 days

19%

Once a Day

20%


13 January 2014 18

Driver 5: Healthy internet-capable device ownership + reducing costs of smart-phones = Higher number of online transactions

Few Introductory facts on Indian Telecom. As of March 2013, India had 868m mobile

phone subscribers, with a tele-density rate of 71% for the whole population. Mobile phone

users comprised 96% of the total telephone users in the country. This is comprised of

~525m users in urban areas and ~343m rural users. Over the past two years, smartphone

penetration has shown healthy growth rates on the back of reducing costs. Entry level

smartphone prices have reduced from ~Rs15,000 (US$300) to ~Rs3,000 (US$50) in the

last three years.

Fig 38 Healthy base of internet-capable mobile devices…

Fig 39 … can be augmented by current low levels of smartphone penetration…

Source: TRAI, Macquarie Research, January 2014 Source: Nielsen, IDC, Macquarie Research, January 2014

3G/4G speeds to aid in smartphone adoption. The chart below shows the growth

expected in 2G and 3Q/4G internet connections on mobile phones in India. In our view,

this will become a driving force for increasing e-commerce business in the country.

Fig 40 High speed internet to drive smartphone adoption…


2558

101

149

332

431

540

650

0

100

200

300

400

500

600

700

2006 2007 2008 2009 2010 2011 2012E 2013E

Number of Internet capable mobile devices in India (Mn)

4363

92

115

145

2142

77

137

275

2 4 1124

48

1 5 10 1829

-

50

100

150

200

250

300

2008 2009 2010 2011 2012

(m)

USA China Japan India

1139

67

107

171

252

327

409

72%

60% 60%

47%

30%25%

0

100

200

300

400

500

2010 2011 2012E 2013E 2014E 2015E 2016E 2017E

0%

10%

20%

30%

40%

50%

60%

70%

80%

No of 3G/4G connections in India (m) YoY growth (%)


13 January 2014 19

We found more than 80 Smartphone’s in the Rs2,000 (US$30)-Rs5,000 (US$80) price

range. A simple search on flipkart.com reveals 87 smart-phones between Rs2,000 to

Rs5,000 price range. This is proof of the lowering costs of smartphones in India which can

be a big driver for e-commerce penetration in India.

Fig 41 Large number of smart-phones available in US$30-US$80 price range…

Source: Flipkart, Macquarie Research, January 2014


13 January 2014 20

Driver 6: Cash on Delivery: Why it works in India?

Cash on Delivery (COD) is currently one of the most popular modes of payment among

Indian online stores. The major reason for its popularity is that the buyers do not have to

pay anything before the goods are delivered to them. This helps in giving some confidence

to new buyers, as e-commerce is still a growing concept in India. The reasons why COD is

popular in India are as follows:

Lack of Payment Alternatives. A large portion of India’s population does not have a

debit or credit cards; those who do have such cards do not use them much for online

transactions. Therefore COD is one means where a seller can reach out to buyers

even if they don’t have means to make an online payment.

Fig 42 Debit card usage is on the rise…

Fig 43 … but considering Indian Population of 1.2bn, penetration levels are quite low…


Product Condition and Satisfaction. Due to the initial stage of e-commerce in India,

consumers have been hesitant of the process of initiating a refund in case of

unsatisfactory product delivery. Moreover, Indian consumers prefer to physically look,

feel and touch something before buying. In such cases, COD comes as a good option

for buyers to actually check the product before paying for it.

Scam Scare. The trust for online shopping and ecommerce has been increasing in

India but many still fear using new e-commerce companies and fear that they’ll be

scammed. COD works in removing this fear for new shoppers.

Banking Channel alternatives: M-Pesa and Prepaid Cards still in nascent stages.

M-Pesa or M-Paisa (as it is known in India) is a mobile-phone based money transfer

service offered by Vodafone in India since 2011. Though mobile penetration in India is

high, mobile-based money transfer systems are still in their infancy. In our view, given

the alternative of Cash on Delivery, these alternate channels would take time to

develop and grow as a viable payment mechanism.

17 23 28 25 18 18 18

50

75

102

137

182

228

278

-

50

100

150

200

250

300

FY06 FY07 FY08 FY09 FY10 FY11 FY12

Credit cards (m) Debit cards (m)

4.5

2.92.6 2.6

1.81.6

1.20.9

0.2

0

1

2

3

4

5

USA

Can

ada

Aus

tralia U

K

Singa

pore

China

Bra

zil

Rus

sia

Indi

a

Number of cards per capita (2011)


13 January 2014 21

Indian E-Commerce Eco-system To be or not to be: Inventory or No Inventory

E-commerce business models differ from traditional models since they deliver the products

directly to the consumer while eliminating the middleman from the process. Various

examples around the globe show that top e-commerce players usually outsource forward

logistics and control back-end activities like storage and inventory management.

Currently, Indian e-commerce entrepreneurs are looking at their business in three ways:

Fig 44 Various approaches to Indian E-Commerce


Indian E-Commerce

Business Models

Inventory Led E.g. Flipkart.com

Niche Business E.g. Infoedge's

naukri.com

Mass Business E.g. Justdial.com

Marketplace E.g.

Snapdealcom

Hybrid E.g. Amazon.com

All 3 models exist in

India and the top

players in each

would garner lion’s

share, in our view.


13 January 2014 22

Inventory-Led Business Model

Why does it exist in India? For a market like India, where customers have low faith in

shopping online, an inventory-led business model leads to a certain amount of customer

trust. There is an immense need to build this trust to create repeat customers. For

businesses which prefer the inventory-led business model in India, the belief is that this

trust can only be built by excellent customer service, which in turn is best taken care of

when you have control over the inventory. This ensures speedier deliveries, quality checks,

and an overall better customer experience.

Where does it work? Inventory-led business models usually are more prevalent in areas

like fashion, clothing, electronics etc where there are sensitivities to the fact that these are

all high involvement purchases. The business becomes the single interface to the user and

the customer does not have to worry about who the real inventory owner is. This kind of

intangible value creation for the brand would not have come through any amount of

marketing spend.

Challenges facing inventory-led model. Large warehouses, limited credit time from

vendors and added liability of dead stock do not work in favour of this model. It also gets

more complex as the business scales and as one introduces new product categories.

However, the control over the complete value chain that this model offers has a lot of

benefits, as it means greater bargaining power with suppliers and higher gross margins.

Leading players using inventory business model in India. Flipkart (www.flipkart.com)

is the leading player of inventory-led business model in India. For most people who are not

part of the Indian e-commerce ecosystem, Flipkart has become synonymous with

inventory-led business in India. A snapshot of the home page of Flipkart is given below.

Fig 45 Flipkart has become synonymous with inventory business model in India

Source: flipkart, Macquarie Research, January 2014

http://www.flipkart.com/


13 January 2014 23

Marketplace Business Model

Why does it exist? The marketplace model of e-commerce allows for fast scalability with

relatively less capital consumption and more choices for buyers. Additionally, one does not

have to worry about cost of warehousing, purchasing inventory beforehand etc.

Theoretically speaking, one can have thousands and thousands of sellers on a single

marketplace.

Where does it work? The model has been highly successful globally. Except Amazon in

US, in most other countries, a marketplace model has ultimately become the market

leader, e.g., Taobao in China, Mercado Libre in Latin America, Gmarket in South Korea

etc. The model is highly scalable once you are able to fine-tune the processes and put the

right systems in place to be able to maintain marketplace hygiene. In India the marketplace

model can be a successful venture in almost any product type. With so many sellers

having their businesses offline, they can use the marketplace to sell part or all of their

inventory online.

Challenges facing marketplace-led model. The road for creating marketplace is not all

smooth and it poses dependency on every aspect of business on third parties or

outsourcing from supply chains to payment and logistics. In our view, cracking the supply

chain and keeping track of logistics and customer satisfaction is the most complex part of

the whole chain.

Leading players using marketplace business model in India. Snapdeal

(www.snapdeal.com) is the leading player with a marketplace-led business model in India.

For a lot of external elements, snapdeal has become synonymous with marketplace-led

business in India. A snapshot of the home page of snapdeal is given below.

Fig 46 snapdeal has become synonymous with marketplace business model in India

Source: snapdeal, Macquarie Research, January 2014

http://www.snapdeal.com/


13 January 2014 24

Hybrid Business Model

Why does it exist? The hybrid model of e-commerce involves being an offline retailer and

also having an online marketplace.

Where does it work? The model has been highly successful with Amazon in the US. We

also have Rakuten and Yahoo in Japan as an example of this model.

Capital is the biggest challenge. The hybrid business model involves a huge amount of

capital investment in setting and maintaining both offline and online presence.

Leading players using Hybrid business model in India. Amazon (www.amazon.com) is

the leading player of the hybrid-led business model globally. For a lot of external elements,

Amazon has become synonymous with hybrid led business. A snapshot of the home page

of Amazon is given below.

Fig 47 Amazon has become synonymous with hybrid business model globally…

Source: amazon, Macquarie Research, January 2014

http://www.amazon.com/


13 January 2014 25

Look out for more IPOs The start of good times for E commerce listings

Looking at listings in 12-24 months’ time. In the Indian context, there are two internet-

based companies listed on markets including Infoedge (INFTEC IN) which runs India’s

largest job portal (naukri.com) and justdial (JUST IN), which is India’s largest local search

site. In our conversations with various founders and top management leaders in Indian e-

commerce companies, we got a sense that most companies would be hitting relevant

milestones with regards to revenues and profitability in 12-24 months’ time. This should

clear the way for multiple IPOs from this segment.

Global Phenomenon: six out of top 10 internet IPOs have come in last three years.

We present a chart below showing the biggest internet IPOs in History.

Fig 48 2011-13 has witnessed 60% of the largest internet IPOs…...ever…..

Name Amount Raised (US$ bn) Year

Facebook 16.0 2012 Twitter 1.8 2013 Google 1.7 2004 Yandex 1.3 2011 Infonet Services 1.1 1999 Shanda Games 1.0 2009 Zynga 1.0 2011 Giant Interactive 0.9 2007 Renren 0.7 2011 Groupon 0.7 2011


Higher Private Equity participation should lead to increased exits going forward.

Bain & Company states that out of the 225 IT& ITES deal in India in 2012, 98 deals were in

the e-commerce space. We have seen a strong pick-up in private equity deals in the space

since 2011.

Fig 49 IT & ITES deals have climbed sharply in the last two years….

Source: Bain & Company, Macquarie Research, January 2014

494448

216

380

531 551

70 85

30 30

135

225

38 47 29 30

86 98

14%

19%

14%

8%

25%

41%

-

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

PE activity in India - Total Deals IT & ITES Deals

Number of E-commerce deals IT & ITES deals as % of total deals

Internet company

valuations tend to

be in rich zone due

to high-risk/high-

return skew


13 January 2014 26

Regulation: Hurdle remains on FDI policy Why Amazon could not enter India?

Introduction. Until 2011, Indian laws prohibited foreign direct investment (FDI) in multi-

brand Indian retail, forbidding foreign groups from any ownership in supermarkets,

convenience stores or any retail outlets, to sell multiple products from different brands

directly to Indian consumers.

Where do things stand as of today? In November 2011, FDI norms in retail in India were

changed and brought about the following changes:

Foreign groups are now allowed to own up to 51% in "multi-brand retailers", as

supermarkets are known in India

Single brand retailers, such as Apple, Ikea etc can own 100% of their Indian stores, up

from the previous cap of 51%

Both multi-brand and single brand stores in India will have to source nearly a third of

their goods from small and medium-sized Indian suppliers

What does this mean? Thus, FDI is currently set at 51% for multi-brand stores and 100%

in single brand retail stores. While 100% FDI is allowed in business-to-business (B2B) e-

commerce, it’s banned in business-to-consumer (B2C) retail.

The current Indian Foreign Direct Investment (FDI) policy doesn’t allow e-commerce

players to retail directly to consumers. FDI is, however, allowed in online marketplaces,

where the site is essentially a platform to sell other retailers’ products (like Amazon,

Flipkart, etc). So companies either follow the marketplace model to raise investments, or

have structured their business as two separate entities, including the marketplace model,

to comply with the policy. Relaxation of rules on FDI in the space would help raise the

funds a lot of e-commerce players need and attract the interest of bigger international

companies in India.

How are Indian e-commerce companies dealing with the regulation? Indian e-

commerce companies set up separate entities for activities where 100% FDI is allowed.

This usually covers back-end operations such as logistics, inventory and technology, which

enables 100% Indian-owned and controlled front-end entities to leverage the capabilities of

these back-end operations.

… but changes can be on the way. Media reports (Link) suggests that Department of

Industrial Policy and Promotion (DIPP) has started consultations with stakeholders on

allowing foreign direct investment in retail e-commerce, to open the sector for foreign

investors before the end of this financial year.

The Indian Govt

policy on FDI in

retail can be a

speed breaker for

potential

investments in the

sector.

http://www.business-standard.com/article/economy-policy/government-plans-to-allow-fdi-in-e-commerce-before-april-113123000754_1.html


13 January 2014 27

Listed Company Profiles Indian Listed Players: First Movers Advantage

I. JustDial (JUST IN, Not Rated)

II. Infoedge (INFTEC IN, Not Rated)

Online Travel: Industry Overview

I. Makemytrip (MMYT US, Not Rated)

II. Yatra (Unlisted)

III. IRCTC (Unlisted)

E-Commerce: Industry Overview

I. Snapdeal (Unlisted)

II. Flipkart (Unlisted)

III. Jabong (Unlisted)

IV. Myntra (Unlisted)

V. Fashionandyou (Unlisted)

Others

I. Network18 Media Investments (NETM IN, Not Rated)


13 January 2014 28

INDIA

INFOE IN Not rated

Stock price as of 10/01/2014 Rs 465

GICS sector Technology/Internet

Market cap US$m 782

Avg Value Traded (3m) US$m 9.1

12m high/low Rs 495/285

PER FY15 x 34

P/BV FY 15 x 5.8

Historical financials

YE March (Rs m) FY11A FY12A FY13A

Revenue 3,217 3,903 4,700

% growth 36 21 20

EBITDA 835 1,167 1,186

% growth 30 40 2

EPS 5 10 10

% growth 2 86 4

EBIT Margin 23 28 23

Source: Company data, FactSet,January 2014

Share Price Driver

Thematic

Growth

Value

Event


Info Edge Share Price Chart

Source: Bloomberg, January 2014

Analyst(s) Atul Soni +91 22 6720 4089 [email protected]


MacVisit: Info Edge Core business strong, string of pearls strategy for unlisted investments We met with Mr. Ambarish Raghuvanshi, Group President Finance and Chief

Financial officer (CFO) of Info Edge (India) Limited, which is India’s largest

on-line classifieds company in recruitment, matrimony, real estate, education

and related services.

Impact

Business Model: String of Pearls strategy. Info Edge operates in 4 key

business lines and has 6 strategic investments in external unlisted

ecommerce ventures. Its 4 key business segments are:

Recruitment. This comprises online recruitment classifieds

(www.naukri.com, India’s leading job site and www.naukrigulf.com, a job

site focused at the Middle East job market) and offline executive search

(www.quadranglesearch.com). Related sites in this business are a

professional networking site (www.brijj.com) and a fresher hiring site

(www.firstnaukri.com).

Matrimony. This comprises online matrimony classifieds

(www.jeevansathi.com) and 14 offline Jeevansathi Match Points.

Real Estate. This comprises online real estate classifieds

(www.99acres.com), a real estate brokerage business

(www.allcheckdeals.com, housed in a subsidiary named India Private

Limited).

Education. This comprises online education classifieds

(www.shiksha.com).

Key Drivers for growth. Info Edge believes it stands to benefit from the

secular growth story of increasing internet penetration, strong and established

brands, increasing 3G mobile subscriber base and young demographics

profile for the country.

Key Strengths & weaknesses.

Key strengths include 1) First mover advantage in various categories, 2)

Recruitments, contributing ~77% of company revenues is ~50% EBITDA

margin business, 3) No debt and cash generating business.

Key weaknesses include 1) Low barriers to entry, 2) Failure to adapt to

newer technological shifts, 3) Competition

Outlook

Valuation. The stock is currently trading at 34x FY15 earnings on Bloomberg

estimates.

0

100

200

300

400

500

600

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Share Price (Rs)


13 January 2014 29

Ownership

History and corporate governance

Promoters – 52%

FII – 27%

DII – 11%

Share ownership as of 30th September 2013. Source: Bombay Stock

Exchange, January 2014

Top Shareholders:

HDFC AMC: 6%

Mathews International, Nalanda India Equity: 4%

Capital group, Reliance Capital Trust: 3%

The company was incorporated in 1995 as Info Edge (India)

Private Limited and converted into a Public Limited in April,

2006. Info Edge is largely known for its recruitment portal

Naukri.com in India. It was the first listed internet-based

player on Indian bourses.

Auditors: Statutory Audit performed by PWC

5 Independent Directors out of 9 Directors

Balance sheet data and refinancing (as of 2QFY14)

Management and Directors background

Cash and cash equivalents: Rs4.8bn

Gross Debt: Nil

Sanjeev Bikhchandani, Founder and Executive Vice

Chairman – Founded the company in 1995 and previously

worked with Lintas and GSK.

Hitesh Oberoi, Managing Director and CEO – Joined the

company in 2000 and has worked with HLL previously.

Ambarish Raghuvanshi, CFO. Joined the company in

2000 and has worked with Bank of America and HSBC

previously.

Latest Qtr Stand-alone results highlights (2QFY14)

Latest Consolidated Annual results highlights (FY13)

Revenue: Rs1.2bn (up 15% YoY)

Operating Income: Rs402m

Operating Income margin: 32.5%

PAT: Rs333m

Diluted EPS: Rs3.05


Operating Income: Rs1,069m

Operating Income margin: 23%

PAT: Rs916m

Diluted EPS: Rs8.39

Fig 1 Sales has seen a CAGR of 28% since FY06… Fig 2 …. EBIT Margins have been steady….

Source: FactSet, Macquarie Research, January 2014 Source: FactSet, Macquarie Research, January 2014

196 329 583 566 576 755 1,084 1,069

24% 24%

27%

23%24%

23%

28%

23%

0

200

400

600

800

1,000

1,200

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

0%

5%

10%

15%

20%

25%

30%

EBIT (Rs m) EBIT Margin (%)

824

1,396

2,189 2,458 2,371

3,217

3,903

4,700 87%

69% 57%

12%

-4%

36% 21% 20%

0

1,000

2,000

3,000

4,000

5,000

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 -20%

0%

20%

40%

60%

80%

100%

Sales/Revenue (Rs m) YoY Growth (%)


13 January 2014 30

The growth proposition

The value propositon

Info Edge stands to benefit from the secular growth story of

increasing internet penetration, strong and established

brands, increasing 3G mobile subscriber base and young

demographics profile for the country.

Info Edge owns a diversified portfolio of portals like

Naukri.com, 99acres.com, Jeevansathi.com and

Shiksha.com, which have established market and mind

share.

This is evident in Naukri’s market leadership among job

portals, with 60%+ market share and 99.acres’s market

leadership (30%+) among real estate classifieds portal. Its

matrimony portal – Jeevansathi (JS) is one of the top

players in the online matrimony space.

Its investment companies like Zomato, PolicyBazaar and

Meritnation have also shown early success with strong

market share and brand recognition.

The business model

The main risks

Info Edge operates in 4 key business lines (Recruitments,

Matrimony, Real Estate & Education) and has 6 strategic

investments in external unlisted ecommerce ventures, which

are listed below:

Competition from new or existing players

Macro environment: Any negative development in the macro

environment can slow growth for the company, since

classified business is highly linked to condition of the

economy

Strengths

Weaknesses

First mover advantage in various categories

Recruitments, contributing ~77% of company revenues, is

~50% EBITDA margin business

No debt and cash generating business

Low barriers to entry

Failure to adapt to newer technological shifts

Competition

Opportunities

Threats

Rising internet penetration

Improving macroeconomic conditions

Strong growth in Mobile platform

Technological obsolence

Competing products from new or existing players

Investee Company Website

Total amount

invested (Rs m)

Approx. diluted

and converted

shareholding %

% of the

total amount

invested

Year of

Investment

Active

Zomato Media Pvt Ltd. www.zomato.com 860 58% 30% 2010

Applect Learning Systems Pvt Ltd. www.meritnation.com 615 54% 22% 2008

Etechaces Marketing and Consulting Pvt Ltd. www.policbazaar.com 325 32% 11% 2008

Kinobeo Software Pvt Ltd. www.mydala.com 270 47% 9% 2011

Canvera Digital Technologies Pvt Ltd. www.canvera.com 375 25% 13% 2012

Happily Unmarried Marketing Pvt Ltd. www.happilyunmarried.com 50 25% 2% 2012

Sub Total 2,495 88%

Written off/ provisioned for/ exited

Studyplaces, Inc. www.studyplaces.com 45 13% 2% 2008

Ninety Nine Labels Pvt Ltd. www.99labels.com 285 47% 10% 2011

Nogle Technologies Pvt Ltd. www.floost.com 26 31% 1% 2011

Sub Total 356 12%

Total 2,851 100%


13 January 2014 31

Selected Financials

Fig 3 Historical P&L Statement

Source: FactSet, Company Data, January 2014

Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 Mar '11 Mar '12 Mar '13

366 Days 365 Days 365 Days 365 Days 366 Days 365 Days 365 Days 365 Days 366 Days 365 Days

Sales/Revenue 192 441 824 1,396 2,189 2,458 2,371 3,217 3,903 4,700

Sales Growth (%) 115 130 87 69 57 12 -4 36 21 20

Cost of Goods Sold (COGS) incl. D&A 72 408 607 1,043 1,564 1,836 985 1,359 1,670 2,265

COGS Growth (%) 77 470 49 72 50 17 -46 38 23 36

Gross Income 120 32 217 353 625 622 1,385 1,859 2,233 2,434

Gross Income Growth (%) 147 -73 572 63 77 -1 123 34 20 9

Gross Margin (%) 63 7 26 25 29 25 58 58 57 52

SG&A Expense -- -- -- -- -- -- 761 976 896 1,267

SGA Growth (%) -- -- -- -- -- -- -- 28 -8 41

SG&A to Sales (%) -- -- -- -- -- -- 32 30 23 27

Other Operating Expense 84 0 21 24 42 56 49 128 253 99

EBIT (Operating Income) 36 32 196 329 583 566 576 755 1,084 1,069

EBIT Growth (%) 397 -12 510 68 77 -3 2 31 44 -1

EBIT Margin (%) 19 7 24 24 27 23 24 23 28 23

Nonoperating Income (Expense) - Net 3 6 16 67 195 278 272 199 389 472

Interest Expense 1 2 4 7 0 0 1 1 1 1

Interest Expense Growth (%) 49 184 161 62 -94 -7 64 34 -17 42

Unusual Expense (Income) - Net 0 0 0 0 0 0 38 -103 8 237

Pretax Income 39 37 207 389 778 844 810 1,056 1,464 1,303

Pretax Income Growth (%) 354 -6 467 88 100 8 -4 30 39 -11

Pretax Margin (%) 20 8 25 28 36 34 34 33 38 28

Income Taxes 14 33 74 118 224 261 318 400 529 529

Tax Rate (%) 37 92 36 30 29 31 39 38 36 41

Equity in Earnings of Affiliates 0 0 0 0 0 -12 -6 -1 -30 -15

Other After Tax Adjustments 0 0 0 0 0 0 0 0 114 4

Consolidated Net Income 24 3 133 271 554 570 487 654 1,020 763

Minority Interest Expense 0 0 0 0 0 0 -34 23 -14 -153

Net Income 24 3 133 271 554 570 521 631 1,033 916

Net Income Growth (%) 45 -87 4,187 104 105 3 -9 21 64 -11

Net Margin (%) 13 1 16 19 25 23 22 20 26 19

Net Income available to Common 24 3 133 271 554 570 521 631 1,033 916

EPS (recurring) -- -- 1.5 2.8 5.1 5.2 5.0 5.1 9.5 9.9

EPS (recurring) Growth (%) -- -- -- 85.9 79.6 2.9 -4.1 2.2 85.9 4.1

EPS (diluted) -- -- 1.5 2.8 5.1 5.2 4.8 5.8 9.5 8.4

EPS (diluted) Growth (%) -- -- -- 85.7 79.6 2.9 -8.7 21.3 63.6 -11.4

EBITDA 45 43 223 375 639 637 641 835 1,167 1,186

EBITDA Growth (%) 213 -4 417 68 70 -0 1 30 40 2

EBITDA Margin (%) 24 10 27 27 29 26 27 26 30 25


13 January 2014 32

Fig 4 Historical Balance Sheet




Cash & ST Investments 119 177 447 2,596 1,583 3,296 3,864 4,111 3,159 3,633

Cash & ST Investments Growth (%) 196 49 153 480 -39 108 17 6 -23 15

Cash & ST Investments / Total Assets (%) 77 57 70 84 38 82 68 56 35 34

Short-Term Receivables 10 34 28 48 107 137 197 277 123 211

Accounts Receivable Growth (%) 109 231 -18 73 124 28 45 41 -56 72

Accounts Receivable Turnover (x) 26 20 27 37 28 20 14 14 19 28

Other Current Assets 7 27 51 317 499 62 1,124 1,507 2,154 2,574

Total Current Assets 136 238 526 2,961 2,189 3,494 5,186 5,895 5,436 6,419

Net Property, Plant & Equipment 16 35 76 90 374 383 345 694 627 1,004

Total Investments and Advances 0 0 0 0 1,557 107 68 593 2,849 2,451

Long-Term Note Receivable 1 15 16 16 13 16 20 14 16 67

Intangible Assets 0 25 19 14 8 3 19 47 15 616

Deferred Tax Assets 1 -- -- 7 11 19 34 59 42 45

Other Assets 0 0 0 0 0 0 0 0 112 149

Total Assets 154 313 638 3,088 4,152 4,023 5,671 7,301 9,097 10,751

Total Assets Growth (%) 101 103 104 384 34 -3 41 29 25 18

Asset Turnover (x) 2 2 2 1 1 1 0 0 0 0

Return on Assets (%) 21 1 28 15 15 14 11 10 13 9

ST Debt & Curr. Portion LT Debt 0 0 1 2 34 2 3 4 4 5

Accounts Payable 13 35 77 142 248 158 209 352 382 557

Accounts Payable Growth (%) 457 178 118 85 74 -36 33 68 9 46

Income Tax Payable -- -- -- -- 427 3 1,057 1,482 1,994 2,497

Other Current Liabilities 60 148 306 793 739 571 626 1,054 1,467 1,495

Total Current Liabilities 73 183 383 936 1,448 734 1,896 2,892 3,846 4,553

Current Ratio 2 1 1 3 2 5 3 2 1 1

Quick Ratio 2 1 1 3 2 5 3 2 1 1

Cash Ratio 2 1 1 3 1 4 2 1 1 1

Long-Term Debt 0 0 1 2 2 1 3 3 3 5

Long Term Debt Growth (%) -53 44 222 85 -3 -29 104 -5 -3 73

Provision for Risks & Charges 1 2 4 14 21 34 25 40 1 4

Deferred Tax Liabilities -- 2 2 -- -- -- -- -- -- --

Other Liabilities 0 -0 0 0 0 0 -0 0 0 0

Total Liabilities 75 187 390 953 1,471 770 1,924 2,934 3,850 4,562

Total Liabilities / Total Assets (%) 48 60 61 31 35 19 34 40 42 42

Common Equity 79 126 247 2,135 2,681 3,253 3,746 4,351 5,272 6,085

Common Equity / Total Assets (%) 52 40 39 69 65 81 66 60 58 57

Total Shareholders' Equity 79 126 247 2,135 2,681 3,253 3,746 4,351 5,272 6,085

Total Shareholders' Equity / Total Assets (%) 52 40 39 69 65 81 66 60 58 57

Return on Equity (%) 36 3 71 23 23 19 15 16 21 16

Accumulated Minority Interest 0 -- 0 0 0 0 0 16 -25 105

Total Equity 79 126 247 2,135 2,681 3,253 3,746 4,367 5,247 6,189

Liabilities & Shareholders' Equity 154 313 638 3,088 4,152 4,023 5,671 7,301 9,097 10,751

Assets

Liabilities & Shareholders' Equity


13 January 2014 33

Fig 5 Historical Cash Flow Statement




Net Income / Starting Line 39 37 207 389 778 853 810 1,004 1,472 1,540

Net Income Growth (%) 354 -6 467 88 100 10 -5 24 47 5

Depreciation, Depletion & Amortization 9 11 28 46 56 71 65 80 83 118

Other Funds 2 44 -64 -120 -215 -380 -263 -353 -680 -634

Funds from Operations 49 92 171 315 619 544 612 731 876 1,024

Changes in Working Capital 38 21 172 266 259 -240 22 540 402 120

Net Operating Cash Flow 87 113 342 581 878 304 633 1,271 1,278 1,143

Net Operating Cash Flow Growth (%) 292 29 204 70 51 -65 108 101 1 -11

Net Operating Cash Flow / Sales (%) 46 26 42 42 40 12 27 40 33 24

Cash Flow Return on Invested Capital (%) 129 110 183 49 36 10 18 31 27 20

Capital Expenditures -8 -55 -63 -54 -326 -87 -44 -434 -89 -533

Capital Expenditures Growth (%) 68 549 15 -15 508 -73 -49 878 -80 501

Capital Expenditures / Sales (%) 4 12 8 4 15 4 2 13 2 11

Net Assets from Acquisitions 0 0 0 0 0 0 -34 -109 0 0

Sale of Fixed Assets & Businesses 0 0 1 0 2 1 1 5 72 156

Purchase/Sale of Investments -5 -16 -105 -2,054 -439 2,642 -998 -1,528 -434 -564

Other Funds 0 0 0 0 -20 -99 34 104 0 0

Net Investing Cash Flow -14 -70 -168 -2,108 -784 2,457 -1,042 -1,962 -451 -941

Net Investing Cash Flow Growth (%) -191 -419 -139 -1,158 63 -- -142 -88 77 -109

Net Investing Cash Flow / Sales (%) -7 -16 -20 -151 -36 100 -44 -61 -12 -20

Cash Dividends Paid -0 -0 -9 -16 -20 -20 -20 -20 -41 -109

Cash Dividend Growth (%) -- 40 2,129 75 25 0 0 0 100 167

Change in Capital Stock 1 0 0 1,638 0 0 0 0 0 0

Issuance/Reduction of Debt, Net -0 0 1 2 1 -1 3 1 -0 3

Other Funds -0 -0 -1 -2 -3 -3 -3 -3 -7 -18

Net Financing Cash Flow 0 -0 -10 1,621 -23 -25 -21 -23 -48 -124

Net Financing Cash Flow Growth (%) -- -600 -2,038 -- -101 -6 13 -9 -105 -159

Net Financing Cash Flow / Sales (%) 0 -0 -1 116 -1 -1 -1 -1 -1 -3

Miscellaneous Funds 0 -0 -0 -0 -0 0 -0 0 0 0

Net Change in Cash 74 42 165 94 71 2,736 -430 -714 779 78

Free Cash Flow 79 58 279 527 552 217 589 838 1,189 610

Free Cash Flow Growth (%) 357 -27 383 89 5 -61 171 42 42 -49

Free Cash Flow per Share -- -- 3 6 5 2 5 8 11 6

Free Cash Flow Yield (%) -- -- -- 3 2 2 2 2 3 2

Operating Activities

Investing Activities

Financing Activities


13 January 2014 34

INDIA

JUST IN Not rated

Stock price as of 10/01/2014 Rs


Market cap US$m 1439

Avg Value Traded (3m) US$m 10m

12m high/low Rs 1479/590

PER FY15 x 64

P/BV FY15 x 14.2


YE March (Rs m) FY11A FY12A FY13A

Revenue 1,839 2,621 3,626

% growth 41 42 38

EBITDA 454 673 1,014

% growth 53 48 51

EPS 3.9 7.4 10.1

% growth Na 89.4 36.5

EBIT Margin (%) 21 22 24


Share Price Driver

Thematic

Growth

Value

Event


Just Dial Share Price Chart




MacVisit: Just Dial Dialling In Event

We met Mr. Ram Kumar Krishnamachari, Chief Financial Officer (CFO) of

Just Dial, to understand the outlook and the business drivers for the company

and their positioning vs the offerings of competitors.

Impact

Business Model: Search is the key driver. Just Dial is a “local” search

engine company which provides search services with information & user

reviews of local businesses, products & services across India. The search

results are delivered through multiple platforms such as Internet, Mobile

internet (App), Telephone (Voice) and text (SMS). The service is provided free

of cost to users, whereas it generates revenue from paid advertisers who

subscribe to fee-based campaign packages to list their business

(predominately, SMEs) on a priority basis on search results.

Key drivers for growth. Just Dial has successfully transformed itself from a

mere voice based local search service provider to a provider of services

across other emerging & underpenetrated platforms like internet & mobile

internet. Currently, JDL’s internet platform generates ~45% of the search

requests, followed by traditional voice (~30% in 2QFY14 vs ~64% in FY09)

and mobile internet (~25% in 2QFY14 vs ~2% in FY09). Increasing

smartphone penetration and an underpenetrated internet market offer

significant opportunities for JDL. The CFO said that voice calls are growing at

20% pa while mobile internet is growing at 150%.

Key strengths & weaknesses

Key strengths include: 1) First mover advantage in the category, 2)

Profitable business model, 3) No debt and cash generating business, 4)

Access through multiple platforms.

Key weaknesses include: 1) Low barriers to entry, 2) Potential failure to

adapt to newer technological shifts.

Key threats & challenges

Competition. The biggest threat facing Just Dial is competition from

established players (Google, Facebook, etc) launching similar

applications, which could hamper the company’s strong growth

momentum.

Macro environment. Any negativity in the macro environment could slow

down Just Dial’s growth since a large portion of the company’s paying

customers are small and medium size enterprises which could be

affected by macroeconomic conditions.

Outlook

Valuation. The company is currently trading at 64x FY15 earnings on

Bloomberg estimates.

0

200

400

600

800

1000

1200

1400

1600

1800

Jun-13 Sep-13 Dec-13

JustDial Share Price (Rs)


13 January 2014 35

Ownership


Promoters – 33%

FII – 22%

DII – 6%

Share ownership as of 30th September 2013.Source: Bombay Stock Exchange, January 2014

Top Shareholders:

Tiger Global: 13%

SAIF II Mauritius:11%

Sequoia capital: 9%

Just Dial is a “local” search engine company in India,

incorporated in 1993 as A&M communications by Mr. V.S.S

Mani. The company started offering local search services in

1996 under the Just Dial brand. The official website

www.justdial.com was launched in 2007

Auditors: S R Batliboi & Associates LLP.


Management and Directors’ background

Cash and cash equivalents: Rs5.7bn

Gross Debt: Nil

Mr. V.S.S. Mani, Managing Director – Founder and an

industry veteran with over 25 yrs of experience in media and

local search services.

Mr. V. Krishnan, Executive Director– Co-Founder and has

over 20 yrs of experience in strategic planning and

execution.

Mr. Sandipan Chattopadhyay, CTO. Over 16yrs of

experience in technology services and been with Just Dial

since 2009.

Mr. Ramkumar Krishnamachari, CFO. Over 22yrs of

experience in finance and accounting.

Latest Consolidated Quarter results (2QFY14)




Operating Income margin: 27.3%

PAT: Rs287m

Diluted EPS: Rs4.07



Operating Income margin: 24%

PAT: Rs684m

Diluted EPS: Rs9.95

Fig 1 Sales CAGR of 39% since FY08 Fig 2 Improvement in EBIT margins has been steady...

Source: Company Data, Macquarie Research, January 2014 Source: Company Data, Macquarie Research, January 2014

696859

1,309

1,839

2,621

3,628

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY08 FY09 FY10 FY11 FY12 FY13

Revenues (Rs m)

8 35245

386

583

864

1%

4%

19%

21%22%

24%

-

100

200

300

400

500

600

700

800

900

1,000


0%

5%

10%

15%

20%

25%

30%

EBIT EBIT Margin (%)


13 January 2014 36



Just Dial has transformed itself from a mere voice based

local search service providers to be present across various

mediums including voice, internet & mobile internet.

Currently, JDL’s internet platform generates ~45% of the

search requests, followed by traditional voice (~30% in

2QFY14 vs ~64% in FY09) and mobile internet (~25% in

2QFY14 vs ~2% in FY09).

Increasing smartphone penetration and an underpenetrated

internet market provide significant opportunities for JDL,

which has a strong mindshare with users. The CFO said

that voice calls are growing at 20% pa while mobile internet

is growing at 150%.

Just Dial monetises its services by allowing service

providers to be given top billing when a user asks for a

service category or for leads to be referred to them.

This means that when a user is searching for dentists in

Mumbai, the user is sent 4 numbers, with the service

provider who has opted for a platinum listing headlining the

list. The user’s contact number is also passed on to the

premium biller.

Monetisation is platform agnostic and leads are generated

from clients’ requests for category searches. 35% of the

searches are category searches, and these are the key

leads generated for their clients.

The business model

The main risks

Just Dial, is a “local” search engine company which

provides search services with information & user reviews of

local businesses, products & services across India.

The search results are delivered through multiple platforms

such as Internet, Mobile internet (App), Telephone (Voice)

and text (SMS).

The service is provided free of cost to users, whereas it

generates revenue from paid advertisers who subscribe to

fee-based campaign packages to list their businesses

(predominately, SMEs) on a priority basis on search results

Competition. The biggest threat facing Just Dial is

competition from established search players launching

similar applications which could hamper the company’s

strong growth momentum.

Macro environment. Any negativity in the macro

environment could slow down growth for Just Dial since a

large portion of the company’s paying customers are small

and medium size enterprises which could be affected by

macroeconomic conditions.

Strengths

Weaknesses

First mover advantage in the category.

Profitable business model,

No debt and cash generating business.

Access through multiple platforms.

Low barriers to entry,

Potential failure to adapt to newer technological shifts

Opportunities

Threats

Strong growth and increased penetration rate in the Mobile

platform are the biggest opportunities for the company.

Technological obsolence.

Competing product from new or existing players.


13 January 2014 37

Selected Financials


Source: Company Data, January 2014



(Rs m) FY08 FY09 FY10 FY11 FY12 FY13 1QFY14 2QFY14

Revenues

Sale of search related services 510 735 1,161 1,796 2,594 3,628 1,046 1,127

Yellow pages publication services 186 124 148 - -

Other operating revenue (revenue from reseller) - - 43 27

Total revenue 696 859 1,309 1,839 2,621 3,628 1,046 1,127

Employee benefits expense 421 523 669 947 1,308 1,779 487 577

Other expenses 240 261 343 438 639 841 196 197

EBITDA 35 76 297 454 673 1,008 363 353

EBITDA Margin (%) 5% 9% 23% 25% 26% 28% 35% 31%

Depreciation and amortisation 27 41 53 68 90 144 42 44

EBIT 8 35 245 386 583 864 321 309

EBIT Margin (%) 1% 4% 19% 21% 22% 24% 31% 27%

Finance cost 0 0 0 0 0 0

Other income 20 59 39 37 150 135 73 87

Exceptional item (15)

Profit before Tax (PBT) 28 94 283 423 732 984 394 396

Tax expense/(income)

Current tax 42 35 119 206 279 113 108

Deferred tax charge /(credit) (33) (14) 99 15 3 19

Fringe benefit tax 3 3 - - 2

Total tax expense 11 24 99 135 209 300 113 108

Profit after tax before MI 17 69 184 288 523 684 281 288

Share in loss of minority interest 0 0 0 0

PAT from continuing operations (A) 17 69 184 288 523 684 281 288

Profit/(loss) after tax from discontinuing operations (B) - - - (2) 5 - - -

Restated profit for the year (A + B) 17 69 184 286 528 684 281 288

EPS (Rs)

Basic 8.93 10.30 4.01 4.10

Diluted 7.78 9.95 3.98 4.07

Diluted Share Count (m) 67.9 68.7 70.6 70.8

(Rs m) FY08 FY09 FY10 FY11 FY12 FY13 2QFY14

Fixed assets

Tangible assets 115 137 182 254 327 535 560

Intangible assets 15 12 10 19 21 72

Capital work-in-progress 3 0

Intangible assets under development 9 16

Total 131 149 192 273 360 623 560

Deferred tax assets (net) 113 127 28 12 9 -

Long-term loans and advances 23 32 78 146 204 206 224

Other non-current assets 7 0 0

Current Assets

Current investments 407 402 780 1,160 1,568 4,858 5,457

Trade receivables 8 1 0 11 - 9 4

Cash and bank balances 138 204 121 201 237 239 266

Short-term loans and advances 14 40 35 86 59 112 85

Other current assets 4 40 27 3

Total assets 841 955 1,235 1,894 2,478 6,074 6,599

Non-current liabilities

Long-term borrowings 0 3

Other long-term liabilities 41 15 15 1 23 30 31

Long-term provisions 15 15 16 6

Current liabilities

Trade payables 29 20 31 50 44 67 54

Other current liabilities 380 451 535 875 1,326 1,691 1,608

Short-term provisions 11 15 13 21 13 18 21

Deferred tax Liability 9 13

Share capital 11 11 11 521 531 695 701

Reserves and surplus 354 428 626 411 542 3,556 4,164

Non controlling interest 1

Share application money pending allotment 8 0

Total assets 841 955 1,235 1,894 2,478 6,074 6,599


13 January 2014 38



(Rs m) FY08 FY09 FY10 FY11 FY12 FY13

A. CASH FLOW FROM OPERATING ACTIVITIES

Profit before taxation 32 100 292 423 716 984

Non cash adjustments:

Depreciation and amortisation 24 38 50 68 90 144

Employee stock compensation 6 3 14 3 6 3

Loss/(profit) on sale/scrap of fixed assets (0) (1) (0) 12 (0) 3

Unrealized foreign exchange loss (net) 0 1

Advertisement expenses 4

Loss/(profit) on sale of current investments 1 (20) (3) (3) (42) (102)

Loss on sale of long term investments 0

Interest income (5) (8) (8) (2) (4) (4)

Dividend income (14) (29) (26) (29) (44) (12)

Interest Expense 0 0 0 0 0 -

Operating profit before working capital changes 44 83 319 478 722 1,016

Changes in Working Capital:

(Increase)/decrease in trade receivables (6) 7 0 (0) 1 (9)

(Increase)/decrease in short-term loans and advances 8 (26) 5 (67) (2) (53)

(Increase)/decrease in long-term loans and advances 23 (9) (9) (41) (4) (24)

(Increase)/decrease in other current assets (4) 3 (1)

Increase/(decrease) in trade payables 11 (9) 11 20 (5) 23

Increase in other current liabilities 126 72 82 339 452 366

Increase/(decrease) in other noncurrent liabilities (7) (26) (0) 1 7 7

Increase/(decrease) in long-term provisions (27) 2 (2)

Increase/(decrease) in short-term provisions 5 7 (2) 7 (8) 5

Cash flow from operations 176 101 404 733 1,166 1,330

Direct taxes paid (34) (40) (45) (133) (209) (307)

Net cash generated from operating activities 142 61 359 600 957 1,023

B. CASH FLOW USED IN INVESTING ACTIVITIES

Purchase of fixed assets (57) (62) (99) (192) (231) (361)

Proceeds from sale of fixed assets 1 2 0 16 0 1

Investment in subsidiaries (14)

Purchase of current investments (307) (564) (900) (2,006) (3,932) (8,249)

Purchase of long term investment (145) (580)

Sale of current investments 49 588 526 1,774 3,422 5,061

Loans given (112)

Proceeds from loan repaid 156

Proceeds from dilution of shares 5

Investment in bank deposit (37) (143) (47) (50) (25) (2)

Redemption/maturity of bank deposit 33 42 188 39 23

Interest received 5 8 8 2 4 4

Proceeds from sale of investments 22

Dividend received 14 29 26 29 44 12

Net cash used in investing

activities (298) (98) (312) (528) (1,209) (3,534)

C. CASH FLOW FROM FINANCING ACTIVITIES

Long term borrowings taken 5

Repayments of long term borrowings (1) (1) (1) (2) (2) (1)

Receipts from issuance of Pref Shares 202 334

Share Application money pending 8

Receipts from issuance of equity shares 1 0 2550

Share issue expenses (0) (41) -45

Interest paid (0) (0) (0) (0) (1)

Dividend paid (2)

Dividend distribution tax (0)

Net cash generated from/(used in) financing activities 200 (4) 4 (1) 291 2,512

Net increase/(decrease) in cash and cash equivalents 44 (41) 52 71 40 -

Cash and cash equivalents at beginning of the period/year 49 93 52 104 175 215

Cash and cash equivalents at end of the period/year 93 52 104 175 215 215


13 January 2014 39

Online Travel: Lion’s share of Indian E-commerce Travel has the lion’s share

Indian Aviation sector growing second-fastest in the world. As per KPMG, growth in

India’s aviation industry is the second fastest worldwide. Rising household incomes, an

expanding middle class and more inbound and outbound traffic is responsible for the rapid

growth in the sector.

India is the ninth-largest civil aviation market in the world and is poised to feature among

the top five global markets over the next decade. Airline passenger traffic rose rapidly from

59m in FY05 to 162m in FY12.

Fig 50 Domestic travel has grown faster than international travel except FY09…

Source: KPMG, Macquarie Research, January 2014

Online Travel to grow 2x as fast of total travel growth. Makemytrip estimates that the

online travel market will grow at a CAGR of 20% between 2011-15 vs 10% for the total

travel market. This represents immense scope for growth in the segment.

Fig 51 Online Travel to grow 2x of total travel industry…

Source: Makemytrip, Macquarie Research, January 2014

19 22 26 30 32 34 38 4140 51 71 87 77 89 106 122

15% 16% 16%

6%9% 10%

8%

28%

38%

23%

-11%

16%18%

15%

0

20

40

60

80

100

120

140

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

(m)

-20%

-10%

0%

10%

20%

30%

40%

50%

International (m) Domestic (m)

International YoY growth rate (%) Domestic YoY growth rate (%)

20 20

23

26

29

6 79

1113

0

5

10

15

20

25

30

35

2011 2012 2013E 2014E 2015E

Total Travel Market (In US$ bn) Online Travel Market (In US$ bn)

Total Travel Mkt

CAGR: 10%

Online Travel Mkt

CAGR: 20%

Travel constitutes

71% of Indian E-

Commerce Industry

in 2013E.


13 January 2014 40

Indian E-Commerce is dominated by the online travel segment which contributes more

than 70% of the e-commerce revenues in the country. However in the last three years, we

have seen strong growth in e-tailing segment, which is expected to grow even faster in the

coming years on back of rising mobile penetration and better payment mechanisms. We

expect these trends to continue, with e-tailing showing the strongest growth amongst peer

groups.

Fig 52 Breakdown of Indian E-commerce Industry - 2009

Fig 53 Breakdown of Indian E-commerce Industry – 2013E


What constitutes Online Travel? Online travel includes booking rail, air, bus tickets, hotel

accommodations and tour packages. The largest players in this category include Indian

Railways, Makemytrip, cleartrip, yatra, goibibo etc. India has five major airlines (three low

cost and two full cost carriers). Indian travellers are used to booking air tickets for both low

cost and full cost airlines from third-party sites for two reasons: 1) the travel portals offer

tickets at same or cheaper prices than airline websites themselves, and 2) travel portals

have been operational since 2005 in India, which makes their customer base sticky and

loyal.

Fig 54 Online travel still the largest segment….


Online travel

industry

78%

E-Tailing

8%

Others

2%

Classifieds

market

4%Financial

services

8%

Online travel

industry

71%

Financial

services

6%

Classifieds

market

5%

Others

2%

E-Tailing

16%

150

16 15 8

449

100

36 31

-

50

100

150

200

250

300

350

400

450

500



2009-13E

CAGR: 32%

2009-13E

CAGR: 59%

2009-13E

CAGR: 25% 2009-13E

CAGR: 40%


13 January 2014 41

India has various demographic parameters working in its favour namely:

One of the highest levels of youth population in the world. India’s population’s

median age is 25 years, which is among the lowest in the world. Further, 58% of the

population is under 30 years of age. This presents a large user base which would be

capable and willing to use internet commerce for its needs.

Fig 55 India is the fourth largest economy globally...

Fig 56 …with more than 80% of Indian mobile users in 18-35yr category…

Source: Makemytrip, Macquarie Research, January 2014 Source: KPMG, IAMAI, Macquarie Research, January 2014

Rapidly growing middle class. India’s middle class population stands at over 300m.

This is the world’s second-largest middle population after China. As per the World

Bank, average GDP per capita stands at ~US$1,500 for India. With strong economic

growth, these per capita income levels have huge upside.

Rising levels of urbanization. As per the McKinsey Global Institute, the urban

population is already sizable by western standards at 377m (as of 2011) or ~31% of

India’s total population. By 2020, India is likely to have acquired an additional 112m

urban residents due to continued migration from rural to urban areas.

Fig 57 Non Metros contributed only 39% of internet users in India …

Fig 58 … which has risen to 47% in 2011…


16 15.9

12.6

4.8 4.7

2.6 2.4

0

2

4

6

8

10

12

14

16

18

European

Union

USA China India Japan Russia Brazil

2012 GDP at Purchasing Power Parity (In US$ trillion)

9%

51%

30%

10%

0%

10%

20%

30%

40%

50%

60%

Less than 18 yrs 18-24 yrs 25-35 yrs more than 35 yrs

Demographics of Mobile Users (2013)

2006

Top 8 metros

41%

Other metros

20%

1m+ town

10%

Less than 1m

towns

29%

2011

Top 8 metros

35%

Other metros

18%

1m+ town

11%

Less than 1m

towns

36%


13 January 2014 42

INDIA

MMYT US Not rated

Stock price as of 10/01/2014 US$ 19


Market cap US$m 698

Avg Value Traded (3m) US$m 1

12m high/low US$ 20/13

PER FY16 (Bloomberg) x 64x

P/BV FY16 (Bloomberg) x 7.2

Number of analysts covering MMYT 6


YE Dec (US$m) FY11 FY12 FY13A

Revenue 125 197 229

% growth 49 58 16

EBITDA 6 7 -16

% growth na 13 -338

EPS 0.2 0.2 -0.7

% growth Na 9 -462

EBIT Margin (%) 3 2 -9


Share Price Driver

Thematic

Growth

Value

Event


MakeMyTrip Share Price Chart




MacVisit: MakeMyTrip Leading Online Travel Player We met with Mr. Jonathan Huang, Director, Investor Relations of MakeMyTrip

Limited (MMYT US) which is India’s largest online travel company. The

company provides air tickets, customized holiday packages, hotel bookings,

railway tickets, bus tickets, car hire etc.

Impact

Business Model: All things travel. MMYT is the largest online travel site in

India in terms of market share with 47% of domestic gross bookings. MMYT

earns its revenue from direct customer payments and commissions made

through transactions on its site. It operates in 3 key business lines including

Air Ticketing (Domestic and International), Hotels and Packages and Others

(Rail and Bus Ticketing, Travel Insurance etc). During FY13, the three

segments contributed 65%, 31% and 4% respectively. Management indicated

that the desired mix for hotels and air tickets is to reach 50-50 within the next

18-24 months.

Recent acquisitions expected to drive growth in improving economic

environment. The company has been acquiring assets in the hotels and

ticketing space to cement its leading position in the space. A list of the

acquisitions is as follows:

Recent acquisitions show focus on Hotel and Packages segment…

Date Name Deal value (In US$ m)

Nov-12 ITC Group (Thailand) 3 Nov-12 Hotel Travel Group 25 Nov-11 My Guest House Accommodations Pvt Ltd. na Aug-11 Le Travenues Technology Pvt. Ltd. 5 Feb-11 Luxury Tours & Travel Pte Limited 3 Mar-10 Travis Internet Private Limited na

Source: Company Data, Macquarie Research, January 2014

Key drivers of growth. MMYT expects to benefit from the secular growth

story of increasing internet penetration, its strong and established brand

name, an increasing 3G mobile subscriber base, rising urban population in

India and young demographic profile of the country.

Key strengths & weaknesses

Key strengths include: 1) First mover advantage, 2) largest seller of

domestic hotel bookings, 3) established user base.

Key weaknesses include: 1) Low barriers to entry, 2) high competitive

intensity in the segment, 3) high dependency on macroeconomic

conditions.

Outlook

Valuation. The company is currently trading at 64x FY16 earnings on

Bloomberg estimates

0

5

10

15

20

25

30

35

40

45

Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13

MMYT Share Price (In US$)


13 January 2014 43

Ownership


Promoters – 12%

Top Shareholders:

SAIF: 31%

Tiger Global: 19%

T. Rowe Price Associates: 10%

Travogue & Wasatch Advisors: 8% each

Share ownership as of 30th March 2013. Source: SEC filings

MakeMyTrip Limited was founded in 2000 and provides

services and products including air tickets, customized

holiday packages, hotel bookings, railway tickets, bus

tickets, car hire and facilitating access to travel insurance.

Auditors: Messrs. Vivek N. Gour, Ranodeb Roy and

Frederic Lalonde.


Management and Directors’ background

Cash and cash equivalents: US$30m

Gross Debt: US$0.1m

Deep Kalra, Founder and CEO – Founded the company in

2000 and has previously worked with GE Capital, AMF

Bowling Inc. and ABN AMRO Bank.

Keyur Joshi, Co-Founder & Chief Commercial Officer –

Joined the company in 2000 and has over12 years

experience in the travel industry.

Rajesh Magow, Co-founder & CEO-India. Joined the

company in 2001 and has over 20yrs of experience.

Latest Consolidated Qtrly results highlights (2QFY14)


Revenue: US$47m (up 4% YoY)

Operating Income: Loss of US$1.5m

Operating Income margin: -3%

PAT: Loss of US$7.5m

Diluted EPS: Loss of US$.08

Revenue: US$229m (up 17% YoY)

Operating Income: Loss of US$20m (vs US$4m in FY12)

Operating Income margin: -9% (vs 2% in FY12)

PAT: Loss of US$28m (vs US$7m in FY12)

Diluted EPS: Loss of US$0.74

Fig 1 Sales CAGR of 40% since FY10

Fig 2 Macroeconomic conditions have hit EBIT margins….

Source: Factset, Macquarie Research, January 2014 Source: Factset, Macquarie Research, January 2014

84 125 197 229

49%

58%

16%

0

50

100

150

200

250

FY10 FY11 FY12 FY13

0%

10%

20%

30%

40%

50%

60%

70%

Sales/Revenue (in US$ m) YoY Growth (%)

-6

4 4

-20

-7%

3%

2%

-9%

-25

-20

-15

-10

-5

0

5

10

FY10 FY11 FY12 FY13

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

EBIT (In US$ m) EBIT Margin (%)


13 January 2014 44



Makemytrip expects to benefit from the secular growth story

of increasing internet penetration, its strong and established

brand name, the increasing 3G mobile subscriber base and

the young demographic profile of the country.

The company provides air tickets, customized holiday

packages, hotel bookings, railway tickets, bus tickets, and

car hire etc.

It operates in 3 key business lines including Air ticketing

(Domestic and International), Hotels and Packages and

Others (Rail and Bus ticketing, travel Insurance etc).

During FY13, the three segments contributed 65%, 31%

and 4% respectively.

The business model

The main risks

The company traditionally derived the majority of its

revenues from air ticketing but the closure of a major airline

in India along with the adverse macroeconomic environment

during 2011-13 shifted the company’s focus to Hotels and

Packages as the new growth area for the future.

This renewed focus led the Hotels and Packages to

increase its revenue contribution to 31% in FY13 (vs 15% in

FY08)

Price wars from competition.

Macro environment. Any negativity in the macro

environment could slow down growth for the company.

Strengths

Weaknesses

First mover advantage in the category

Largest player in its category – controls almost 47% market

share

Ability to provide access through multiple platforms

Low barriers to entry.

Newer technological shifts can negatively impact the

company.

Opportunities

Threats

Strong growth and increased penetration rate in the mobile

platform are the biggest opportunities

Technological obsolence.

Competing product from new or existing players.


13 January 2014 45

Selected Financials


Source: Factset, Company Data, January 2014

Mar '10 Mar '11 Mar '12 Mar '13 Sep '13

365 Days 365 Days 366 Days 365 Days LTM

Sales/Revenue 84 125 197 229 244

Sales Growth (%) 22 49 58 16 16

Cost of Goods Sold (COGS) incl. D&A 61 80 149 209 225

COGS Growth (%) -20 30 86 41 36

Gross Income 22 45 48 19 18

Gross Income Growth (%) -- 102 7 -60 -60

Gross Margin (%) 27 36 24 8 7

SG&A Expense 28 41 44 39 47

SGA Growth (%) -- 44 8 -10 -1

SG&A to Sales (%) 34 33 22 17 19

Other Operating Expense -0 -0 0 0 --

EBIT (Operating Income) -6 4 4 -20 -28

EBIT Growth (%) 42 -- -2 -592 -1,415

EBIT Margin (%) -7 3 2 -9 -12

Nonoperating Income (Expense) - Net 1 1 -2 1 1

Interest Expense 1 1 0 0 5

Interest Expense Growth (%) -13 -47 -37 -70 --

Unusual Expense (Income) - Net -0 2 1 0 --

Pretax Income -6 2 1 -19 -33

Pretax Income Growth (%) 16 -- -52 -1,915 -1,274

Pretax Margin (%) -7 2 1 -8 -13

Income Taxes 0 -3 -6 9 9

Tax Rate (%) -- -126 -587 -- --

Equity in Earnings of Affiliates 0 0 -0 -0 -0

Consolidated Net Income -6 5 7 -28 -42

Minority Interest Expense -0 0 -0 0 0

Net Income -6 5 7 -28 -42

Net Income Growth (%) 16 -- 49 -484 -1,073

Net Margin (%) -7 4 4 -12 -17

Net Income available to Common -6 5 7 -28 -42

EPS (recurring) -0.36 0.19 0.20 -0.74 -1.13

EPS (recurring) Growth (%) 47 -- 9 -462 -979

EPS (diluted) -0.35 0.15 0.19 -0.74 -1.13

EPS (diluted) Growth (%) 36 -- 27 -489 -1,042

EBITDA -4 6 7 -16 -23

EBITDA Growth (%) 50 -- 13 -338 -2,087

EBITDA Margin (%) -5 5 3 -7 -10

(In US$ m)


13 January 2014 46



Mar '09 Mar '10 Mar '11 Mar '12 Mar '13

-- 365 Days 365 Days 366 Days 365 Days

Cash & ST Investments 14 23 68 44 37

Cash & ST Investments Growth (%) -- 64 202 -36 -17

Cash & ST Investments / Total Assets (%) 36 44 59 26 19

Short-Term Receivables 4 11 11 21 25

Accounts Receivable Growth (%) -- 160 -0 87 24

Accounts Receivable Turnover (x) -- 11 11 12 10

Inventories 4 7 17 22 22

Inventory Growth (%) -- 67 134 34 -1

Inventory Turnover (x) -- 11 7 8 9

Other Current Assets 2 2 6 52 58

Total Current Assets 24 43 102 139 142

Net Property, Plant & Equipment 3 4 4 7 9

Total Investments and Advances 0 0 0 5 6

Long-Term Note Receivable 0 0 1 1 1

Intangible Assets 2 2 3 8 35

Deferred Tax Assets -- -- 3 9 1

Other Assets 8 1 4 1 1

Total Assets 38 51 116 170 195

Total Assets Growth (%) -- 34 129 47 15

Asset Turnover (x) -- 2 1 1 1

Return on Assets (%) -- -14 6 5 -15

ST Debt & Curr. Portion LT Debt 48 45 4 0 1

Accounts Payable 8 14 13 25 47

Accounts Payable Growth (%) -- 86 -6 93 85

Other Current Liabilities 7 14 18 24 36

Total Current Liabilities 62 73 35 49 84

Current Ratio 0 1 3 3 2

Quick Ratio 0 0 2 2 1

Cash Ratio 0 0 2 1 0

Long-Term Debt 0 0 0 0 0

Long Term Debt Growth (%) -- 236 13 19 60

Provision for Risks & Charges 0 0 0 1 1

Deferred Tax Liabilities -- -- -- -- 1

Other Liabilities 3 3 4 1 7

Total Liabilities 65 76 40 51 93

Total Liabilities / Total Assets (%) 172 149 34 30 48

Common Equity -27 -25 76 119 101

Common Equity / Total Assets (%) -72 -49 66 70 52

Total Shareholders' Equity -27 -25 76 119 101

Total Shareholders' Equity / Total Assets (%) -72 -49 66 70 52

Return on Equity (%) -- -- 19 7 -25

Accumulated Minority Interest 0 0 0 0 1

Total Equity -27 -25 76 119 102

Liabilities & Shareholders' Equity 38 51 116 170 195

Assets

Liabilities & Shareholders' Equity

(In US$ m)


13 January 2014 47



Mar '10 Mar '11 Mar '12 Mar '13 Sep '13

365 Days 365 Days 366 Days 365 Days LTM

Net Income / Starting Line -6 5 7 -28 -42

Net Income Growth (%) 16 -- 46 -491 -1,108

Depreciation, Depletion & Amortization 2 2 3 4 --

Other Funds 8 -2 0 22 31

Funds from Operations 3 5 10 -2 -7

Changes in Working Capital 3 -10 1 18 1

Net Operating Cash Flow 6 -5 11 17 -7

Net Operating Cash Flow Growth (%) -- -180 -- 50 -117

Net Operating Cash Flow / Sales (%) 7 -4 6 7 -3

Cash Flow Return on Invested Capital (%) -- -18 11 15 --

Capital Expenditures -1 -3 -9 -7 --

Capital Expenditures Growth (%) 17 157 216 -22 --

Capital Expenditures / Sales (%) 1 2 5 3 --

Net Assets from Acquisitions -- 0 -2 -10 --

Sale of Fixed Assets & Businesses 0 0 0 0 --

Purchase/Sale of Investments 4 -3 -6 -1 --

Other Funds -- 0 -30 -4 --

Net Investing Cash Flow 3 -5 -47 -21 -1

Net Investing Cash Flow Growth (%) -- -308 -786 55 96

Net Investing Cash Flow / Sales (%) 3 -4 -24 -9 -0

Change in Capital Stock 0 59 36 -1 --

Issuance/Reduction of Debt, Net 0 0 -0 -0 --

Other Funds -- -7 0 0 -0

Net Financing Cash Flow 0 53 36 -1 -1

Net Financing Cash Flow Growth (%) -99 49,443 -32 -103 -902

Net Financing Cash Flow / Sales (%) 0 42 18 -0 -0

Exchange Rate Effect -1 -0 -4 -2 -3

Miscellaneous Funds -0 0 -0 0 0

Net Change in Cash 8 43 -4 -8 -12

Free Cash Flow 5 -6 5 14 -10

Free Cash Flow Growth (%) -- -215 -- 150 -128

Free Cash Flow per Share 0 -0 0 0 -0

Free Cash Flow Yield (%) -- -1 1 3 --

Operating Activities

Investing Activities

Financing Activities

(In US$ m)


13 January 2014 48

Yatra.com (Unlisted) No. 2 Travel Platform in India

Meeting with CFO. We interacted with Mr. Alok Vaish, Group CFO at Yatra Online Pvt

Ltd, which is India’s second-largest on-line travel company. The company provides a

complete suite of travel services including air tickets, customized holiday packages, hotel

bookings, railway tickets, bus tickets, car hire etc. Currently, the company generates ~70%

of its revenues from air ticketing, which it is targeting to reduce to 50% in 24-30 months.

Company Profile. Yatra.com is an Indian online travel company based in Gurgaon,

Haryana, India. It was founded by Dhruv Shringi, Manish Amin and Sabina Chopra in

August 2006. As of 2012, Yatra.com was the second-largest travel portal in India with

~20% market share. It provides information, pricing, availability, and booking facilities for

domestic and international air travel, railway reservations, hotel bookings, holiday

packages, buses, and car rentals. Yatra is trying to become a one-stop-shop for all travel-

related services. As a consolidator of travel products, Yatra.com provides reservation

facilities for more than 5,000 hotels across 336 cities in India and over 90,000 hotels

around the world.

Access. Users can access Yatra.com multiple ways including online website, a 24x7 multi-

lingual call centre, a network of brick and mortar stores and through mobile phones.

Financial Details

Our interaction with the CFO revealed that the company is looking to generate Rs45bn

(approx US$750m) of gross revenues in FY14. For FY11, the company reported revenues

of Rs1.3bn (vs Rs1.1bn in FY10). The company had reported a loss after tax of Rs390m in

FY11 (vs loss of Rs82m in FY10). The company is looking to break even in 12-18 months’

time.

Air ticketing profitable, Hotels and packages in investment mode. The CFO indicated

that they are showing profitability in the air tickets operations, while hotels and packages

would continue to see investments for some time.

Funding and Business Strategy

Driven by acquisitions. Yatra.com has been active in the acquisitions mode, making 4

major acquisitions till now. They are as follows:

Fig 59 Acquisitions focus to fuel growth…

Name Date Area

Travel Services International Oct-10 Ticket consolidator MagicRooms.in Jun-11 Global distribution system BuzzInTown.com Jan-12 Events and entertainment portal Travelguru.com Jun-12 Travel Portal

Source: Company data, Macquarie Research, January 2014

Investors and Funding History. Yatra.com has marquee investors backing the company

with the likes of Reliance Venture Asset Management Ltd, TV18 Group, Norwest Venture

Partners and Intel Capital.

Funding. In April 2011, the company announced receiving funding of Rs2bn

(US$45m) from Valiant Capital Management, Norwest Venture Partners (NVP) and

Intel Capital.

Advt for equity stake to local movie star, Mr Salman Khan ensures top of the mind

recall during advertising. Yatra.com started an innovative advertising for equity program

by associating with local movie star Salman Khan during April 2012. Media reports suggest

that Khan has received a ~5% stake in yatra.com and would become the brand

ambassador for the company. (Link)

Yatra.com is the No.

2 Travel Platform in

India

http://techcircle.vccircle.com/2012/03/28/actor-salman-khan-picks-around-5-stake-in-yatra-com-is-this-a-growing-trend-in-bollywood/


13 January 2014 49

Fig 60 Advt for Equity for local movie star…. Fig 61 .. ensures top of mind brand recall..

Source: Company data, Macquarie Research, January 2014 Source: Company data, Macquarie Research, January 2014

Business Model

Yatra.com: Renewed focus on hotels and packages. Yatra.com earns its revenue from

direct customer payments and commissions transactions made on its site. They also have

revenue-sharing agreements with the other companies who get customers via yatra.com.

This is a valid and stable business model in use by all travel portals.

Fig 62 Yatra.com Homepage snapshot: second-largest online travel site in India

Source: yatra.com, January 2014


13 January 2014 50

Future driver for growth: Mobile

Showing tremendous growth potential. The CFO shared that they have been seeing

increasing traction from the mobile medium for growth. Some key highlights from mobile

are:

Presently, 20% of overall searches are happening on mobile

15% of total bookings are on mobile

The stickiness of the mobile customer is higher than the internet customer

The initial cost are higher for mobile customer but returns over long term are greater

The company is targeting 40%-50% of searches and bookings to happen on the

mobile platform.

High speed internet connections set to expand at 44% CAGR during 2012-17. The

chart below shows the growth seen in 2G and 3Q/4G internet connections on mobile

phones in India. In our view, this would become a driving force for increasing e commerce

businesses in the country.

Fig 63 CAGR of 44% in 3G/4G connections in the next 5 years (2012-17)


Issues and Challenges: Competition the biggest challenge

Competition is high in the segment. As the top three players in the online travel

segment constitute 80-85% of the total industry, competition remains intense. Since all the

B2C e-commerce players have been aggressively expanding their product offerings,

product differentiation has become less of an attraction. In our view, online shoppers are

even less loyal than traditional offline shoppers. As a result, B2C players are mainly

differentiating themselves through price. In order to keep their prices competitive,

aggressive marketing promotions have to be run and sustained.

347524

741855 798 812 811 791 776 750

1

1167 107 171 252 327 409

39

0

200

400

600

800

1000

1200

1400

2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E

(m)

2G Connections 3G/4G connections

CAGR of 44% in 3G/4G connections


13 January 2014 51

IRCTC (Unlisted) 800 pound Gorilla in Online Rail Bookings in India

Company profile. IRCTC is the Indian railway portal which is used to book rail tickets in

India. It started operations in 2002 when it booked a mere 27 tickets on the first day of

launch.

IRCTC: How it works? Users can book train tickets using the website via internet or from

mobile devices or from third-party sites like makemytrip, cleartrip etc. The main site,

IRCTC, charges Rs10-20 depending upon the ticket type. This is the primary source of

revenue for the site. Also, various travel portals like yatra.com, makemytrip.com have tied

up with IRCTC in order to offer ticket booking services through their own sites. IRCTC

collects a fee from those agencies as well. IRCTC is now also offering flight tickets, hotel

bookings, car rentals and tourist packages through its site. The site also features paid

advertisements on its site for third-party clients. IRCTC being one of the most visited pages

in India, these ads earn considerable revenue.

Fig 64 IRCTC Homepage snapshot: Largest site for rail bookings in India

Source: IRCTC, Macquarie Research, January 2014

India’s largest travel

website used for

booking train

tickets.


13 January 2014 52

Volume of bookings. Currently, the website books more than 400,000 tickets in a day.

The IRCTC website comprises ~45% of all visitors to travel websites in India and ~20% of

the total Internet audience in India.

Fig 65 IRCTC tickets bookings have shown 66% CAGR between FY07-13 !!!

Source: IRCTC, Macquarie Research, January 2014

Financials. Due to IRCTC’s status of being a professionally-run government department,

it has been financially successful story in India. The chart below shows the growth of

revenues and profits for the company.

Fig 66 Financial performance healthy…. Fig 67 .. on back of steady mix of income streams…

Source: IRCTC, Macquarie Research, January 2014 Source: IRCTC, Macquarie Research, January 2014

6.8

18.9

44.1

72

96.9

116.1

140.6

0

20

40

60

80

100

120

140

160


Number of Tickets Booked (m)

CAGR of

66%

132

155

181191

139

180

5 12 16 15 12 15

0

50

100

150

200

250


Revenues (US$ m) Profits (US$ m)

Licensee

Catering

3%

Internet

Ticketing

27%

Tourism

27%

Department

Catering

35%

Bottled Water

Operations

8%


13 January 2014 53

Online E-Tailing: Growing the fastest… E-Tailing is the fastest growing segment in India

Online retail is just 2% of total organized retail market, showing its huge potential. As per

an Ernst & Young study, the Indian retail industry was estimated at US$528bn in 2012 and

is growing at 11% annually. Unorganized retail accounts for ~90% of the Indian retail

industry. Organized retail accounts for 10% of the total retail market and is growing at 24%

annually. Currently, online retail constitutes a mere 2% of the total organized retail

market in India.

Fig 68 Organized Retail accounts for ~10% of Indian retail market….

Fig 69 …. Online retail is ~2% of organized retail industry..


What constitutes E-Tailing? E-Tailing includes purchases of various consumer products/

services such as electronics, apparels, footwear, jewellery, home & kitchen appliances,

consumer durables, and furnishings. The largest players in this category include flipkart,

snapdeal etc.

Fig 70 Online travel still the largest but E-Tailing growing the fastest…


15 19 22 28 35 44 85

301343 346

397436

484

640

0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011 2012 2015E

Organized retail (In US$bn) Unorganized retail (In US$bn)

235 258 318 447 572

1.6%

1.4% 1.4%

1.6% 1.6%

0

100

200

300

400

500

600

700

2007 2008 2009 2010 2011

1.3%

1.4%

1.4%

1.5%

1.5%

1.6%

1.6%

1.7%

Size of the online retail market (US$ million)

Online retail as % of organized retail

150

16 15 8

449

100

36 31

-

50

100

150

200

250

300

350

400

450

500



2009-13E

CAGR: 32%

2009-13E

CAGR: 59%

2009-13E

CAGR: 25%2009-13E

CAGR: 40%

Online retail is just 2% of total

organized retail market offering huge potential.


13 January 2014 54

Snapdeal (Unlisted) India’s largest online marketplace

Meeting with founder, Mr Kunal Bahl. We interacted with Mr. Kunal Bahl, Founder & CEO,

and Mr. Aakash Moondhra, CFO of snapdeal, which is India’s largest on-line marketplace

company.

Company Profile. Snapdeal.com is an online marketplace, headquartered in New Delhi.

The company was started in February 2010 by Kunal Bahl, a Wharton graduate, and Rohit

Bansal, an alumnus of IIT Delhi. Snapdeal.com started as a daily deals platform but

expanded in September 2011 to become an e-commerce company via a marketplace

model. The company started with 20+ employees in 2010 and now employs over 1,000 in

its operations.

Customer and Merchant Base. As of February 2013, the company had over 25m

registered users. It registers 35m+ page visits and over 300m page views every month. It

offers an assortment of 4m+ products in over 500+ categories from over 20,000 sellers,

shipping to 4,000 towns and cities in India.

Financial Details: Target US$1bn sales in FY15

Our interaction with the founder revealed that the company is currently generating Gross

Merchandise Value (GMV) of US$500m and looking to generate US$1bn by FY15. During

2013, the company grew revenues 6x by increasing their product categories and

assortments.

Mr. Kunal Bahl, Founder & CEO has discussed in media reports and interviews that the

company is looking at possible listing in the next 12-24 months. (Link1) & (Link2)

Funding Details & Acquisitions

Snapdeal has received three rounds of funding amounting to US$107m. The details on the

funding timeline and investors are as follows:

Fig 71 Funding Details for Snapdeal: Ebay is the largest investor in snapdeal

Date Investors Amount (In US$ m)

Jan-11 Nexus Venture Partners and Indo-US Venture Partners 12 Jul-11 Bessemer Venture Partners, Nexus Venture Partners and Indo-US

Venture Partners 45

Jun-13 eBay and existing investors 50


Snapdeal has done three acquisitions since inception. The details on the acquisitions are

as follows:

Fig 72 Acquisitions have been strategic in nature…

Date Acquiree Details

Jun-10 Grabbon.com Bangalore-based group buying site Apr-12 esportsbuy.com Delhi based online sports goods retailer May-13 Shopo.in Online marketplace for Indian handicraft products


Leader in

marketplace model

of E-commerce in

India

http://video.cnbc.com/gallery/?video=3000222685

http://articles.economictimes.indiatimes.com/2013-12-15/news/45216537_1_ceo-kunal-bahl-snapdeal-indous-venture


13 January 2014 55

Future driver for growth: Mobile

Showing tremendous growth potential. Our interaction with the founder showed that the

company views mobile as a key driver for increasing revenues.

Currently, mobile is contributing 30% of orders placed (up from 5% less than 12 months

ago). Its mobile commerce site witnesses about 12m average visits per month. 75% of the

mobile-based transactions involve cash on delivery and 25% are prepaid transactions,

while the majority of customers are from Delhi, Mumbai, Chennai, Kolkata, Bangalore and

Hyderabad.

The top selling categories over m-commerce on Snapdeal are mobiles, men's apparel,

women's apparel, pen drives and memory cards and men's footwear.

Issues and Challenges

Challenges facing marketplace-led model. Snapdeal is India’s largest online marketplace

company. Thus the challenges inherent to the model would be the same as faced by

snapdeal.

These include dependency of every aspect of business on third parties or outsourcing right

from supply chains to payment and logistics. In our view, cracking the supply chain and

keeping track of logistics and customer satisfaction is the most complex part of the whole

chain.


13 January 2014 56

Flipkart (Unlisted) India’s largest inventory-led e-commerce Company

Company Profile. Flipkart is an Indian e-commerce company founded in 2007, by Sachin

and Binny Bansal and headquartered in Bangalore, Karnataka. It is considered as the

pioneer in e-commerce in India, which made online shopping popular in India.

How it all started? Flipkart was founded in 2007 by Sachin Bansal and Binny Bansal, both

alumni of the Indian Institute of Technology Delhi. They had been working for Amazon.com

previously. During its initial years, Flipkart focused only on books, but once it expanded, it

started offering other products like electronic goods, air conditioners, air coolers, stationery

supplies and lifestyle products and e-books. Flipkart now employs more than 4,500 people,

and is ranked among the top 20 Indian websites.

Cash on Delivery: Key to success. Flipkart's offering of products on Cash on Delivery is

considered to be one of the main reasons behind its success. Flipkart also allows other

payment methods, including credit or debit card transactions, net banking, e-gift voucher

and Card Swipe on Delivery.

User base. Flipkart has 10m+ registered users and sees about 1m+ visits every day.

Financial Details: Target US$1bn sales in FY15

In his interactions with the media, founder Sachin Bansal has shared that the company

currently generating Gross Merchandise Value (GMV) of US$600m and is looking to

generate US$1bn by FY15. (Link)

The company founders have discussed in media that they are currently not profitable and

are making investments in its growth. (Link1)


Flipkart has received five rounds of funding amounting to US$541m. The details on the

funding timelines and investors is as follows:

Fig 73 Funding Details for Flipkart: Funding does not seem an issue….


May-09 Accel India 1 Jun-10 Tiger Global 10 Jun-11 Tiger Global 20 Aug-12 MIH (part of Naspers Group) and ICONIQ Capital 150 Jul-13 Tiger Global, Naspers, Accel Partners and Iconiq Capita 200 Oct-13 Dragoneer Investment Group, Morgan Stanley Investment Management,

Sofina SA, Vulcan Capital, Tiger Global 160


Flipkart has done four acquisitions since inception. The details on the acquisitions are as

follows:

Fig 74 Acquisition have been strategic in nature…


2010 WeRead Social book discovery tool 2011 Mime360 Digital content platform company 2011 Chakpak.com Movie news site 2012 Letsbuy.com Indian e-retailer in electronics


India’s largest inventory-led e-

commerce Company.

http://articles.economictimes.indiatimes.com/2013-10-15/news/43068438_1_binny-bansal-flipkart-dragoneer

http://www.thehindubusinessline.com/industry-and-economy/info-tech/all-our-investors-are-here-for-the-long-term-just-as-we-wanted/article5218104.ece


13 January 2014 57

Business Model: India’s answer to Amazon.com

Why does it exist in India? For a market like India, where customers have low faith in

shopping online, the inventory-led business model leads to a certain amount of customer

trust. There is an immense need to build this trust to create repeat customers. For

businesses which prefer the inventory-led business model in India, the belief is that this

trust can only be built by excellent customer service, which in turn is best taken care of

when you have control over the inventory. This ensures speedier deliveries, quality checks,

and an overall better customer experience.

Fig 75 Revenue growth has been exponential for Flipkart

Revenues (Rs m)

FY09 40 FY10 200 FY11 750 FY12E 5,000 FY13E 7,500 FY14E 10,000 FY15E 60,000


Where does it work? Inventory-led business models usually are more prevalent in areas

like fashion, clothing, electronics etc where there are sensitivities to the fact that these are

all high involvement purchases. The business becomes the single interface to the user and

the customer does not have to worry about who the real inventory owner is. The

companies which use this model, though, face increased costs but it has helped develop

trust and service credibility amongst its users. That kind of intangible value creation for the

brand would not have come through any amount of marketing spend.

Fig 76 flipkart.com Homepage snapshot: India’s largest inventory-led e-commerce site

Source: flipkart.com, January 2014


13 January 2014 58


Challenges facing inventory-led model. They are as follows:

Large warehousing cost and management

Limited credit time from vendors

Liability of dead stock

Increasing complexity as the business scales and as one introduces new product

categories.


13 January 2014 59

Myntra.com (Unlisted) India’s largest online fashion and lifestyle store

Company Profile. Myntra was established by Mukesh Bansal, Ashutosh Lawania, and

Vineet Saxena in February 2007 and is headquartered in Bangalore.

How it all started? The company started off in the business of personalization of products,

and soon expanded to set up regional offices in New Delhi, Mumbai and Chennai. It began

its operations in the B2B (business to business) segment with the personalization of gifts,

which included T-shirts, mugs and caps to name a few. However, in 2010, the company

shifted its strategy to becoming a B2C (business to customer) oriented firm, expanding its

catalogue to fashion and lifestyle products. Myntra currently offers products from more

than 350 Indian and international brands.

User base: Smaller cities driving growth. Myntra’s growth is being driven by uptake of

online services in tier-2 and -3 cities. While top 10 cities earlier used to account for 60% of

revenues, now they account for only 45%. Nearly 15% of the company’s revenues are

coming from the mobile platform, and Delhi is the largest market by sales, at 15% of its

total sales.

The site is currently getting 15m visitors on a monthly basis, and is doing around 12,000-

13,000 transactions daily. The top selling categories for the company remains sports and

casual wear, while the fastest growing is ethnic wear and accessories, primarily because of

the increasing number of women shoppers on the site. As of now, the site is offering close

to 600 brands and over 50,000 SKUs.


Myntra has received five rounds of funding amounting to US$65m. The details on the

funding timelines and investors are as follows:

Fig 77 Funding Details for myntra: Ample Funding present ….


2007 Accel Partners, Sasha Mirchandani from Mumbai Angels and another un-named angel investor

na

2008 NEA-IndoUS Ventures, IDG Ventures and Accel Partners 5 2011 Tiger Global, IDG Ventures and Indo-US Venture Partners 14 2012 Tiger Global 21 2012 Tiger Global, Accel Partners and others 25


Myntra has done two acquisitions since inception. The details on the acquisitions are as

follows:

Fig 78 Acquisition have been strategic in nature…


2012 Exclusively.in Private label brand 2013 Fitiquette US-based technology platform provider


India’s largest

online fashion and

lifestyle store


13 January 2014 60

Financial Details: Target US$200m sales in FY15

Mr Mukesh Bansal, founder of myntra, in his interactions with the media has shared that

the company currently generates Gross Merchandise Value (GMV) of ~US$130m and is

looking to generate US$200m by FY15. Currently, the company is generating single-digit

EBITDA losses. (Link)

The company is not profitable currently but founders have spoken about hitting profitability

in FY15. The founders in media interviews have talked about possible listing during the

next 12-24 month time period. (Link) & (Link)

Fig 79 Revenue has been growing steadily….

Year (Rs m)

FY09 30 FY10 90 FY11 250 FY12E 750 FY13E 4,000 FY14E 8,000 FY15E 12,000


Business Model

Myntra.com sells fashion and lifestyle products online. Offerings include large in-season

product catalogue, cash on delivery, payment in equated monthly instalments facility (EMI)

and a 30-day return policy.

Fig 80 myntra.com Homepage snapshot: India’s largest apparel e-commerce site

Source: myntra.com, January 2014

http://forbesindia.com/article/cross-border/myntras-big-leap-forward/34871/0

http://www.thehindubusinessline.com/industry-and-economy/info-tech/myntra-may-make-another-buy-in-12-months/article5117320.ece

http://techcircle.vccircle.com/2013/03/13/excl-myntra-com-co-founder-and-ceo-mukesh-bansal-says-ipo-possible-in-2-3-years/


13 January 2014 61


High Competition in the segment. The competition for online retail is intense, with the

presence of well funded players like flipkart, snapdeal, jabong etc. Since all the B2C e-

commerce players have been aggressively expanding their product offerings, product

differentiation has become less of an attraction. In our view, online shoppers are even less

loyal than traditional offline shoppers. As a result, B2C players are mainly differentiating

themselves through price. In order to keep their prices competitive, aggressive marketing

promotions have to be run and sustained.

Low barriers to entry.


13 January 2014 62

Jabong.com (Unlisted) India’s #3 player in online retail e-commerce: Focus on smaller cities paying off…

Company Profile. Jabong is a fashion and lifestyle e-portal that sells shoes, apparel,

accessories, home décor and furniture through its website. The e-store at present carries

over 1,000 brands and over 90,000 products.

How it all started? The site started operations in January 2012. It was co-founded by

Arun Chandra Mohan, Praveen Sinha and Lakshmi Potluri. Currently Jabong is

spearheaded by Arun Chandra Mohan, Praveen Sinha, Manu Jain and Mukul Bafana. In

March 2013, Jabong was shipping 7K+ orders a day.

User base. In less than 20 months since its inception, Jabong.com has become the third-

most visited online shopping website after flipkart and myntra. During September 2013

Jabong was shipping 14K+ orders on a daily basis, of which 60% were from small towns.

Funding Details

According to industry sources, Rocket Internet has committed an amount in the range of

$50-100 million for building out Jabong in India. (Link1 & Link2)

Backed by “Rocket Internet”. Jabong.com is backed by Berlin-based business incubator

‘Rocket Internet’, a venture arm of the Samwer brothers – which is known for cloning

several successful online business models of the US in other markets. The firm follows

both the inventory model (where products are sourced from various brands and strode in

Jabong warehouses) and controlled marketplace model (Jabong just takes care of the

fulfilment, customer service and returns, if any). Jabong is owned by Gurgaon-based

Xerion Retail Pvt Ltd, which also owns the portal FabFurnish.com. Rocket Internet has also

invested in HeavenandHome.com in India. Rocket has 59 companies worldwide and is

present in 40 countries.

Who is Rocket Internet? Jabong is the biggest Rocket project in India. Going by the

Samwer brothers’ track record, they don’t stay in a business for long. Either they sell out

quickly to a direct competitor or a strategic buyer. For instance, the Samwer brothers

started with Alando, an eBay clone, which they sold to eBay itself for $50m just three

months after the launch of the website in 1999. Most recent example is of the sale of

Citydeal, a Groupon clone, to Groupon itself in return for an estimated 10% stake in the

Chicago-headquartered deals company.

India’s #3 player in

online retail e-

commerce.

http://forbesindia.com/printcontent/34871

http://www.sramanamitra.com/2013/08/30/jabong-thrives-in-the-indian-e-commerce-landscape/


13 January 2014 63

Business Model: User of Hybrid E-Commerce Model

Jabong.com follows both the inventory model and a managed marketplace model. In

inventory model, products are sourced from brands and stored in the Jabong warehouse.

In managed marketplace model, Jabong doesn’t store the inventory but takes care of the

Fulfillment, Customer Service, and Returns if any. Jabong.com offers same-day delivery in

Delhi/NCR, and within 48 hours in top 10 cities and within 2–3 days in other cities and

towns. Jabong’s logistic operations launched JaVAS as a separate service independent of

Jabong. JaVAS covers around 50-55 cities and a majority of its customers are e-

commerce players, though there are some offline players as well.

Fig 81 Jabong.com Homepage snapshot: India’s largest apparel e-commerce site

Source: Jabong.com, January 2014


High competitive intensity in the space.

Low barriers to entry into the space.


13 January 2014 64

Fashionandyou.com (Unlisted) Leading Indian flash sales site for fashion & lifestyle products

Meeting with CEO, Mr Aasheesh Mediratta. We interacted with Mr. Aasheesh Mediratta,

CEO of FashionAndYou.

Company Profile. FashionAndYou.com is an online fashion & lifestyle store, which offers

daily deals across fashion and lifestyle categories. The site offers more than 15 new sales

across international and national brands, designer wear, regional brands and boutique

labels at up to 80% off every day. The company has an inventory-light model, where the

company stocks inventory only for shops on a must have basis.

How it all started? The site was started in 2010 by Ms Pearl Uppal and Harish Bahl and is

a venture of the Smile Group, responsible for other e-commerce initiatives like BeStylish,

dealsandyou.com, FreeCultr and Juvalia&You. Fashionandyou.com is a part of Brand

Alliance, an international organization formed by major private sales companies in Brazil,

Turkey, Mexico, Australia, the Middle East, the US, India, Russia and Switzerland.

User base. The site has over 3.6m member-base across 1200 locations pan-India. Currently,

60% of the orders come from Tier 1 cities and 40% come from tier 2-3 cities. This has

changed from 80:20 during initial days of the site. Some notable facts about the user base

include:

10% of the traffic comes through mobile but the sales are not material. The company

is working on launching its own mobile application, which could lead to ~20% sales to

come from that medium.

Women constitute 60% of the total customers on the site. For certain categories like

fashion apparel, footwear & fashion accessories, and home & living, almost 70% of the

business comes from women.


FashionAndYou has received two rounds of funding amounting to US$48m. The details on

the funding timeline and investors is as follows:

Fig 82 Funding Details for FashionAndYou


2010 Sequoia Capital India and Nokia Growth Partners 8 2011 Norwest Venture Partners and Intel Capital with participation of existing

investors 40


FashionAndYou has done one acquisition since inception, acquiring fashion &beauty e-

tailer site Urbantouch for US$30m.

Leading Flash sale

site for fashion and

lifestyle products in

India.


13 January 2014 65

Financial Details: Looking for break even in 15-18 months

Mr Aasheesh Mediratta, CEO of fashionandyou, in his interactions has shared that the

company is not profitable currently but is looking to break even in 15-18 months from now.

(Link)

Business Model: Controlled Market Place clear high fashion inventory

Currently, fashionandyou works on a model whereby inventory is blocked with the vendor.

Then sales are booked online and fulfilment happens through third-party partners. This

works like a controlled market place model. The company shares that the only change in

future could be that their vendor partners could fulfill the orders directly to save on lead

times, leading to early fulfilment of customer orders.

The site has more than 15 new sales every day, which go for a limited time period of 1 day

to 3 days.

Fig 83 fashionandyou.com Homepage snapshot: High fashion clearance through daily deals.

Source: fashionandyou.com, January 2014

http://articles.economictimes.indiatimes.com/2013-11-17/news/44162187_1_march-2015-market-share-top-deck


13 January 2014 66

Network 18 Media Investments (NETM IN, Not Rated) Interesting mix of internet properties

Company Profile. Network18 Media is a leading media and entertainment company in

India, reaching an average 223m television viewers and 27m digital unique users each

month. The company has varied interests including television, internet, films, digital

commerce, magazines, mobile content etc. For the purpose of the report, we are going to

focus on the internet properties of the company.

Early starter on the Indian internet landscape. The company was an early starter in the

Indian internet industry when it started in 2000. Its digital properties include digital content

(www.moneycontrol.com, ibnlive.com, in.com and firstpost), home shopping

(HomeShop18.com) and online ticketing (bookmyshow.com).

The company has a stated objective of divesting stakes in non-core assets and during

FY13 they sold their entire stake in Newswire18, their Yellow Pages and Askme

businesses and diluted the majority stake in Bookmyshow.

Breakdown of Digital business

The company divides the digital business in three segments:

Digital Content. The company includes content properties, namely,

moneycontrol.com, in.com, ibnlive.com and fistpost.com in this segment. During FY13,

the segment reported revenues of Rs400m (vs Rs702m in FY12).

Digital Commerce. The company includes properties like bookmyshow and

Homeshop18 in this segment. During FY13, the segment reported revenues of

Rs2.7bn (vs Rs1.2bn in FY12).

Newswire18. During FY13, the company divested their entire stake profitably in this

business.

Digital Content

Moneycontrol.com. The site was acquired in June 2000 and is one of India's most

popular financial news and services portals, attracting approx 7.5m unique visitors per

month. The site offers free access to business news and market updates, articles and

independent analysis of various investment options, financial planning etc. The site also

offers a subscription-based service called PowerYourTrade to their users.

in.com. The site was launched in 2008 and is a news and entertainment portal with

approximately 16m+ unique visitors per month. The portal integrates and aggregates

content from the Network18 network of websites and popular third-party websites and

engage with the users by offering communication and other services. It also offers features

like e-mail, videos, games, music and other downloads.

Firstpost.com. The site was launched in 2011 and is attracting 3.5m+ unique visitors per

month. Firstpost.com is an exclusive online news and views website.

IBNLive.com. The site was launched in 2006 and attracts 6.3m+ million visitors per

month.IBNLive.com is a general news site.

Combination of

various internet

businesses.


13 January 2014 67

Digital Commerce

HomeShop18. HomeShop18 is a virtual retail business selling across internet, TV and

mobile. They sell a wide range of consumer products including books, tablets, laptops,

mobile phones, electronics, apparels, cameras, jewellery, watches etc. HomeShop18 has

over 500+ brands spread across 12m SKUs. The business had over 3.7m transactions in

2012. As of Dec, 12, Homeshop18.com had over 7.7m unique visitors.

BookmyShow.com. The site is operated by Bigtree Entertainment Private Limited, in

which Network18 had acquired a stake in 2007. It provides online booking for movies,

plays, sporting events and shows across India. It is India’s leading entertainment ticketing

solutions and reaches more than 100 cities and 1400 screens in the country. As of

December 31st, 2012, bookmyshow.com had 5m+ registered users and recorded over 5m

unique visitors per month during 2012. In August 2012, Network18 diluted its stake to 40%

(vs 60% earlier) through a stake sale to Accel Partners. Network18 continues to be the

largest stakeholder in the company.

Financial Summary

During FY13, the company reported revenues of Rs4bn (vs Rs2.3 in FY12) and operating

losses of Rs1.2bn (flat YoY) in the Digital Content and eCommerce segment.

Fig 84 Financial breakdown of the digital business

(In Rs m) FY12 FY13

Digital Revenues 2338 4009 Breakup of revenues: * Digital Content 702 880 * Digital Commerce 1188 2763 * Newswire18 448 367 Operating Profit -1263 -1254 Operating Margin -54% -31%



13 January 2014 68

Appendix: Additional Information Infoedge Limited: Additional Information on Business Segments

Info Edge owns a diversified portfolio of portals like Naukri.com, 99acres.com,

Jeevansathi.com and Shiksha.com, which have an established market and mind share.

Fig 85 Infoedge Portfolio of businesses….


Fig 86 Recruitment still contributes 77% of company standalone revenues…


92% 90% 86% 84% 83% 81% 77%

8% 10% 14% 16% 17% 19% 23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Recruitment Solutions Others


13 January 2014 69

Recruitment business driving profitability. Among the key businesses of Infoedge, the

recruitment business contributes entirely to the profitability, with the rest (real estate,

matrimony and education) being at breakeven/loss.

Fig 87 Recruitment business posting ~50% EBITDA Margins…

Fig 88 …Profitability still elusive for non recruitment businesses…


Business Segment 1: Recruitment

Introduction. As of March, 13, Recruitment solutions continue to be the dominant

business, with 77% of total standalone revenues of Info Edge Ltd. The recruitment services

business comprises the following portals:

Naukri.com: This is the company’s flagship brand and India’s largest online jobsite.

The resume database has expanded more than 3x since inception and its traffic share

(among online recruitment sites in India) has remained strong at 60%+. Resultantly,

despite diversification into multiple portals, recruitment solutions (including both online

and offline recruitment services) still account for 75%+ of the standalone revenues.

Fig 89 Naukri.com Homepage snapshot: India’s largest recruitment site

Source: naukri, Macquarie Research, January 2014


13 January 2014 70

Quadrangle.com: This is primarily an off-line headhunting business that derives

revenues from successfully positioning a person with a company.

Naukrigulf.com: This is a jobsite that focuses on the Middle Eastern market

Firstnaukri.com: Launched in January 2009, this site focuses on fresher hiring

Brijj.com: This is a professional networking site

Revenue Model. Revenue is generated in the form of subscription fees, which is

recognised pro-rata over the subscription or advertising agreement, usually ranging

between 1-12 months.

Fig 90 Number of candidate resumes has grown consistently…

Fig 91 …Average daily resumes modified increasing showing the recent macro in India…


Competition. Naukri.com is the largest player in the segment. In Sept 2013, the gap with

Monster India increased to 47%, with Times Jobs to 54%.

Fig 92 Naukri.com has a strong lead over competition…



13 January 2014 71

Profitability. The recruitments business is contributes fully to the profits for the company,

with the other businesses of real estate, matrimony and others at breakeven/losses. The

chart below shows the revenues and EBITDA margins for the recruitment business.

Fig 93 Recruitment business is the cash cow for Infoedge…



13 January 2014 72

Business Segment 2: Real Estate

Introduction. As of March, 13, real estate solutions contributed 12% of total standalone

revenues of Info Edge Ltd. The real estate services business comprises the following

portals:

Online real estate classifieds (www.99acres.com)

Real estate brokerage business (www.allcheckdeals.com )

99acres.com: 99acres is the 2nd

largest business segment of Info Edge’s standalone

business, which provides an online real estate classifieds platform for real estate

properties in India. Established in 2005, 99 acres has grown strongly, at a 42% revenue

CAGR between FY07-13. This has also seen its contribution to Info Edge's standalone

revenues rising from 7% to 12% in FY13.

Access to information on prices across the real estate market is the main USP (unique

selling point) for the site since the sector is inherently affected by informational asymmetry.

Real estate players are one of the highest advertising spenders across categories which is

evidenced by the paid listing growth of 122% CAGR over FY08-13 at 99acres.com.

Fig 94 99acres.com Homepage snapshot: The largest real estate classified site in India

Source: 99acres, Macquarie Research, January 2014

http://www.99acres.com/

http://www.allcheckdeals.com/


13 January 2014 73

Competition. 99acres.com is the largest player in the segment.

Fig 95 99acres.com is the leading player in online real estate classified space…


Profitability. The recruitment business contributes fully to the profits for the company with

the other businesses of real estate, matrimony and others at breakeven/losses. The chart

below shows the revenues and EBITDA margins for the other business.

Fig 96 Other Businesses have shown strong growth but profitability still elusive…



13 January 2014 74

Business Segment 3: Matrimony

Introduction. Jeevansathi.com (JS), Info Edge's matrimony portal, is the 3rd

largest player

in the Indian online matrimony market. In India, due to higher focus on arranged marriages

involving consent of parents, the demand for match making services has long been in

existence. The matrimony market has been largely fragmented with these services

accessed through print, community-specific matrimony houses, online matrimony portals or

through relatives' contact. An internet-savvy generation, higher internet penetration and

continued increase in the profile base (and hence probable matches) have resulted in

matrimony portals becoming a credible alternate resource.

Fig 97 jeevansathi.com Homepage snapshot: India’s 3rd

largest matrimony site


JS was acquired by Info Edge in 2004 and has witnessed revenue CAGR of 17%, with the

number of listed profiles witnessing a CAGR of ~30% over FY09-13. Unlike other portals of

Info Edge (naukri, 99acres), JS growth traction has not been as strong, considering no

first-mover advantage, highly fragmented nature of the market and strong competition in

the online space.

Fig 98 Revenue growth has been modest in jeevansathi.com…


Profitability. The recruitment business contributes fully to the profits for the company with

the other businesses of real estate, matrimony and others at breakeven/losses. The chart

below shows the revenues and EBITDA margins for the other business.

170

199221

254

323

17%

11%

15%

27%

0

50

100

150

200

250

300

350

FY09 FY10 FY11 FY12 FY13

0

0.05

0.1

0.15

0.2

0.25

0.3

Jeevansathi Revenues (m) YoY growth (%)


13 January 2014 75

Fig 99 Other Businesses have shown strong growth but profitability still elusive…


Investments: String of Pearl Strategy

Info Edge's strategy to monetize the nascent and fast growing Indian internet space has

not only led to strong home-grown brands like Naukri.com, 99acres, etc but also led to

investment in rapidly growing web/mobile based start-ups. Strong profitability and robust

cash flows from the core business as well as extensive domain knowledge in the internet

space also were the key reasons for these investments.

Reasons for these investments. In addition to promoting businesses internally, Info Edge

recognised that some of the ideas in developing online businesses would come from

outside the company. Thus, the company decided to made investments in early stage

start-up ventures. The objectives for the same are: (i) support the growth of these

entrepreneurial-driven activities, (ii) gain from enhanced value creation, where this occurs,

and (iii) bring such enterprises into the Info Edge fold if such opportunities arise in future.

Most of these companies are in the incubation/ early stage phase

Fig 100 List of Investments by Infoedge Ltd…


Investee Company Website

Total amount

invested (Rs m)

Approx. diluted

and converted

shareholding %

% of the

total amount

invested

Year of

Investment

Active

Zomato Media Pvt Ltd. www.zomato.com 860 58% 30% 2010

Applect Learning Systems Pvt Ltd. www.meritnation.com 615 54% 22% 2008

Etechaces Marketing and Consulting Pvt Ltd. www.policbazaar.com 325 32% 11% 2008

Kinobeo Software Pvt Ltd. www.mydala.com 270 47% 9% 2011

Canvera Digital Technologies Pvt Ltd. www.canvera.com 375 25% 13% 2012

Happily Unmarried Marketing Pvt Ltd. www.happilyunmarried.com 50 25% 2% 2012

Sub Total 2,495 88%

Written off/ provisioned for/ exited

Studyplaces, Inc. www.studyplaces.com 45 13% 2% 2008

Ninety Nine Labels Pvt Ltd. www.99labels.com 285 47% 10% 2011

Nogle Technologies Pvt Ltd. www.floost.com 26 31% 1% 2011

Sub Total 356 12%

Total 2,851 100%


13 January 2014 76

Justdial: Additional Information on Business Segments

JustDial: How it works?. Justdial's search service bridges the gap between the users and

businesses by helping users find relevant providers of products and services quickly, while

helping businesses listed in Justdial's database to market their offerings. The company is

basically an online directory of services / establishments which provide users contact

numbers for the services they desire. Users generally request for the number of a specific

retailer/service provider or for category of service providers e.g. Dentist in Mumbai. Justdial

offers various subscription packages to service providers to avail of the leads generated by

user requests. Their core market is small businesses i.e. local barbers, retailers, service

providers who cannot spend money on advertising etc. In that ways they are actually a 3rd

party marketer / business sourcing agency for small firms which uses technology as its

tool. Currently, In the local search space they are the clear leaders with no real competitors

who can compete with them in terms of reach and database strength.

Volume of Searches. From being primarily a voice company they are now a mobile &

internet company with 88% of searches across those platforms including 23% of the online

searches via mobile devices. As of 2QFY14, the company was servicing 62m+ web

searches, 22m+ searches on its smartphone application and mobile internet and

12m+ voice calls on a per month basis.

Monetization of search queries. Justdial monetises its services by allowing service

providers to be given top billing when a user asks for a service category or for leads to be

referred to them. This means that when an user asks for dentists in Mumbai, the user is

sent four numbers with the service provider who has opted for a platinum listing headlining

the numbers sent across; the user’s contact number is also passed on to the premium

biller. Monetisation is platform-agnostic and leads are generated with client requests for

category searches. 35% of the searches are category searches; these are the key leads

generated for their clients.

Fig 101 Search volume has grown strongly…. Fig 102 …but paid campaigns have grown even faster..


Subscription services. They have various categories of subscription for each category

sorted by postal pincodes. They offer 1 platinum billing customer in each pincode area

which means that the provider gets top billing in all leads generated for a year – this can be

broken up into portions as per client request. Pricing is determined by a proprietary engine

which takes into account historical demand for key words, past payment willingness from

providers in that locality, etc. As a result there is no average pricing for listing. A platinum

provider gets a renewal request once his subscription period is over to keep the listing.

82

131

175

254

364

238

0

50

100

150

200

250

300

350

400

FY09 FY10 FY11 FY12 FY13 1HFY14

Total Usage (Million)

FY09-13 CAGR

of 45%

4162

120

171

206

460

0

50

100

150

200

250

300

350

400

450

500


Paid Campains (In thousands)

FY09-13 CAGR

of 50%


13 January 2014 77

Number of subscribers and listings. The client base is fairly concentrated across

services and geographies, with no category contributing more than 3%. Mumbai and Delhi

contribute up to 40-43% of total subscriptions. They have marketing offices in 11 cities

which contribute 90% of the revenues; they cover an additional 40 odd cities which make

up 7% of revenues, but are growing fast. They have a total of 222K paid subscribers,

which in management’s estimates should grow at 25-30% per annum on a net basis.

Key Highlights about JustDial:

Approximately 364m usages in FY13.

Database of approximately 9.1 million listings as of March 31, 2013.

Justdial users have contributed 33,515,517 reviews and ratings for various listings to

date.

Justdial had approximately 206,500 campaigns as of March 31, 2013. Business

owners have the option to list their business on Justdial's database for free.

Fig 103 JustDial Homepage snapshot: Building on Local search

Source: JustDial, Macquarie Research, January 2014


13 January 2014 78

Makemytrip: Additional Information on Business Segments

Introduction. MakeMyTrip Limited was founded in 2000 and provides services and

products include air tickets, customized holiday packages, hotel bookings, railway tickets,

bus tickets, car hire and facilitating access to travel insurance. Through its primary

websites, www.makemytrip.com and www.hoteltravel.com the company provides access to

all major domestic full-service and low-cost airlines, over 11,300 hotels and guesthouses in

India, more than 102,800 hotels outside India, Indian Railways and several major Indian

bus operators. The company is headquartered in Gurgaon, Haryana and has employee

strength of more than 1,200 employees. In 2007, the company was listed on the New York

stock exchange in the US.

Fig 104 MakeMyTrip Portfolio of businesses….


Diversified Portfolio. The company had traditionally derived majority of its revenues from

air ticketing but the closure of Kingfisher Airlines in India along with adverse macro

economic environment during 2011-3 made the company focus on Hotels and Packages

as the new growth area for the future. This renewed focus led the Hotels and Packages to

increase its revenue contribution to 31% in FY13 (vs 15% in FY08). Our interaction with

the management showed that the desired mix for hotels and air tickets is to reach 50-50

within the next 18-24 months.

Fig 105 Company has been moving focus from air ticketing due to reducing margins in the segment…

Fig 106 … to Hotels & packages, which would be the focus area for future revenue growth…

Source: MMYT, Macquarie Research, January 2014 Source: MMYT, Macquarie Research, January 2014

FY08

Air Ticketing

85%

Hotels &

Packages

15%

FY13

Air Ticketing

65%

Others

4%

Hotels &

Packages

31%

http://www.hoteltravel.com/


13 January 2014 79

Reducing margins in Air ticketing leads to renewed focus on Hotels and Packages.

Among the key businesses of MakeMyTrip Ltd, air ticketing margins have been reducing

due the closure of Kingfisher Airlines in India along with adverse macro economic

environment during 2011-3. They have already come down from 7%+ to ~6% levels vs

Hotels and Packages segment, which has been on an increasing trend.

Fig 107 Air Ticketing margins has been reducing…

Fig 108 …while Hotels and packages has been showing increasing margins…


Financials. The company’s gross bookings grew from US313m in FY09 to US$1,170m in

FY13. On a net basis, revenues grew to US$88m in FY13 (vs US$ 26m in FY09), showing

a CAGR of 37%. Do note that net revenues constitute revenues less service costs.

Fig 109 Total Gross bookings has been growing at a CAGR of 39% during FY09-13…

Fig 110 …while margins have been impacted from negative industry conditions and recent acquisitions….


7.2%7.6% 7.4%

7.9%

6.0%6.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%


Adjusted Operating Margins for Air Travel (%)

10.6%

14.0%

11.5% 11.9% 12.0%12.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%


Adjusted Operating Margins for Hotels and Packages (%)

0

200

400

600

800

1000

FY09 FY10 FY11 FY12 FY13

0%

10%

20%

30%

40%

50%

60%

70%

Gross Bookings - Air Ticketing (US$ m)

Gross Bookings - Hotels and Packages (US$ m)

Air Ticketing YoY growth (%)

Hotels and Packages YoY growth (%)

(10.2)

0.8

4.6

10.9

(5.2)(3.5)

-15

-10

-5

0

5

10

15


Adjusted Operating Profits (In US$ m)

1.9% 7.5% 12.4%


13 January 2014 80

Fig 111 MakeMyTrip Homepage snapshot: Focusing on Travel in India

Source: makemytrip, Macquarie Research, January 2014


13 January 2014 81

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 December 2013

AU/NZ Asia RSA USA CA EUR Outperform 47.89% 60.13% 37.97% 39.49% 59.64% 48.65% (for US coverage by MCUSA, 6.52% of stocks followed are investment banking clients)

Neutral 35.56% 22.65% 46.84% 54.50% 35.54% 32.43% (for US coverage by MCUSA, 4.35% of stocks followed are investment banking clients)

Underperform 16.55% 17.22% 15.19% 6.01% 4.82% 18.92% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)

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Regional Heads of Sales cont’d

Paul Colaco (San Francisco) (1 415) 762 5003 Erica Wang (Taiwan) (8862) 2734 7586

Angus Kent (Thailand) (662) 694 7601 Julien Roux (UK/Europe) (44) 20 3037 4867 Sean Alexander (Generalist) (852) 3922 2101

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Adam Zaki (Asia) (852) 3922 2002

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Sales Trading cont’d

Mike Keen (UK/Europe) (44) 20 3037 4905 Chris Reale (New York) (1 212) 231 2555

Marc Rosa (New York) (1 212) 231 2555 Stanley Dunda (Indonesia) (6221) 515 1555 Suhaida Samsudin (Malaysia) (603) 2059 8888

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