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India internet opportunity

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India internet opportunity

  1. 1. | Copyright Kalaari Capital 2017 Page 1 India Internet Opportunity May 2017
  2. 2. | Copyright Kalaari Capital 2017 Page 2 2005 2010 2015 2020 2025 7 11 5 4 Ranking by size of Economy US China Japan Germany UK France India US China Japan Germany India US China Japan India Will be $5T Economy by 2025, 4th largest in the world Source: OECD
  3. 3. | Copyright Kalaari Capital 2017 Page 3 171M consumption class households by 2025 Household Income per Annum Deprived - <$1,800 Seekers - $4,000-10,000 Globals - >$20,000 Strivers - $10,000-20,000 Aspirers - $1,800-4,000 101 73 71 48 92 105 109 103 11 56 68 93 7 16 558 23 2005 2015 2020E 2025E Number of Households (Millions) by Income class 206M 244M 273M 322M 7%, 14M 34%, 93M 53%, 171M27%, 66M Consumption class 2005 real prices Source: NCAER, McKinsey
  4. 4. | Copyright Kalaari Capital 2017 Page 4 Rapid smartphone penetration driven by price disruption 200 160 130 117 220 300 2013 2015 2016 • Smartphones getting increasingly cheaper, driving rapid adoption • 50+% smartphones sold in 2016 were in sub $100 price range • Chinese companies rapidly gaining market share. 46% of market share as on Q416 as compared to 14% in Q415. • Xiaomi within 2 years has become the 2nd largest player as on Q4CY2016 • ~35% of smartphones are sold online. The leading category for E-tailers with ~50% of total sales coming from smartphones Signed off Rapid smartphone penetration driven by price disruption Source: IDC, Cybermedia Research : India Mobile Handset Market, Counterpoint Research, Statista
  5. 5. | Copyright Kalaari Capital 2017 Page 5 Smartphone penetration + Affordable data = Massive digital video opportunity 500M 3G/4G users 120M 3G/4G users 10GB Avg. Data usage per month 1GB Avg. data usage per month 2016 (Excluding Jio) 2020 4x growth in users x 10x growth in avg. data usage = 40x growth in total data consumption • Video to be key beneficiary of increased data usage. Jio users exhibited ~18-20x increase in mobile video consumption compared to an average smartphone user • Strong preference towards short form video content. 62% of videos watched on YouTube are <20 minutes • With massive increase in digital media consumption, Ad spend will also witness significant shift. In 2016, ~12% of India’s Ad spend is digital, compared to 50% in US and 40% in China • Digital Ad spend to be $4-5B by 2020 from $1B in 2016. Opportunity for Indian content creators to get a sizable share of pie. Average data cost $3 per GB per month Average data cost $1 per GB per month Source: Quarterly reports of Indian telco (Airtel, Vodafone, Idea, Aircel), Reliance Jio Investor presentation E&Y Future of Digital Content India, Jan 2016
  6. 6. | Copyright Kalaari Capital 2017 Page 6 Already the largest user base for global internet giants; Monetization nascent CEOs of most major internet companies have visited India in last one year, indicative of India’s internet market potential Key initiatives by global internet giants towards India’s internet story • Google to setup free wi-fi across 400 railway stations in India • Facebook launched ambitious plans to provide free internet access to rural India under “Free basic”. Got shelved due to regulatory hurdles • Google launched ‘Internet Saathi’ program to educate women about smartphone uses 200M 184M 180M Monthly Active Users (MAU)
  7. 7. | Copyright Kalaari Capital 2017 Page 7 Users at different stages of digital adoption • Despite having 300M smartphone users, India has only 120M high speed mobile internet (3G/4G) users • Low-end 2G users on Whatsapp and Facebook, but their data consumption is 1/5th of an average 3G user • Growth of power users critical for India’s digital economy. The user base with 3G/4G connectivity to reach 500M by 2020 • Opportunity for E-tailers to capture the share of rapidly growing power internet user base 50M Online Shoppers 200M Social Media and Messaging Users 460M Internet Connections 120M High speed internet users (3G/4G) 300M Smartphone Users Power Internet Users Source: InternetLiveStats, Quarterly reports of Indian telco (Airtel, Vodafone, Idea, Aircel)
  8. 8. | Copyright Kalaari Capital 2017 Page 8 1. India E-tail
  9. 9. | Copyright Kalaari Capital 2017 Page 9 0 2 4 6 8 10 12 14 16 2009 2010 2011 2012 2013 2014 2015 Early Days Market Creation E-tailMarketSize($B) Top 3 Offline Retailers Turnover $10B Top 3 Online Retailers Turnover $12B As on 2016 E-tail : 2012-15 was a phase of rapid growth and market creation Source: Redseer Consulting - E-tailing Revolution in India
  10. 10. | Copyright Kalaari Capital 2017 Page 10 E-tail penetration nascent in Tier-II & beyond • Organized retail economics unviable for Tier-II & beyond. Organized only 5% of retail consumption • Smartphone penetration already high at >30%. Majority of next 200M smartphone users will be from Tier-II & beyond • With growing smartphone and internet penetration, opportunity for E-tailers to tap into this large consumption market • Tier-III & IV contributes to 50% of E-tail sales in China E-tail , 0.6% Organised, 5% Unorganised, 94% E-tail , 8% Organised, 19% Unorganised, 73% 80% 20% Tier-II & beyond Tier-I Total Retail Consumption ($630B) Source: McKinsey iConsumer China 2016 Survey, IBEF, Knight Frank – Think Retail 2016
  11. 11. | Copyright Kalaari Capital 2017 Page 11 Tier-II & beyond – Regional language important to drive adoption • Regional language offering (reviews, search, navigation, product content) important to drive engagement and conversion • E-tailers don’t control most content. Product content uploaded by sellers and reviews by users • Translation from current tools too literal. Not suitable for most Indians that use mixed language (e.g. Hinglish) • Growing market opportunity calls for E-tailers to make concerted efforts to serve the regional language users 460M Internet Connections 125M English Speaking Users Peter England Blue Formal Regular Fit Shirt पीटर इंग्लैंड ब्लू औपचाररक नियमित फ़िट शटट Example from Google translate Most internet users from Tier-II and beyond are Non-English speaking Source: IAMAI
  12. 12. | Copyright Kalaari Capital 2017 Page 12 • Until E-commerce players can build a frequent usage behavior, app retention will be challenging • Mobile web strategy important to capture this segment • Opportunity for unified interface solutions to access multiple online services (e.g. WeChat in China) 50%+ of smartphones sold in India are in sub $100 price range with typical internal storage capacity of 8GB OS, 3.5 Whatsapp, 1.2 Media, 2 Apps, 1.3 Typical allocation of 8GB capacity 3rd party apps on smartphones due to space constraint 80% Average 90 days uninstall rate 6-8 Tier-II & beyond – Low app retention, mobile web strategy important Source: CNBC, Frost & Sullivan, Kalaari Estimates
  13. 13. | Copyright Kalaari Capital 2017 Page 13 Category mix skewed towards electronics E-tail Market and Category mix by Country 65% 25% 2% 16% 31% 4% 17% 19% 8% 3% 7% 7% India ($15B) China ($610B) US ($393B) Apparel & Accessories Home Furniture & Decor Grocery Consumer Electronics Source: Statista, Digitalcommerce360, China Internet Watch, Kalaari Estimates
  14. 14. | Copyright Kalaari Capital 2017 Page 14 Higher online penetration in non-electronics important to drive growth 396 Total Spend ($B) Apparel & Accessories Home Furniture & Decor Grocery Consumer Electronics • While electronics has high online penetration (~27%), it is ~6% of consumers’ spend • As market matures, other categories with sizable share of consumer spend will also witness higher online penetration • Fashion • Home & Décor • Grocery • Jewelry • These are complex categories and will require business model innovations (e.g. Omni-channel, Internet brands) Jewelry Beauty & Personal care 56 36 35 18 12 0.5 3.8 9.8 0.05 0.3 0.1 0.13% 6.8% 27% 0.14% 1.7% 0.8% x = Online Share (%) Online Spend ($B) Category-wise Total Spend vs Online Spend Source: Kalaari Estimate, CII-BCG Study - “Retail transformation: Changing Your Performance Trajectory”
  15. 15. | Copyright Kalaari Capital 2017 Page 15 2. Digital Payments
  16. 16. | Copyright Kalaari Capital 2017 Page 16 India is a cash heavy Economy 4.5% 500M 3G/4G users Of India’s consumption spend through digital payments 70% E-tail orders are CoD • Cash in circulation in India is 18% of the country’s GDP. The figure is 3.5% to 8% for developed countries such as the US and the UK • Cash economy drives the shadow economy, which is 26% of GDP in India compared to 14% China and 7% in USA • For e-tail’s next phase of growth, CoD dependency needs to be reduced. Currently, for every successful CoD order, 1.24 delivery attempts are made Source: RBI, Red seer consulting E-commerce Report 2016
  17. 17. | Copyright Kalaari Capital 2017 Page 17 Merchant network highly underpenetrated 500M 3G/4G users 0.3 POS transactions per debit card per month 884M 500M 3G/4G users 2.5MPOS Machines 14M Merchant Outlets Source: RBI • ATM withdrawals account for 88% of the total volume and around 94% of the total value of debit card transactions. • India at one of the lowest POS per 1000 debit cards ratio at 2.4 • US - 13, China – 14, Australia – 33, Brasil - 15 • Limited internet connectivity adds to the friction in the digital payment infrastructure. Coupled with 2% take rate, merchants disincentivised to accept plastic money Debit Cards 500M 3G/4G users 3.2 30M Credit Cards POS transactions per credit card per month
  18. 18. | Copyright Kalaari Capital 2017 Page 18 Mobile wallet payments gaining traction 5,774 6,227 6,070 6,374 6,788 6,174 7,982 9,036 13,720 12,571 9,890 10,554 342 363 414 412 459 476 505 493 1112 1247 1063 1125 Card POS - Transacted Amount ($M) Mobile Wallet - Transacted Amount ($M) Source: RBI 845M Debit + Credit Cards 2.2M POS Machines 80-85M Active M-wallet users 1.5M Merchants acquired Mobile wallets gaining rapid merchant adoption owing no hardware requirements Demonetization catalyzed the growth Source: RBI
  19. 19. | Copyright Kalaari Capital 2017 Page 19 Mobile wallet payments gaining traction 5 7 16 109 261 293 368 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 UPI - Transacted Amount ($M) Source: RBI
  20. 20. | Copyright Kalaari Capital 2017 Page 20 Government laying strong foundation for the digital payments revolution UPI + Aadhaar + BharatQR + Jan Dhan Yojna + BHIM Initiative to have bank account for every Indian 250M accounts opened under the scheme in 3 years. Accounts for ~50% of total 500M bank accounts as on 2016 Bharat QR Universal QR code for merchant payments Target to cross 10M merchants in 12- 18 months of launch Jan Dhan Yojna Government App for making UPI based payment Crossed 17M downloads within 2 months of launch BHIM Instant transfer of money between back accounts with mobile numbers $600M+ amount transacted in 3 months (Dec’16, Jan’17, Feb’17) UPI UPI Jan Dhan Yojna BHIM Bharat QR Aadhaar Unprecedented pace of execution by the government Source: RBI Strong Foundation = 300M Smartphones + 1 Billion Aadhar Cards + 500M Bank accounts
  21. 21. | Copyright Kalaari Capital 2017 Page 21 Conclusion Sizable consumption class in 2016 (27% households). By 2025, 50% of Indian households will be part of consumption class Price disruption driving rapid smartphone and mobile internet adoption across income classes Opportunity for e-tailers to tap into this growing smartphone and internet savvy consumer segment Large scale adoption beyond Tier-I will require innovative solutions to specific challenges – Language, App retention Business model innovation will be key to drive higher online penetration of non-electronics categories (e.g. Fashion, Home & Décor) Significant focus and efforts from government to accelerate adoption of digital payments
  22. 22. | Copyright Kalaari Capital 2017 Page 22Page 22 Authored by Vani Kola and Darshit Vora Supported by Naman Narain and Vinod Shankar © May 2017 Kalaari Capital Advisors. All rights reserved. The Report has been complied for information purpose only. The Report is based on current public information that we consider reliable, but we do not represent it as accurate or complete. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change.
  23. 23. | Copyright Kalaari Capital 2017 Page 23Page 23 Thank You
  24. 24. | Copyright Kalaari Capital 2017 Page 24 APPENDIX
  25. 25. | Copyright Kalaari Capital 2017 Page 25 Urban population distribution in India Category City Population (2011) Tier I Mumbai 12.4M Tier I Delhi 11M Tier I Bengaluru 8.4M Tier I Hyderabad 6.7M Tier I Ahmedabad 5.5M Tier I Chennai 4.6M Tier I Kolkata 4.4M Category No. of Cities Total Population (2011) % of Total Population Tier 1 7 53M* 4.5% Tier II & Beyond 461 320M 26.7% Tier I: Cities with more than 4 million persons Tier II & Beyond: Cities with less than 4 million persons but more than 1 lac persons Classification Criteria Urban population (377M) is 31% of total population Overview *2015 estimate for Tier-1 population is 93M
  26. 26. | Copyright Kalaari Capital 2017 Page 26 India Population Distribution by Spoken Language 41% 10%8% 7% 7% 6% 5% 4% 3% 9% Distribution of Indian Population by Spoken Language Hindi English Bengali Telugu Marathi Tamil Urdu Gujarati Punjabi Others
  27. 27. | Copyright Kalaari Capital 2017 Page 27 Smartphone shipments by vendor CYQ117 26% 13% 12% 10% 8% 2% 29% Samsung Xiaomi Oppo Vivo Lenovo Apple Others Smartphone Market share CYQ117 Source: Canalyst Estimates Total Shipments : 29m
  28. 28. | Copyright Kalaari Capital 2017 Page 28 Rapid smartphone penetration driven by price disruption Signed off India Internet – On way to become a basic right 18 27 35 21 52 31 233 354 462 0 50 100 150 200 250 300 350 400 450 500 0 10 20 30 40 50 60 2014 2015 2016 Penetration as % of total population % Growth (YOY) Internet users (M) • Internet users Divide : 70% Urban, 30% Rural • Among Urban : 62 % Male, 38 % Female • Among Rural: 88% Male, 12 % Female • Kerala becomes the 1st Indian state to declare internet as a basic right for every citizen. A model for all of India to follow • NOFN - National Optic Fiber Network implementation speeded up with an aim to connect every Gram panchayat

Notes de l'éditeur

  • https://www.goandroid.co.in/samsung-capitalizes-indian-smartphone-market-q1-2017/59975/

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