Investing in new era clearly belongs to innovations, the scale of operations and consistency in investing in those businesses. Loss-making business is no more a bad word or social taboo as entrepreneurs and investors don’t mind burning cash when investing in new-gen businesses. India is experiencing a clear shift under disruptive trade emerging out of nowhere and displacing the established businesses.
Let me present to you, some of the interesting stories that will help us understand how technology and some new gen companies have displaced existing players in the last decade. Businesses like consumer finance, Insurance, BFSI, Online Shoppers, and Telecom has created massive wealth for promoters and shareholders.
Let me place both domestic and global examples and references that have led the evolution of technologies with immense success.
Bajaj Finserv –
Bajaj Finserv diversified financial services group spanning life insurance, general insurance, and lending, with a pan India presence. A decade old, Bajaj Auto demerged entity has displaced the traditional model of agent serviced Insurance business & banking finance offline model. Their robust digital online model has helped them service larger customer base in just a few years.
With the fast evolution of smartphones, the launch of the first finance app has clearly allowed them to hold a strong leadership position in the domestic market. Bajaj Finserv has generated ~39% CAGR return for an investor in last 8 years. Today it is valued at Rs 97,415 cr ($ 14.53bn).
Avenue Supermarts Limited (DMart) –
D-Mart’s success has lessons, not only for rivals in the brick-and-mortar space but also for e-commerce companies, which are struggling to make profits. The firm has been focused on what it wants, and its expansion has been measured. In the first nine years of its existence, till 2010, it had just 25 D-Mart stores. Only after perfecting its business model did the company re-expands to around 118 stores. D-Mart follows the strategy similar to global retailer Walmart and does not conduct discount festivals to raise its sales. In its 15 years of operations, it has never closed, moved or shut down a store. It has been generating profit for the last 5 years.
With a listing price of @ INR 299 on 21st March, the stock trades at INR 1599. Amazon.com Inc., the global giant that’s investing $5 billion in the Indian market, Flipkart Online Services Pvt., the biggest domestic e-commerce company, are yet to make money in India, whereas Avenue Supermarts said it had net profit after tax of Rs 7.8 billion ($117.2million) in the year ended March 2018. Nonetheless, we have seen global players sighting huge opportunity in coming years with Walmart showing interest to acquire and valued Flipkart at $20bn.
Infibeam –
Infibeam is an e-commerce company, focused on developing successful e-commerce platforms and ecosystems. In addition to Infibeam.com, a multi-category B2C e-retail site, through Infibeam BuildaBazaar (“BaB”) e-commerce marketplace, the company provides a cloud-based, modular, customizable and scalable technology platform as well as e-commerce infrastructure and logistics support for a diverse universe of merchants, products and services. E-commerce is estimated to be $ 101.9 bn by 2020. That is 6X growth over 5 years is been envisaged for e-Commerce driven by factors like new-age technology, convenience, higher adoption rates, and larger reach.
Infibeam listed in April 2016 has generated ~237% return for the investor since then. Today it is valued at $1.49 bn.
R Jio –
Jio- Rise of Indian AT&T? – Build multiple sources of revenue – While data remains the primary source of revenue for Jio unlike its rivals, the real money lies in its premium apps. JioOnDemand and JioBeats have the potential to become Netflix and Spotify of India respectively. Besides, the company also looks to make a profit by selling 4G enabled LYF smartphones.
Jio is expected to generate Rs 50,000+ cr ($ 7,740 mn) revenue & possible market value would be Rs. 100,000 – 120,000 cr ($ 18,575 mn) in next 1-2 years.
A global perspective
From a global perspective let me pull out a few examples for you that have followed the disruptive strategy. In the late 90s and early 2000, Amazon came up with online bookseller model which forced established bookstores likes, Barnes and Noble, to scale down their operations. Today Amazon is a complete market place selling products across various verticals: from food, grains to fast-moving consumer goods | from electronics to Music & Movies.
Amazon and Alibaba– the Chinese retailer are two of the most successful companies who have emerged by disrupting the conventional retailing.
Apple is another example who disrupted the domination of HP, Dell, IBM by dislodging their PC business within a span of fewer than 5 years when they came up with MAC machines. Apple also dislodged Sony from music and Nokia and Ericson from the mobile phone business
Microsoft an erstwhile monopoly player in windows operating systems is now dislodged to no 3 positions by Apple and Google in market cap.
And in the process, Apple grew from $ 8 (Revenue 2000) billion company to $ 229 (Revenue 2017)Bn company commanding a market wealth of $ 936 billion, which has grown @ CAGR of ~24% in last 17 years.
Google came much later after Yahoo. It started off with search and now they are having about several product verticals including search, OS, maps, autonomous cars, Home, (Cloud Platform, Online business,
Person Finder, Firebase which provides API that allows developers to store and sync data across multiple clients, Google Fiber, it is internet network infrastructure using fiber-optic communication and Google Cast which lets you cast your favorite entertainment and apps from your phone, tablet or laptop right to your TV or speakers. Their main revenue comes from advertisement amounting to $ 90.3 billion (88% of Total revenue).
Google is now $ 110.8 billion Company with the market worth of $ 806 billion value. Google investors have earned ROI of 25% on CAGR basis over the last 13 years.
Tesla started off with an all-electric car, buying an unused plant from GM and Toyota in Fremont, CA. Starting with sports car which would accelerate from 0 to 60 mph in less than 4.5 seconds, they went to produce a luxury sedan, a 7 seater SUV and now a mass market sedan, likely to be launched in H2 of CY 2017.
They produced the 1st autonomous, all-electric car which is driving on roads in the USA. They went to the height of disruption by opening up all their patents or IPR and made it available to all.
The investment in Tesla is now valued at $ 54 billion and the stock price is quoted at $ 318 as against their IPO done at $ 17 per share, some (7 years of listing) 13-14 years ago, giving a whopping 52% CAGR return to the investors.
Microsoft the legendary innovator of windows operating systems and office software faced the heat of Android OS from Google and packaged IOS from Apple. An uncrowned King who ruled the world with its OS for more than 2 decades, is now standing down at rank 3 after Google and Apple.
Quick enough in adapting to a new era, MS still commands the valuation of $ 782 billion and is among the 3rd largest company by market value as of now.
Make My Trip has bought a paradigm shift into travel industry over more than a decade now. It was launched in US markets in the year 2000 to service needs of NRIs for their Indo-American trips. Operations in India began in 2005, starting with flight tickets. A few years later, Make My Trip got listed in NASDAQ. Today it is valued at $3.43 bn today.
In a nutshell, one common trait the mentioned references belong to, they all have emerged out disruptions, and they have displaced established players and have changed their business model as they evolved continuously. It is also very clear that new age entrepreneurs are not averse to think differently and think transformation to chase their dreams. Indian ecosystem is very well poised, to transform the new generation start-ups with help of angel investors and build fortunes with or with.
About the Author –
Mr. Deven Choksey is the Promoter of KRChoksey Group of companies. He has served BSE as the Director of the exchange, post BSE Demutualization and as a Board Member of the BSE Derivative Stock Exchange. He has championed the concept of value investing through strong fundamental research and modern portfolio approach. KRChoksey is among the most trusted, respected and distinguished name in the India’s financial markets, for close to four decades.
New Generation Companies – Creating Wealth through Innovation and Disruptive Strategies
