As you might have guessed from the title of today’s write-up, I’ve decided to take a pause from this journey due to a new opportunity in front of me here in Mumbai, where I’ve recently shifted.

So today’s short write-up isn’t about a stock or economic research topic; it is about my journey over the past three years and how quickly it went by.

The Beginnings

After procrastinating for a few weeks, I finally decided to start Finding Outperformers on 24th September 2022 by opening an account on Substack. Before writing on Substack, I used to jot down my thoughts on markets and the stocks I owned every weekend and share them within my friends’ circle. By creating the account, my aim was to start writing publicly and take it a step further by going a little deeper each time I wrote about a company or the economy.

A Balancing Act

Over the last three years, while I spent my weekends researching and writing, my weekdays were spent in the corporate world, where I moved from Bain to PwC and later to DE Shaw. Alongside, I was also completing a few professional qualifications (namely CFA and CA). Regardless of the situation, I always tried to publish at least one blog post each month. In total, I ended up publishing around 64 blogs during this period, with this one being the 65th.

As I look back on how I managed all of this together, I feel I was fortunate to have been able to sustain a side hustle without being overburdened by corporate work or major family commitments. Not everyone is that lucky.

The happiness and self-satisfaction I derived from researching my portfolio companies and writing about them in my blogs were perhaps the most important reasons that kept me going sincerely.

I got the chance to write blogs along with many new people who went on to become co-authors. They brought unique perspectives, fresh angles, and deeper research to our work.

We also relaunched the website with new sections and features to make it more interactive and easier to navigate. I tried a new layout, which looked awesome to me.

As an outcome of this initiative, I got the opportunity to connect with many founders, investors, and CEOs of listed companies, while also gaining 4,500+ subscribers along the way. I was also able to grow my LinkedIn presence and build a larger network of smart, like-minded people. Overall, as I look back, I’m glad I took this step.

The Standout

Over the past three years, one company that has been constantly on my radar and continues to surprise me almost every week is Eternal. Their ability to execute quickly and almost flawlessly, backed by best-in-class tech teams and a strong drive to become India’s first $100 billion consumer tech company, is remarkable. At the scale they now operate and continue to grow, they are best positioned to implement automation (robotics) and AI in India, and also build India’s own social platform. Their tech & scale allows them to pivot fast and unlock new opportunities.

This is why I have posted the most about this company in the last 3 years, and the most shared blogs of mine are also dedicated to it. My biggest holding in the family portfolio over the last three years has been, and continues to be, Eternal - this is because I continue to believe it could someday become India’s most valued company.

The latest research blog I wrote was also on it:

Moving to Mumbai & what it means?

Mumbai has always been a dream city for me. After spending time in Delhi, Gurugram, and later a year in Hyderabad, I really felt like moving to the financial capital of India and spending a few years here.

So, when I saw a good opportunity coming my way, I decided to make the pivot. Today, as this email reaches your inbox, I have joined a PE fund here, where my role is research-focused.

Due to my upcoming professional and personal commitments, I have decided to take a pause and let my subscribers know about this. I am unsure when I will resume; it might be within two months or after six months. What I am certain of is that I will return and start publishing my research again. I will also be retaining my domain, findingoutperformers.com, with me.

Here is a picture from when I landed in Mumbai for the first time, making sure to visit Dalal Street:

Till next time, take care and see you soon!

Happy to connect over LinkedIn here.

If you happen to be Mumbai, happy to connect over a cup of coffee, or simply reply to this email (I read every response).

The farthest anyone has reached is Sharechat, which after burning over a billion dollar in funding was able to achieve a revenue of Rs 718 Crores in FY 24, and still, not even 1% Indians are using it actively. Compare this revenue with Meta’s Ads revenue from India of ~Rs 23,000 Crores & Google’s Ads revenue from India at Rs 31,000 Crores - Sharechat stands no where.

Therefore, it is not just a drain of India’s precious foreign exchange when we use foreign-owned social media platforms - it is also a drain of India’s personal data. Your data, my data, our national databank on these platforms is accessible by foreign players - this, in itself, can become a major threat to our national security someday.

India must own its social media future.

In today’s blog, I explore how likely it is that Eternal could someday enter this space. While it is a highly competitive and challenging segment to grow in, I believe new opportunities and white spaces are emerging that Eternal could potentially tap into. I am not a social media expert; this blog is written purely from an investor’s perspective.

I would recommend reading this blog on our website here.

Let’s get started.

Why Indian Social Media Apps failed?

There are basically two major Indian social media platforms that have now shut down after achieving some scale, and I am trying to draw some conclusions from their journeys:

1. Hike Messenger: Launched in December 2012 by Kavin Bharti Mittal, Hike was once one of India’s most promising homegrown messaging apps. At its peak, it boasted over 100 Mn registered users and facilitated more than 40 Bn messages per month. However, its growth happened alongside the giant WhatsApp. I still remember back in 2015-16, reading messages in my school class WhatsApp group discussing why we should use Hike as an Indian messaging app.

   Their app distinguished itself by offering unique features tailored specifically for the Indian market, including support for multiple local languages and an extensive range of stickers designed through user-generated contests, which were often not present on WhatsApp back then.

   Despite raising over $250 million and reaching unicorn status with a $1.4 billion valuation in 2016, Hike was not able to compete with the deep-pocketed WhatsApp, which kept its interface simple and clean, keeping in mind the 500 million Indians who came online post-2016.

   On the other hand, Hike continuously experimented with innovative services like Hike Wallet for mobile payments and attempted to become a super-app by integrating VoIP calling, news, and digital gift envelopes called Blue Packets for peer-to-peer monetary gifts, which made their interface increasingly complex over time.

   Basically, despite having that unique edge, Hike Messenger struggled with focus; its original purpose was messaging, but it added games, payments, and feeds, which diluted the core experience. In contrast, WhatsApp focused on its core and kept things simple. (Read more here)

   

   Another factor that may have contributed to Hike’s end was the founder’s persistent disbelief in 2016, expressed as: “For us to win, WhatsApp doesn’t have to lose; the whole perspective changes. Now, data shows us that we sit side by side with WhatsApp”. This mindset contrasted sharply with Facebook’s founder Mark Zuckerberg, who understands that it is often a ‘winner takes all’ game. That is why he consistently pursued acquiring competing apps like Instagram and even WhatsApp itself.

   

   ---

2. Koo, India’s answer to Twitter/X: This app highlighted how strongly multiple segments, including the government, in the country want their own social media platform amid global players. After its launch in 2020, Koo raised $4 million in Series A funding and a further $30 million by May 2021, attracting investors like Tiger Global, Accel, and Kalaari Capital.

   The app received strong support from various government entities that actively promoted it. From Union Ministers to Chief Ministers of different states, government bodies such as the Ministry of Electronics and IT, India Post, MyGovIndia, Digital India, and NITI Aayog maintained official accounts on the platform. Many media outlets, including CNBC, also opened accounts on Koo and remained active.

   But Koo lacked innovation on the product front. It was seen as a copy of Twitter (now X) and also failed to keep pace with rapidly evolving user expectations regarding features. Content moderation was another major issue on the platform, as reported by many users.

   

Other than ShareChat, Koo, and Hike, we have also seen apps like Moj, a short-video reels format app, experience a sharp increase in usage following the ban of TikTok in 2020. However, this surge was short-lived, and the app has not retain majority of its users, especially after Instagram Reels and YouTube Shorts took over the market.

Therefore, a differentiated and unique offering, deep understanding of core user experience, strong financial backing, and the necessary network effects must be in place to make a social media platform grow successful.

But why Eternal?

As of today (Aug ‘25), Eternal is no where near to becoming a social networking platform and has not announced any such plans - but I feel just the way this company became a core part of our lives today in India, ensuring we don’t become dependent on foreign companies when it comes to food delivery (UberEats which exited India in 2019 post Zomato’s acquisition) and when it comes to ecommerce (Blinkit will soon overtake foreign owned Amazon/ Flipkart), this company can someday also aim to become a core part of our social lives. This would indeed benefit both Zomato and Blinkit. Eternal is also progressing toward market leadership in the 'going out' or experience economy business through District - something which we touch upon later in this blog.

Today, over 2.3 crore Indians order their food through Eternal every month, while about 1.6 crore order their home groceries from their platform. Over the next five years, these numbers are expected to exceed 5 crore each, indicating a much larger audience will come on board in these two verticals alone.

However, when discussing Blinkit's growth and how it currently represents about 70% of Eternal’s total value, we often overlook the ultimate purpose of the company.

Eternal’s core mission is ‘Powering India’s changing lifestyles’. This mission is by no means limited to the food you eat or the groceries you buy today; it is intended to expand far beyond these areas.

The biggest part of our lives is now online on social media. A recent report by EY reveals that Indians now spend an average of five hours daily on their smartphones watching and scrolling across social media (majority time), gaming, and video streaming.

Therefore, if Eternal does not incorporate a social networking aspect, it might not be truly fulfilling its ultimate mission.

This is what makes me think that someday, in some form, the company might strive to build communities and networks, which could trigger a powerful network effect and encourage more people to join their ecosystem.

Before we explore the possibilities of how Eternal could experiment on this side, let’s take a step back and review the company’s interactions with social media, OTT, and content platforms till date.

Back to 2008

When Zomato started as ‘Foodiebay’ in 2008, it was simply a utility platform created for colleagues of Deepinder at Bain & Company’s Gurugram office. They could quickly check food menus for nearby restaurants and then call the restaurant directly to place an order. On that basic HTML website, there were not many network effects or social interactions to encourage a wider audience to join in greater numbers. Users visited the platform for brief periods because it offered a specific utility: providing all the food menus in one convenient place.

Even today, Zomato primarily serves a specific utility for which customers visit the platform: offering a wide range of restaurant options to order food from, provided by the platform manager. There isn’t much of a social networking element where the value or time spent is created by customers themselves, as is common on a typical social media platform.

Fast forward to 2019

After 10 years of existence, 2019 marked the company’s first formal attempt to enter the content and OTT space (though not social media). Zomato launched a video streaming service to compete with Netflix, Amazon Prime, and Hotstar, releasing 18 original shows over three months starting September 16, 2019. These shows were made available under a new ‘Videos’ tab within the Zomato app.

“Interestingly, most of our users spend a lot of time on our app on a daily basis. This presents the perfect opportunity to discover our video food streams that will make them laugh, learn and come back for more. So, we thought, why not jump right in and redefine a food prime time?”

- Zomato team on launch of ‘Originals’ in 2019 (Source)

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While the ‘Originals’ initiative continued for a little over three years after its launch, Zomato decided to deprioritize it around 2021-22. This was likely because the core objective of increasing time spent on the app did not see the expected improvement.

Post Covid

Digital ad spending is now the largest component of marketing for majority companies, as well as for emerging D2C brands. In total, around ₹70,000 crore was spent on digital ads in 2024, nearly double the amount spent in 2021. About 70% of this spending takes place on social media platforms and search, while advertising on ecommerce platforms accounts for ~21% of the total.

Seeing the growing importance of social media advertising, Eternal launched SocialAds, a product that integrates high-reach ad platforms like Meta and Google with a conversion funnel designed to encourage repeat buying behavior on consumption platforms. Essentially, SocialAds enables advertising on social media, engages users with interactive ads, and directs traffic to apps like Zomato & Blinkit to drive consumer purchases.

I wrote a detailed version on this in blog below along my fellow co-authors few months ago: Why Zomato needs an AWS moment?

The close interactions between consumer on-app data and off-app social media data will provide immense learning opportunities for the company whenever it decides to build its own social platform.

Has rise of Experience Economy opened a white space?

The reason I decided to write today’s blog is that I see a significant an opportunity emerging for a social platform dedicated to capture the rise of the ‘Experience Economy’ in our country.

“The period between early 2024 and mid-2025 marked a profound evolution in India’s live entertainment industry - not merely in scale and volume, but in the very structure, expectations, and cultural impact of live events.”

- MIB, Government of India (Whitepaper)

From the over 222,000 attendees in Ahmedabad alone at Coldplay’s concert, where only about 20% of the audience was actually from Gujarat, and rest of them traveled to the state to attend. India has never travelled at such scale to another state for any event expect in case of the world cup. Performances by Ed Sheeran, Dua Lipa, and Bryan Adams, we have started to see many international artists coming to India to perform for the first time.

‘Experience’ is a very broad term, with ‘Events’ being just one niche category. Other similar categories include ‘Dining’, ‘Movies’, ‘Sports events’, ‘Comedy shows’, and many more are getting ready to emerge. Eternal’s District aims to go deep into all these areas.

As of today, most social content related to these categories is found on YouTube (long-form videos) and Instagram (short-form reels), which serve as directories for such content. The true value these platforms provide lies in their robust analytics & recommendation systems, which understand user preferences and keep users engaged for extended periods with the types of content and themes they relate to the most.

Each of these niche categories has the potential to bring together a unique group of users who share and engage with content related to that specific type of experience.

Learnings from Strava

Strava is an American fitness tracking app founded in 2009 that combines GPS-based activity tracking with social networking features. At core, Strava records detailed data from workouts, including distance, time, speed, elevation, and route maps, for activities like running, cycling, swimming, hiking, and over 40 other sports.

"If it's not on Strava, it didn't happen"

Unlike broader social platforms, Strava built deep engagement by serving a specific community's needs: serious athletes who wanted data-driven insights combined with motivational social interaction. The app grew from a ‘niche cycling platform’ in 2009 to over 150 million users globally in 2025, generating ~$400 million in revenue. Recently the company was valued at $2.2 Bn in their latest funding round.

Users on its platform can follow friends, give "kudos" to activities, join clubs, participate in challenges, and compete on "segments" (specific route sections where you can compare times with other users). The platform gamifies fitness through leaderboards, personal records, and achievements, creating what the founders call a ‘virtual locker room’ for athletes.

The app has found its own unique audience that regularly shares their Strava activity status with peers on other social media platforms. And now it is becoming the next big thing in India. Their user base is growing so fast. In a recent interview, their CEO mentioned that ‘South East Asia’ has become the biggest growth driver for the company.

In recent years, ‘Running’ has gained significant popularity as a fitness activity in India, with hundreds of running clubs and groups emerging across the country. The 20th edition of the Mumbai Marathon saw over 60,000 athletes participating!

Running is now one of India’s fastest-growing sports despite the infrastructure challenges that exists - Bloomberg (2025)

Strava has emerged as a direct beneficiary of this trend by specifically targeting serious athletes and fitness enthusiasts rather than casual users. Therefore targeting a niche segment to begin with is not a bad idea.

Bottomline

Majority of what you read in today’s blog is based on my own imagination and might never happen in future. I have simply tried to connect the dots to explain why I think the possibility is real & why it makes sense for Eternal to consider this direction.

Social apps have grown very quickly in recent years, especially after Covid, but India’s social media penetration is still well below global averages and behind countries like Brazil. As income and aspirations rise, and with the availability of low-cost internet and smartphones, there is still significant room for growth in social app usage.

Eternal’s apps are known for their excellent UI/UX and overall user experience, making them some of the most transacted platforms in the country. With the ‘Experience Economy’ just beginning to grow and District positioned at its center, a significant whitespace could open up for a social networking platform where people connect with like-minded individuals.

I truly hope that someday we have India’s own social platforms where we choose to spend our time, and I believe Eternal has the potential to make that happen.

Thank you for reading today’s blog, share your view/feedback in comment below.

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Connect with me on LinkedIn here.

Finding Outperformers will always remain a free-to-access website. If you find our work valuable, consider supporting us contributing to our research here:

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Read my recent publication on Eternal:

Disclaimers-

We are not a SEBI registered advisors; personal investment/interest in shares can exist for any company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

1. Maturing food delivery business, Zomato

2. Accelerating growth (along cash burns) in QCom vertical, Blinkit

3. Latest offering on going-out with a huge potential, District

4. B2B supplies which is acting like a backbone, Hyperpure

5. Promising new vertices like Nugget, Bistro & more upcoming

Amidst all this, another key issue in tracking Eternal is that things move very fast within the company, thanks to superb execution. For example, the value of Blinkit has literally gone up 45 times in just the last 3 years, from ~Rs 4,500 Crores to an estimated ₹2,07,500 crores as of mid-2025 (ie Rs 2,075 billion as shown in table below). At the time of acquisition in 2022, this quick commerce arm was not even 10% of Eternal’s market cap. But as of 2025, it contributes roughly 70% of the current market cap, according to analyst estimates like those from Goldman Sachs.

Similarly, their going-out experience vertical, District, currently contributes less than 4% to the market cap. However, the District team, led by Rahul Ganjoo, has guided toward tripling their annual topline (NOV) to $3 billion and achieving an adjusted EBITDA of $150 million within the next five years. If they manage to execute this in a shorter time frame, say within the next 2 to 3 years, the market could start assigning significantly more value to this vertical as well.

Therefore, for any analyst on Dalal Street, it’s incredibly hard to predict what this company will look like just five years from now. Forget about estimating the terminal value, lol! The teams within the firm compete fiercely, and their execution outcomes speak for themselves.

“We want to keep our heads down, and keep up the momentum in solving problems for our customers, without having or needing to look back to see how far we have come.”

- Deepinder Goyal, Founder & CEO, Eternal

Considering multiple moving parts, a lot of investors I know form their opinions about the results based on the stock’s reaction afterward, because complexity of the business has constantly increased overtime. So for writing today’s blog, I went through all the research notes from Dalal Street analysts who track this stock. I'm bringing to you a few key factors from the results that were clearly liked by the market, and what you should watch for next as an investor in the stock.

If you’ve been reading my blogs here at Finding Outperformers for a while now, you might have come across our past research on Eternal here and would know how bullish I’ve been on the stock - just putting that disclaimer upfront.

In case you find today’s blog useful, do like it and share your feedback in the comments below. Let’s get started!

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Market desperately needs ‘New Leaders’

As the Q1 results for Financial Year 2026 come out, we are witnessing one of the worst earnings seasons since COVID, with flat toplines, falling margins, and consequently, pressure on profits. India’s services export backbone, the IT majors like TCS, Infosys, Wipro, and HCL, are facing existential questions in the age of AI. Giants like Reliance are struggling to show organic growth, while banks and NBFCs (except HDFC and ICICI) are hinting at stress, with even market darlings like Bajaj Finance facing analyst downgrades. Some of the highest-growing companies like Trent are also failing to meet expectations and are seeing downgrades.

In such a scenario, when blue chips are struggling and growth is becoming scarce, the growth premium tends to rise for stocks that are able to deliver decent results, as the market is always eagerly looking for the leaders of the next rally. Eternal is becoming one of those stocks that returned to the limelight. Its revenue from operations in Q1FY26 stood at ₹7,167 crore, up 70.4% from ₹4,206 crore YoY, led by Blinkit, which is growing at 140% YoY. Along with strong growth, management commentary was stronger than expected on margins front along with lower burn, which led the stock to jump 20% post results to a fresh all-time high.

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I had talked about the possibility of such a surprise in Eternal’s Q1 results back in May 2025 in my LinkedIn post here, where I mentioned that the management had already cautioned the street quite significantly. This had lowered market expectations and opened up the possibility for a positive surprise in the results. That is exactly what happened, and the stock was at an all-time high post results.

Market hates Cash Burn!

Eternal had started generating some positive cash inflows on a quarterly basis about two years ago, but that trend reversed in the last two quarters (Q3 and Q4 of FY2025), when the company reported a net cash burn (i.e., cash reduction).

This improved again in the Q1 FY2026 results, with the company managing to arrest the cash burn and posting a small positive cash balance of ₹33 crore. While this amount might appear small for a company with quarterly revenue of over ₹7,000 crore, and is all due to ‘other income’, it's important to note that as of March 2025, the quick commerce industry had a cash burn rate of Rs 5,000 Crores on quarterly basis. Blinkit, with a 40% market share in that industry, is operating in a space where conserving cash is a significant achievement.

Therefore, the reduction in cash burn across the quick commerce industry, led by challenges faced by rival Zepto (which delayed its IPO plans due to poor unit economics), has turned out to be a big positive for market leader Blinkit. According to Datum Intelligence, the daily active users for both Zepto and Blinkit were 5.5 Mn in December 2024. In June 2025, this number reduced to 4.9 Mn for Zepto, but rose to 6.2 Mn for Blinkit and a similar trend continued in July 2025 as well.

Market was also concerned after Swiggy’s Q4 FY25 results, where it reported a cash burn of ~Rs 1,500 Crores in just 3 months. However, it’s been quite a u-turn with competitive intensity now reducing, better days are anticipated for quick commerce platforms.

[Eternal may need to use a portion of its ₹18,900 crore cash balance (as of June 2025) to own inventory in Blinkit due to a model shift, this is largely on expected lines]

Change in Commentary on Margins

One of the key negative highlights of the Q4 FY2025 (and even Q3 FY2025) results was the management’s cautious commentary around margins, driven by persistent competitive intensity in the quick commerce space. However, with a noticeable reduction in aggression from Zepto, the number two player after Blinkit as mentioned above, there was a significant shift in tone in the Q1 FY2026 shareholder letter.

Take a look at the two statements below to see how the management’s guidance has changed:

Q4 FY2025 Concall:

“In the absence of competition, we would have expected the business to be fairly profitable by now. And all of that is what is not reflecting in the P&L because of high competition.”

- Akshant Goyal, CFO, Eternal

Just 3 months later, in Q1 FY2026 Shareholder Letter

“As far as near-term is concerned, it does feel like % margins have bottomed out and, if the competitive environment stays the same, we should see margins getting better from here…”

- Akshant Goyal, CFO, Eternal

Therefore, a clear guidance that margins would improve going forward due to a reduction in competitive pressure came as a positive surprise for the market. On top of that, the management stated there will be a “100 basis point contribution margin expansion over the next 2 to 3 quarters” driven by a shift in the business model, from third-party ownership to a self ownership model for inventory where the company owns the inventory on its books.

Add to it another 100 basis point improvement from operating leverage and reduced competition which the street is now anticipating, implying a total contribution margin expansion of 200 basis points by the end of FY2026! An industry were margins are wafer thin, a 2% (ie 200 basis points) improvement is a big positive, especially at the scale at which Eternal operates.

In an interesting instance during the concall, analyst Vivek Maheshwari (Jefferies) raised a question about this, to which Akshant (CFO) asked him to refrain from asking such questions. Read the extract below:

Now, I’m sure this 200 basis point contribution margin improvement possibility in short term caught the attention of all street analysts, as no one was expecting the bull case scenario to be that strong, even though the management has not confirmed it.

Take Goldman Sachs’ estimates as of July 2025, before the Q1 FY2026 results. They projected Blinkit’s contribution margin to rise from 3.1% in March 2025 to 3.6% by March 2026, implying only a 50 basis point improvement.

Clearly, there is a gap between what the street was expecting and what could be playing out which made the share hit a fresh high. JP Morgan’s analyst quietly raised their contribution margin estimate to 4.5% by March 2026 for Blinkit (which they earlier anticipated at 4%), implying a 150 basis point improvement in their base case. Jefferies also increased their target price by 60%, stating that they had 'overestimated' the competitive threat while giving a Buy call on the stock.

Evidence of larger TAM visible

While the year 2024 was an eye-opener for the market in terms of the categories of products that can be served by the quick commerce (Qcom) industry, the year 2025 could emerge as an eye-opener on the potential for Qcom to succeed in small towns as well, while continuing to hold up on the unit economics front.

One key concern for investors has been that the Qcom industry is limited to the top 8 cities, where population density and incomes are higher, making the business model economically viable. These factors are not as strong in Tier 2 and beyond cities, leading to doubts about Qcom's scalability outside Tier 1.

But that may not be entirely true. Here is what the management had to say:

“Smaller cities are equally promising as far as profitability is concerned. The difference in Net AOV (NAOV) of our large and small cities is fairly narrow at ~10%. Hence, after accounting for lower cost of operations in smaller cities, there is early evidence that margins will be attractive even in smaller cities.”

- Albinder, CEO, Blinkit (July 2025)

Outcome? Blinkit has given a new store count guidance of 3,000 stores, up from earlier guidance of 2,000 stores.

While analysts have been consistently raising Blinkit’s revenue and GOV estimates quarter after quarter over the last two years, unit economics now being proven in Tier 2 cities and beyond opens up further scope for upward revisions, as the total addressable market continues to expand.

What next to watchout?

As Blinkit continues to surprise on the growth front, this may no longer be a key trigger for any further up move in the stock, as the street has now come to expect consistent topline beats. The next key surprise in the short term is clearly around Blinkit’s profitability margins. Eternal has a golden opportunity to emerge as a leader within the Nifty 50 stocks in the next bull run. If it can improve its margin profile faster than expected and start generating strong cash flows, the street would take notice.

In the medium term, as I mentioned above, the next big surprise must come from a vertical other than Blinkit. District appears to be the most promising candidate at the moment, where market estimates are assigning it less than 4 percent of Eternal’s overall value. Initiatives like Nugget are exciting in terms of future potential, but for the street to consider them meaningful, a real breakthrough proving product-market fit will be required.

Leave a comment

I shall continue to track all aspects of the company closely as its my biggest holding. Connect with me on LinkedIn here.

Finding Outperformers will always remain a free-to-access website. If you find our work valuable, consider supporting our team by contributing to our research here:

Support us in research

Read our past publications on Eternal (Zomato):

Disclaimers-

We are not a SEBI registered advisors; personal investment/interest in shares can exists for any company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

It was estimated a UBI of ₹7,620 per person annually, covering 75 percent of the population, would cost nearly 5% of GDP. By limiting the program to women, the cost would halve to ~2.5%. Expected to spend more on food, health, and education, women have stronger intra-household bargaining power, and to avoid temptation/sin goods.

In this Part 2 of our series ‘Is Bharat Ready to Buy’, we discuss why we are positive on mass consumption growth beyond Tier 1 cities, where women are emerging as key drivers of India's next major consumption boom. We shall also discuss two listed stocks via which we are increasing exposure of our portfolio in this space to benefit from this structural trend. So grab your cup of coffee, as today’s blog is a long one.

Let’s get started!

Incase you haven’t read the Part 1 yet, would recommend doing so by reading it here before you start reading this part.

Is Bharat Ready to Buy? (Part 1)

India’s Growing Welfare Bill

When UBI was proposed in the run-up to the 2017–18 budget, the Economic Survey flagged an important caveat: the fiscal room required for such a program would only be possible if existing welfare schemes were rationalised. The goal was not to dramatically expand the welfare bill, but to replace fragmented in-kind support and subsidy systems with a more direct, transparent, and empowering alternative.

Total spend on Centrally Sponsored and Central Sector schemes, including programmes like PDS and MGNREGA scheme, was about ₹8.2 lakh crore, amounting to whopping 5.2% of its GDP at the time, while UBI remained only a discussion at the central level

Fast forward to today, the spend on Centrally Sponsored and Central Sector schemes has grown to ₹21.5 Lakh Crores, as budgeted for FY2025–26. This amounts to roughly 5.9% of India’s GDP. Among these is PM-KISAN, launched in 2019, under which over 10 crore farmers receive ₹6,000 annually as an unconditional cash transfer, paid in three instalments through the year. This translates to over ₹60,000 crore in direct income support annually, flowing straight into the bank accounts of rural households across the country - a scale that is both economically significant and politically sticky.

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Another big reason for increase in spend on centrally sponsored schemes has been the free grain scheme called Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) one of the world’s largest social welfare initiatives, ensuring food and nutrition security for over 81 crore people in India. Centre is currently spending about ₹11.80 lakh crore over five years, with an annual food subsidy of around ₹2.13 lakh crore in this scheme.

Similarly, expenditure on the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), which provides 100 days of guaranteed wage employment in a financial year for adults in rural households, has continued to grow at a healthy 8% CAGR over the last 12 years of the NDA government. This is despite the fact that the scheme was originally launched in 2006 by the current opposition, the Congress-led UPA alliance.

But amidst all this, UBI never formally took shape at the central government level, and the focus remained on expanding spending through Centrally Sponsored and Central Sector Schemes.

What Centre didn’t do, States want to lead on exactly that!

In Part 1 of our blog, we discussed how, despite the poor financial position of several states, many have launched Direct Income Transfer schemes in various formats, with an annualised spend of around ₹2 lakh crore across ~15 states by the end of FY2024–25.

This is about 0.6% of our national GDP being spent, which could increase to 1% of GDP as we close Financial Year 2025-26. Bigger question is how are they funding this incremental expenditure?

Answer - Substituting the capex & other infra spent.

Let’s look at a recent controversy of Karnataka which now spends about Rs 28,608 crores on its flagship Gruha Lakshmi scheme wherein eligible women who are recognized as the head of the family receive ₹2,000 per month. This spend now tops their state budget expenditure list.

Karnataka’s ‘Roads or Rice’ Controversy

Recently on July 5, 2025, a fresh political row erupted in Karnataka after Basavaraj Rayareddi, MLA and economic adviser to Chief Minister Siddaramaiah, made a controversial statement during a public event in Yelburga. He suggested that residents should choose between development (such as building roads) and welfare guarantees like free rice under the ‘Anna Bhagya’ scheme.

“Say you don’t want rice or anything, if you say, ‘only build village roads’, we will do that too. I will suggest to the Chief Minister that our people don’t need rice or anything else, they need this road. Should I tell him?”

- Basavaraj Rayareddi, Economic Adviser to CM, Karnataka

He further explained that with limited government funds, not all demands such as roads, welfare schemes, and temples can be met at once. He implied that if villagers wanted roads to be prioritised, they would need to forgo some welfare benefits and these remarks laid bare the underlying financial pressures faced by the state and triggered sharp criticism from the opposition BJP, which accused the Congress-led government of ‘bankruptcy’ and failing to deliver on both welfare and development fronts.

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Hence, CM Siddaramaiah had to come out and reaffirm that the government’s welfare guarantees, including Anna Bhagya, which provides free rice to millions of low-income families will continue and there is no shortage of funds for development.

This situation is not unique to one state but is the case with even wealthy states like Maharashtra which is spending over Rs 40,000 Crores on their flagship women income transfer scheme: Ladki Bahin Yojana.

This tension between welfare and development is no longer theoretical. The original idea behind UBI was to consolidate fragmented subsidies and redirect existing welfare spend into a cleaner, direct transfer system. But what we are witnessing instead is the layering of cash transfers on top of existing welfare, without any rationalisation of previous schemes. The result is not a substitution of one type of welfare for another, it is the substitution of capex for welfare.

Hence, India's development model may well be tilting toward consumption-first economics, where the government transfers becomes the primary driver of rural demand, even if it comes at the cost of long-term infrastructure creation.

2nd Order Effect: Real Wages Set to Rise

As highlighted in our earlier blog ‘India’s Labour Advantage is Slipping’, India could be now entering a period of tight labour availability in urban and informal sectors as lesser people travel from rural to cities for jobs, with the cash transfer playing a big role & could trigger a consumption boom (esp of staples) in years to come.

One of the ways we can track how consumption is doing in the country is via how the Nifty FMCG index has been performing in the markets. This is a sectoral index that tracks the performance of India’s top listed companies like Hindustan Unilever (HUL), ITC, Nestlé India, Britannia, Dabur, Marico, & Godrej Consumer Products.

From 2010 to 2016, these stocks were the market's most consistent compounders. The Nifty FMCG index outperformed the Nifty 50 by over 150%, driven by rapid rural premiumisation, real wage growth and a supportive inflation backdrop. However, between 2017 and 2024, this outperformance faded. The sector lagged broader indices as wage growth decelerated, new-age consumer D2C startups stole investor attention, and urban consumption shifted to premium discretionary categories.

Between 2010 and 2016, real wages in India grew at a healthy pace, with rural wages rising by 6.6% annually and overall wages by 4.6%. In contrast, the period from 2016 to 2022–23 period, we saw a sharp deceleration in growth rate, with rural wage growth collapsing to just 0.1% per year, while overall wage growth dropped to 0.5%. This slowdown directly impacted the spending power of India’s bottom 40%, especially in rural areas where most FMCG demand originates.

Low growth in wages significantly slows down the formalisation of consumption and therefore the packaged goods penetration, which is crucial for FMCG companies to outperform.

“….(On reason for low growth) is a slowdown in wage growth of the non-salaried workforce in urban areas, which has risen 3.4%, slower than inflation.”

- MD Varun Berry, Britannia (Nov 2024) (source)

This is what we expect to change soon. With fewer people migrating to urban/cities and a higher share of women (and their families) staying closer to home due to DBT income support, labour shortages will slowly begin to exert upward pressure on wages. This indeed means a fresh leg of demand-led volume growth in FMCG looks increasingly strong for years to come.

D2C Brands losing stream

On other hand, India’s once red-hot D2C(Direct to Consumer) startup ecosystem that emerged as a big competitor for FMCG giants in multiple categories, are now hitting a steep funding winter. According to Tracxn, total D2C investment fell to about $757 million in 2024, down 18% from $930 million in 2023 and a sharp 54% drop from the high of $1.6 billion in 2022. A recent post by founder of another popular D2C brand ‘Bombay Shaving Company’ shows how many of these D2C brands are now shutting down, getting sold for near-zero, founder CVs getting circulated.

“Every other day I hear of a new company with decent brand awareness, peak revenue of 7-8 Crores per month, good money raised but today is in a distress situation.”

- Shantanu Deshpande on Linkedin

This could very well be a temporary slow down in funding as well. While we do see successful D2C stories like Minimalist's acquisition by HUL in early 2025 as rare success story, which might also motivate more funds like L Catterton to put in more money funding the future of D2C brands in India, but that is expected to be more measured in the next funding wave, and could be more focused on creating new categories than just disrupting existing categories by simply burning cash. That next wave which could again become a headwind for existing FMCG giants in premium segments might be some distance away. Currently we are in consolidation phase of acquisitions & closures which might be best time for large FMCG companies to gain market share.

Also, the impact of D2C brands uprise is generally more in Tier 1 cities, subdued in Tier 2/3 and minimal in Tier 4 and rural areas, and it is indeed beyond Tier 1 geographies which we are more bullish on for coming years.

Look beyond Tier-1 Cities

All the government support and ever increasing incremental transfers (DBTs) we discussed till now in blog disproportionately benefit the public living in beyond Tier-1 cities, ie Tier 2/3/4 and rural. Building on what we discussed in our Part 1 on how estimated 80-85% of beneficiaries of this fresh Direct Income Transfers in multiple states are women residing in the rural India. As government continues to boost their expenditure in towards such benefits, they are directly boosting the consumption growth of rural India.

In the recent quarterly results, rural India has continued to emerge as a winner which higher growth. A consistent gap in favour of rural volumes may be an early signal of what sustained income support schemes and potential wage revival could unlock over a longer horizon. If DBTs continue expanding and wage pressures start to re-emerge after long time, rural India could be entering a mass consumption boom cycle.

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So where are we betting? Time to reveal

Studies have shown that ‘women-led’ households spend very differently than ‘male-led’ households. Spending priorities change drastically.

Research, including financial diary studies by IIM Bangalore (Working Paper No. 484), shows that women-led households consistently spend more on food, hygiene, and child-related needs, while male-headed households often allocate more to fuel, entertainment, and more often on sin products like alcohol/cigarettes.

Even when borrowing from microfinance institutions, women tend to spend on essentials or small jewellery items that retain value, whereas men are more likely to direct funds toward appliances or non-essential purchases. This difference in financial behaviour has real implications for consumer-facing businesses. With rising balances of women bank accounts in country, there is now higher visibility that this income will flow into everyday consumption categories such as personal care, nutrition, and basic home products.

For FMCG companies, this could mean a more stable and scalable base for volume-led growth and rural premiumisation. Time to reveal our first major bet for next 3 to 5 years prospective.

Major Bet - Marico

Mass Market, Women centric Product Portfolio

Marico’s product portfolio is anchored by a strong mix of core and emerging categories, with hair oils and edible oils forming the bulk of its revenues. The company’s flagship brand Parachute Coconut Oil continues to be the single largest contributor, followed by Saffola, which includes a range of edible oils and oats under its healthy living umbrella. Together, the Parachute and Saffola franchises account for over 60 percent of Marico’s India revenue.

The next layer includes value-added hair oils (VAHO), where brands like Nihar and Hair & Care are positioned for scale in rural markets. Company is also building its foods portfolio, with Saffola Oats and Saffola Honey leading the charge in health-oriented snacking and kitchen staples.

This portfolio is a women centric portfolio - used in kitchen oils for cooking, personal care (hair oil), fast growing healthy food staple portfolio - we love it all! This is exactly what we aim to bet on.

Project SETU - Reach Deep in Rural

While everyone is focusing on just Quick Commerce in recent years, Marico is also focusing on an internal project named Project SETU where they plan to boost direct General Trade distribution from 1.0 million outlets in FY24 to 1.5 million by FY27, aiming to improve its Total to Direct Reach ratio from 5.8× to 4× in 3 years.

“Under SETU, we will focus on rural outlet expansion at a pan-India level, while deploying strong control frameworks to ensure sustainable outlet expansion across markets.”

- Saugata Gupta, MD & CEO, Marico (May, 2025 Q4 FY25 Concall)

Here their main aim is to deepen their rural penetration via improving direct rural distribution network by leveraging digitisation, data-led targeting, and last-mile delivery models. They also aim to get this to urban areas like Tier 2/3/4 to increase their offline retail reach. This will benefit hair oils & food staple portfolio and help them diversify away from Parachute coconut oil.

Focusing more on offline distribution is again a right long term move - deeper in rural penetration they go, more confident we get on this bet.

Minor Bet - Avenue Supermart (Dmart)

Retail story in last 3 years in Financial Year 2023, 2024, and 2025 has overly focused on disruption by Quick Commerce and has somehow believed Dmart is getting defeated in the retail game it mastered before.

While these years have indeed been years of reckoning for the company, as it became clear that the Quick Commerce model is here to stay and is steadily drawing away its affluent customers in metro cities, the company appears to have made a strategic shift to focus more on Tier 2/3/4 regions.

Recently from April to June 2025 period, company opened 9 stores in cities: Kamrej, Mandya, Rewa, Malad East, Phagwara, Agra, Tiruvallur, Chhindwara & Ankhol - Almost all these cities are non-metro areas, where value focused consumers density is highest. Company has also entered in Uttar Pradesh finally and would plan to expand rapidly there as well.

At the time of its IPO in 2017, the company had 118 stores, which has now increased to 440. This means that around 70 percent of its total store count was added between 2017 and 2025, a period when FMCG demand was relatively subdued due to weak wage growth among the mass market, as discussed before. As this trend begins to reverse, these stores may witness stronger-than-anticipated volume growth in the years ahead. A big consumption wave by masses/value conscious customer could be brewing in next few years and Modern Trade will continue be a bigger portion of the total FMCG sales.

Closing remarks

India’s consumption story is entering a new phase, one that will be shaped not by premium urban demand, but by steady, broad-based rural uplift, especially led by women. What began as a political strategy through direct transfers is now manifesting as structural shifts in household spending, rural wage formation, and the kind of products being consumed.

We are bullish on this new upcoming consumption wave and are playing it via stocks named Marico & Avenue Supermart (DMart) - This blog is not investment advice, nor are we SEBI-registered advisors. Kindly refer to the disclosures below.

We hope you enjoyed reading this blog. Please give feedback by leaving a comment below and share this blog further if you find it valuable.

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We are not a SEBI registered advisors; personal investment/interest in shares can exists for any company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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His name is Nitish Kumar, and the reason he made the ban a central part of his campaign was the growing demand from women across communities, who were increasingly vocal about the rising abuse and addiction linked to alcohol. In the previous state election of 2010, Bihar had already witnessed a watershed moment when the turnout of women voters (54.85%) surpassed that of men (50.70%) for the first time. Nitish knew exactly what he had to focus on.

So, Nitish Kumar promised a liquor ban to curb alcohol abuse and women voters responded overwhelmingly. In the 2015 Bihar elections, female voter turnout jumped by 5% to nearly 60%, once again surpassing male turnout. While women-centric initiatives around welfare, education, and health had existed in several states before, this moment marked a turning point in Indian politics. For the first time, women were not just passive beneficiaries but were actively targeted with a populist policy - the liquor ban - as a vote bank in their own right. And the results were nothing short of remarkable.

(Note: Our intention here isn’t to compare or portray any political party negatively, but to frame our investment strategy based on how the government chooses to spend, which we are tracking in this blog)

Since then, more and more state elections have seen political parties specifically targeting female voters, often with decisive results. A recent example is the 2023 Karnataka elections, where the Congress Party secured a historic victory, thanks in large part to a surge in support from women voters. This support was driven by the party’s promise of monthly cash transfers of ₹2,000 to over 1.3 crore women under its flagship ‘Gruhalakshmi’ scheme, along with other benefits like free bus travel.

Here’s a podcast that explores how the importance of the women vote bank has grown over time, and unpacks the broader political implications of such direct cash transfer programs:

This is exactly where we're focusing in today's blog which is Part 1 (followed by Part 2 in next blog) - tracing where this money is flowing and how it could act as a catalyst for boosting rural consumption, a trend we’re increasingly keen on betting behind. Let’s get started!

Finding Outperformers will always remain a free-to-access website. If you find our work valuable, consider supporting our team by contributing to our research here:

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Why Women Vote Bank Matters!

For decades, female voter turnout in India lagged behind that of men, but this trend has changed dramatically over the past two decades. According to SBI Research, starting from 2029, women are expected to consistently outpace men in electoral participation, with the gap widening in subsequent elections. By 2047, they project that of the total votes that are casted in elections: women will comprise 54% of voters, compared to 46% men.

This marks a tectonic transformation in India’s democratic landscape. With overall voter turnout estimated to reach 80% (roughly 92 crore people) - SBI forecasts about 50.6 crore women and 41.4 crore men will cast their votes in 2047. The implication is clear: securing the women vote bank will be more crucial than ever. And with direct benefit transfers (DBTs), especially cash transfers, becoming the centerpiece of welfare politics, this strategy is likely to define electoral playbooks and therefore government budgets for decades to come.

With women emerging as a decisive voting bloc, especially in rural and low-income segments, political parties are increasingly leveraging welfare schemes not just for social upliftment but as powerful electoral tools. This marks a strategic shift in India’s welfare politics, where economic empowerment of women is directly linked to political dividends at the ballot box. As a result, politicians across party lines now find themselves in a competitive race to offer more generous and targeted direct cash transfers than their rivals, making women-centric DBTs a cornerstone of modern election strategy.

Debate On Economics No Longer Exists

The political debate around freebies, especially cash transfers, has had a quiet death in India. Until 2022, top leaders of the Bharatiya Janata Party (BJP), the largest political party in the country, were firmly against the freebie culture. They argued that poll promises should be realistic and not come at the cost of long-term development. BJP leaders had even backed a Public Interest Litigation (PIL) in the Supreme Court, seeking curbs on political parties promising what they called ‘irrational freebies’ during elections. Their stance was that such offers distort voter choices and place an unsustainable burden on public finances. The following statement and video reflect that position clearly.

“This ‘revdi culture’ (freebie culture) is very dangerous for the development of the country… Those who promise free revdis for votes will never build new expressways, airports, or schools.”

- Shri Narendra Modi, India’s Prime Minister (July 2022)

The party that, until 2022, openly criticized freebies and mocked opposition parties for offering them, entered the race with full enthusiasm in 2023. In several elections, it either matched or even exceeded the promises made by Congress. A clear example was Shivraj Singh Chouhan’s campaign in Madhya Pradesh in 2023, where monetary pledges were the main focus. According to an ET article, in nearly every election rally, the then Chief Minister emphasized the ‘Ladli Behna scheme’, highlighting how women aged 21 to 60 were receiving ₹1,250 per month, and how he intended to raise it to ₹3,000. As "Mama" (a name Chouhan is fondly called) listed the numbers, the crowd cheered. This demonstrated a growing political consensus that direct cash transfers have become one of the most effective tools to win elections.

In all major state elections held after 2022–23, cash transfer schemes emerged as the biggest game changers, influencing voter sentiment and outcomes across states such as Karnataka, Maharashtra, Himachal Pradesh, Haryana, Delhi, Odisha, and others.

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Up Only Up - This Expenditure won’t Stop

In August 2024, the JMM party led Jharkhand government quietly rolled out the Maiya Samman Yojana, offering Rs 1,000 a month to women aged 18 to 50 - a modest step aimed at easing household burdens and signalling support for female voters. But as election season drew closer, the political stakes quickly intensified. The BJP, eyeing a comeback, promised Rs 2,100 per month to women under its proposed Gogo-Didi Yojana, throwing down the gauntlet.

Then in a swift counter, the ruling coalition dramatically raised the Maiya Samman payout to ₹2,500 from December, turning a quiet welfare scheme into the centerpiece of its poll pitch. What began as basic support had now become a high-stakes political contest.

As of 2024 ending, 14 states have now announced income transfer schemes for adult women, taking annualized spend to 0.6% of GDP, with 20% of total Indian women benefiting (34% of women in the 14 states).

An expenditure that barely existed before Covid is now costing the exchequer ₹2 lakh crore annually. It is striking that a country still grappling with gaps in basic public infrastructure has so rapidly shifted toward cash-based welfare. In fact, this rising welfare burden has come at the cost of capital expenditure in 5 out of the 12 states that have implemented such schemes so far.

“But once a freebie is given, no political party will dare to withdraw it, fearing a backlash”

- Pronab Sen, former Chief Statistician of India (source)

While these are still early years, Karnataka has already seen cash transfer scheme is now one-fifth of its Revenue Expenditure budget (non-committed). States like Maharashtra, Madhya Pradesh & West Bengal are not behind as the below chart shows. Aam Aadmi Party in Punjab has been unable to implement the scheme due to fiscal situation of the state.

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Why could Rural Indian Economy benefit the most?

Cash transfer schemes affect ~34% of women in the target states, and assuming efficient targeting (i.e., only the bottom 34% get it), the boost to household expenditure could be 5-45% as per Axis Capital. They also estimate that expenditure by households rising 45% in the bottom 10% beneficiary households of Jharkhand where the state has finalized a sum of Rs 2,500 per month per women.

While 64% of Indian population resides in rural India, about 75% of India’s unpaid women are present in rural India. If we further apply the family income & other criterias for being eligible for Cash Transfer scheme, it comes to estimated 80-85% of beneficiaries residing in the Rural India, which is essentially the core vote bank that all politicians are targeting.

As per another research by SBI, beneficiaries at merchant outlets in comparison to non-beneficiaries sample in Madhya Pradesh, with both sample households having a nearly identical class, post transfers spending differs by at least ~Rs 9302 (Rs 13034 net of Rs 3732) - roughly a 3.5 times jump. This essentially means that beneficiaries prefer consuming when given an additional income than saving it in their bank accounts.

Moreover, any additional income disincentivizes the rural workforce to migrate to cities and seek employment. We have seen the workforce engaged in agriculture rising from 42.5% in 2017-18 to about 46.1% of 2023-24 which is surprising to many economist. Our fresh migration rate to urban areas is also sharply falling as well, as per EAC-PM report. We have studied the implications of this in form of possible structural rise in wages in one of our recent blog:

The Big Booster is still pending

As we publish this blog, India’s most populous states like Uttar Pradesh and Bihar are yet to implement any women-specific cash transfer scheme, and no central-level women’s cash transfer program has been launched either. This is what we expect to change in the coming years.

Bihar’s November 2025 elections could become a battleground similar to Jharkhand’s 2024 elections, where parties had to outbid each other to win. Recently, in June 2025, the Chief Minister announced increasing the monthly installment of the Social Security Pension Scheme, raising the pension for elderly, disabled, and widowed women to Rs 1,100, a substantial jump from the earlier Rs 400, benefiting over 1 crore women in the state. Read more about recent developments here.

Similarly, in early 2027, Uttar Pradesh will go to the polls. In the 2024 national elections, Akhilesh Yadav’s Samajwadi Party won more seats than the BJP in the state. Losing Uttar Pradesh elections is not an option for any party looking to gain an early edge for the 2029 national elections. Akhilesh Yadav has already promised a Cash Transfer scheme for UP women if voted to power in 2027.

And then, in the first half of 2029, we will have our next national elections, and it is highly likely that by then, a centrally funded cash transfer scheme for women will be in place. Overall, the current spending on such schemes, about 0.6% of India’s GDP, could potentially rise to 2% to 4% of GDP before 2029, acting as a significant boost to rural consumption.

End of Part 1

In this blog, we discussed the clear rise of populism in India, with broad consensus among all parties on the importance of direct transfers to women. This shift is driven by the growing influence of the women vote bank, which is now playing the most decisive role among all sections of society. Politicians simply cannot afford to ignore it, or they risk losing elections, and there is no going back after a scheme has been implemented.

With 80–85% of beneficiaries of such schemes residing in rural India, these transfers have the potential to increase monthly household expenditure by as much as 45% in states like Jharkhand. This could have significant implications for shifting consumption patterns at the bottom of the pyramid.

Therefore, in Part 2, we will focus on why mass consumption brands with a rural focus could outperform in the years to come, and where we are placing our bets to play this theme. The share of rural India in total FMCG sales is about a third currently, but is starting to grow much faster in recent quarters. More on this coming your way, stay tuned for the Part 2!

We hope you enjoyed reading our analysis. Connect with us on LinkedIn here: Aditya Grover and Kinjal Karwa.

Update: Part 2 is now available -

Finding Outperformers

Is Bharat Ready to Buy?

In early 2017, buried deep inside Chapter 9 of the Economic Survey, released just before the union budget, a bold idea quietly emerged: Universal Basic Income (UBI). Given India’s status as a developing economy with constrained fiscal space, the Survey did not advocate a full-scale rollout. Instead, it suggested a more targeted approach …

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10 months ago · 8 likes · Aditya Grover and Kinjal

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We are not a SEBI registered advisors; personal investment/interest in shares can exists for any company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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In today’s edition, we’re discussing how the need for a kitchen is slowly diminishing in modern households - and why its very existence might become questionable in the future. Expect a read that's high on imagination (mostly backed by data), coming your way below. If you have a different perspective, we’d love to hear it in the comments!

Today’s blog is long as usual, so would recommend reading it on our website. Now, let’s dive in!

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India’s Love for Processed Food

A typical 21st century household in our country has seen a classic application of Engel’s Law, which was proposed by German statistician Ernst Engel back in 1857. The law stated that as household income increases, the proportion of income spent on food decreases, as a larger portion of income is spent on housing, education & healthcare.

But there was another insight from the Engel’s Law which needs to be highlighted:

“Within food spend, people shift away from basic staples (like cereals) towards Protein-rich foods (meat, dairy, eggs), packaged/processed foods, health-conscious/ gourmet food”

In case of India we see that spend particularly on packaged/processed food has seen a multifold jump from 9% in 2000 to about 23% today as it has taken away the majority share from cereal & pulses spent. This comes in various forms like Ready-to-Eat (biscuits, chips, chocolate bars, breakfast cereals, energy bars, canned beverages), Ready-to-Heat (instant noodles, frozen meals, pre-cooked curries, frozen parathas) & Ready-to-Cook (pasta kits, instant dosa/idli mixes, marinated meats, frozen veggies).

While the impact of consuming such processed food on health is a topic for another blog, what I want to focus on here is that all the food forms mentioned above don’t actually require traditional cooking essentials (read: utensils) or a dedicated room in your house (read: kitchen). This might sound like an exaggeration, but let me try to explain what I’m getting at.

What you see below is a graph showing the last 3 years of revenue for India’s largest listed kitchenware brands - TTK Prestige and Hawkins - best known for their pressure cookers, which have long been their star products and top revenue contributors. Interestingly, their quarterly topline has remained flat over this period, despite the past 3 years being record-breaking for housing sales due to a real estate upcycle.

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Human beings are inherently wired to make their tasks faster and more efficient (think of AI). The pressure cooker emerged as a revolutionary kitchen appliance, capable of cooking large quantities of staples like lentils, rice, and meat using steam pressure - saving both time and effort.

But perhaps we’re witnessing an uno-reverse moment. In urban India, people are increasingly losing interest in spending time cooking for themselves in their kitchens. This shift has had an adverse impact on TTK Prestige. With declining demand and growing alternatives, the company has lost its pricing power, especially in urban India - significantly affecting its margins and profitability.

Indian Household Size is Shrinking!

Back in 2008, only 37% of Indian households were nuclear, which has now risen to 50% in 2022, implying ~160 million households out of ~320 million households are now nuclear. Infact, as per Kantar’s Consumer Connections 2023 research, 3 out of 4 incremental households in India over the past 14 years are nuclear. Where our average family size used to be above 5 members as per 2001 Census, this has fallen to ~4.4 members in 2021.

One might assume that rising household numbers would boost demand for utensils like pressure cookers. But on the flip side, a psychological headwind is at play which I feel has much stronger impact. As household sizes shrink, the economics of cooking at home begins to break down. With more people moving away from their families for better jobs or education - often living alone in new cities - the mindset around cooking shifts significantly. The kitchen, once a functional necessity, starts to feel optional unless you decide to have a cook at home for preparing all your meals.

‘Cost of Food’ + ‘Time Cost’ on per person basis rises as family size shrinks.

Imagine cooking Idly Sambhar, a regular breakfast dish in South India, for a family of 5 v/s cooking it just for yourself or for your partner? While the total time taken would slightly vary in both scenarios, the time taken per person would therefore drastically impact your mindset.

On the other hand, keeping a cook at home is gonna cost you a lot more in coming time vs what it costs you today. Real wages for the blue-collar workforce are projected to increase steadily - a trend we discussed in our previous blog:

Rising Worker Population Ratio

The Worker Population Ratio (WPR) is the proportion of the working-age population (typically 15 years and older) that is employed. When this ratio rises, it usually means more people are working, which can have some interesting ripple effects on habits like cooking food at home. While ‘Male’ WPR has been at north of 70% and rising, what is interesting is ‘Female’ WPR has been sharply rising and almost doubled in the last 7 years as shown in the chart.

Imagine a working couple living together in Delhi away from their hometown - The amount of time spent on income generating activity being high, amount of time left for household related activities including self cooking is reduced by similar quantum. With higher disposable income as both are working, the tendency to prefer convenience, ordering out, having a cook at home, or dining at restaurants more often. In short, the tendency to cook food by yourself is bound to fall sharply.

Rise of the Shared Economy

The collaborative or gig economy, has seen a rapid rise in the past decade, driven by digital platforms that connect people to share access to goods and services. Instead of owning assets, users can now rent or share them, promoting efficient utilization. Popular global examples include Airbnb (home-sharing), WeWork India (co-working spaces) and more. This model benefits consumers through lower costs and flexibility, while providers can monetize underused assets.

One of the key evidence of the shift toward a stronger shared economy is Uber (ride-sharing). The number of cars sold worldwide peaked in 2018 where we sold over 80 Million cars, and we are today yet to cross that mark again. But all this while the demand for mobility hasn’t fallen but risen significantly as shown below.

There are several reasons supporting the rise of shared mobility over car ownership - including the rising cost of owning a vehicle, urban congestion, and limited parking in countries like India. However, the broader megatrend clearly shows that consumers are open & preferences are shifting globally for shared economy, though the triggers for this shift may vary from industry to industry, and country to country.

Cloud Kitchens - Shared Economy for Kitchens

“The reason behind large size of food industry in USA & China is that the cost of having food outside vs cooking at home is almost the same”

- Deepinder Goyal, Founder, Zomato (March 2024)

Restaurants and cloud kitchens typically operate at a large scale with efficient supply chains and significantly lower wastage during preparation compared to home kitchens. This operational efficiency enables them to generate strong profits in countries like the USA and China.

India, on the other hand, is still at a relatively early stage, as the habit of consuming food outside the home has only recently begun to shift. According to Bain’s report ‘How India Eats’, despite Indian cities being among the most densely populated in the world, the country has only 1,000 - 2,000 restaurants per million urban residents - compared to 7,000–8,000 in China and 7,000–9,000 in Brazil.

This statistic highlights the untapped potential for India’s food service industry to scale up. If restaurant density increases, it could trigger a positive cycle - greater scale allows restaurants to lower prices supported by better backward integration, making cooked food more affordable, which in turn boosts demand as more people opt to eat outside the home more frequently.

“If we have to target cooking at home, price of food that you order from outside has to be within 10 to 30% of the cost of cooking food that home. Currently differential is high.”

- Deepinder Goyal, Founder, Zomato (March 2024)

Rise of Cloud Kitchens in India - Wave 1

Coming back to their rise, with no dine-in infrastructure and minimal front-end staff, cloud kitchens operate behind the scenes, churning out meals optimized for delivery. What makes them particularly attractive in India is the perfect storm of changing consumer behavior, rising urban density, increasing demand for convenience, and strong investor appetite. And with rise of food delivery apps, there has been an explosion of brands across a wide range of cuisines with many being solely cloud kitchen (as shown in the slide below from Redseer’s report - The Big Bite. While only few of brands in below slide focus on functional demand for food service, most of the brands were able to scale to become a Rs 100 Cr+ revenue brand in span of just 2-3 years primarily be catering to top 10% of Indian population.

Rise of Cloud Kitchens in India - Wave 2

The Wave 2 of rise of cloud kitchen is focused towards convenience & customer preference. Started by quick commerce major Zepto Cafe & followed by Swiggy’s Snacc, Blinkit’s Bistro - they cater to the rising demand for instant gratification and convenient indulgence, especially among urban millennials. With efficient last-mile delivery, the options to order meals from are just exploding right now in India.

Changed Habits Rarely Rewind

Over 40% of food service demand today in India is driven by GenZ & younger population which is below 25 years of age. As they start growing order and start working, giving them the ability to pay on their own, their tendency to spend a larger amount on food service is bound to increase because its very difficult to rewire a brain that makes them cook their food on their own. Self cooking for many families will be a thing of past.

TO END: The less time we spend cooking at home, the less importance the room holds over time - ultimately leading to a shrinking allocation of space for a room that once held immense value i.e., Your Kitchen.

The impact of lesser space given to a kitchen at a home could first happen at Metro cities where rentals are high and a small pantry could suffice the purpose, implying lesser need for all the equipments that goes in a kitchen. Think of utensils that are used once in a while, think of kitchen furniture, think of chimneys, think of full-sized dishwashers, elaborate cooking ranges, large refrigerators, wall-mounted cabinets, spice racks, modular storage units, heavy-duty exhaust hoods, built-in ovens - the severity of impact will vary but this structurally negative trend could reduce the focus you give to your kitchen while building/upgrading your house.

That’s it for today! Do share this blog if you found this useful. Let me know your thoughts in comments below or connect with me on LinkedIn here to discuss.

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In May 2025, D-Mart reported a consistent decline in margins, with its EBITDA margin dropping to a three-year low of 7.9% in FY25, compared to 8.3% in FY24 and 8.7% in FY23. One of the primary reasons? Wage pressure.

“Surge in wages of entry level positions due to demand/supply mismatch of skilled workforce”

- Mr Neville Noronha, CEO & MD, Dmart (May 2025)

In another instance, India’s largest food delivery giant, Zomato, revealed in its Q4 FY25 results that it had lost around 54,000 delivery partners over the past six months. This shortage appears to be putting pressure on the existing fleet, leading to longer delivery times. The company went ahead and shut down recent initiatives like Zomato Quick and Everyday, which could be straining its already shrinking delivery fleet, as these services potentially require a higher number of partner availability to fulfill 10–20 minute delivery commitments.

“We anyways see a slight supply crunch on the delivery partner side in summers. This time, that got compounded in some ways because of rapid quick commerce expansion across the board”

- Akshant Goyal, CFO, Zomato, (May 2025)

In today’s blog, we deep-dive into whether urban India is on the brink of a structural labour shortage — and whether this shift could begin to weigh on India Inc’s margins as real wages start rising again. Now let’s get started!

Domestic Migration is reversing!

People migrate from rural to urban areas mainly in search of job opportunities, higher wages, and better living conditions. Low agricultural income, underemployment, and limited access to services in rural areas often push individuals toward cities in hopes of a better life. But what if that lifestyle improves without even migrating?

While India’s population has grown from about 1.2 billion in 2011 to over 1.4 billion today, the number of migrants during this period has actually declined!

“Since Census 2011, the number of migrants has reduced by about 11.78%, to ~40 Crore and the migration rate has also reduced to 28.88%.”

- Economic Advisory Council to PM (Dec ‘24 Paper)

Let’s take a look at the month-on-month changes in the total number of non-suburban train passengers from January 2012 to December 2023 - a reasonable proxy for tracking on-the-ground movement and potential migration trends. (Source)

The level of mobility seen before COVID-19 hasn’t fully returned, even few years after the pandemic. Something has shifted. Some attribute this change to the ongoing free foodgrains scheme, which benefits over 800 million people, or to the growing number of income transfer schemes for women being rolled out by various states — including Karnataka, Odisha, West Bengal, Jharkhand, Delhi and Tamil Nadu. In total, 14 states either have such schemes in place or are preparing to launch them.

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The graph below from Axis Capital shows that nearly 0.6% of India’s GDP is now being spent on direct income transfers - a mechanism that was virtually non-existent before COVID-19. It’s striking that a country still struggling with basic public infrastructure has shifted so quickly toward cash-based welfare. When such incentives are in place why would someone even migrate?

Falling demand for MNREGA

MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), launched in 2006, is India’s largest rural employment guarantee scheme, assuring at least 100 days of wage employment annually to rural households willing to do unskilled manual work. It is fundamentally a demand-driven scheme - any rural household can request work, and the government is legally obligated to provide it within 15 days, failing which the applicant is entitled to an unemployment allowance. While in practice the scheme faces supply-side constraints, such as budget limitations, it still serves as a useful indicator of distress in the rural economy. High demand for MNREGA work typically signals a shortage of alternative employment options, which often pushes more people to migrate to cities in search of better-paying jobs.

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The demand for work under MNREGA has been been falling after making a peak during Covid. In fact, for April 2025, households demanding work under MNREGA decreased further by 6.6% compared to April 2024. This figure is also the lowest for April month since 2020-21, therefore indicative of trend that there is overall a falling need for employment in rural India, which further indicates that the need to migrate for cities is also reducing.

Large Population, Larger Profitability?

India enjoys a labour advantage, and its expanding upper and middle class is increasingly reliant on blue-collar and gig workers to sustain urban lifestyles. From essential services like cooking, cleaning, and driving to newer conveniences such as doorstep grooming, instant grocery delivery, and home repairs, a wave of unicorn startups has emerged by catering to this vast segment - powered by a growing army of low-wage workers.

McKinsey forecasts that by 2030, India’s 70% of the 90 million new anticipated jobs in current decade will fall under the category of blue-collar roles.

So far, income inequality in India has also driven many startups to build businesses around a large labour base, aiming for long-term margin expansion. On the revenue side, they target the top 20% of income households - customers with high average order values who are increasingly reliant on platforms offering services like food delivery and quick commerce. On the cost side, a vast working population aged 20 to 40, with limited job opportunities, has helped keep wages suppressed for years, enabling startups to scale without significant labour cost inflation.

As shown in the chart below from Goldman Sachs’ 2024 report, companies like Zomato in India hold an advantage over its global peers primarily due to significantly lower labour costs here.

But what happens if this advantage begins to erode, as real wages for the blue-collar workforce start rising sustainably? Let’s explore that next.

The Apple of our Eye: Stagnant Real Wages

Real wages in India have remained virtually stagnant for several years, even as GDP has continued to rise - an indication that economic growth is not translating into improved living standards for workers. Data from the Labour Bureau’s ‘Wage Rates in Rural India’ series and the NSSO show that wages for general agricultural, non-agricultural, and construction workers have seen little to no real growth since 2015, underscoring a deep structural issue in India’s labour market. Whether in manufacturing, trade, or across rural and urban divides, real wage growth has been minimal across sectors. (Source)

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While the poverty continued to fall during this period of 2015 to 2023, the reason why there is hardly any real wage growth is also the steadily rising working-age population (having significant increase in entry level age employment seekers of 15-25 years) in the total working population has been rising steadily in the last 20 years. While poverty reduced, real wages got stagnant.

But the similar statistic also suggest that this ‘demographic dividend’ here is about to come to an end as our median age has now crossed 28 years median age mark.

Adding to it, while India’s share of ‘Agriculture sector’ has been constantly decreasing for years now, but the share of workforce engaged in agriculture has been steadily increasing! While one might have expected the share of the workforce engaged in agriculture to decline after the COVID-related spike, the opposite has occurred - in 2022, 2023, and 2024, a growing percentage of India’s workforce has become increasingly dependent on agriculture, especially female workforce.

About 46.1% of the workforce engaged in agriculture in 2023-24, up from 42.5% in 2017-18.

- Annual Report PLFS FY24

This brings us back to our earlier point: with income transfers and free foodgrain schemes in place, the incentive for the rural workforce to migrate to cities and seek employment in other sectors has diminished.

So Are Real Wages Set To Rise?

At the end of the day, it boils down to the demand-supply mismatch, which decides the growth in real wages. The higher the demand compared to supply in urban India, the higher the rise in wages. While real wages have remained stagnant for the blue-collar workforce across sectors over the past decade, things on the ground are changing rapidly, with early signs of shortages emerging and becoming more pronounced in urban India as the migration from rural is significantly reducing. If this marks the onset of a structural trend, it will begin to reflect in the future margins of labour-intensive sectors/companies, including textiles, tourism and hospitality, logistics, warehousing, and last-mile delivery companies. We shall continue to track it closely in our future blogs.

We hope you enjoyed reading our analysis. Connect with us on LinkedIn here: Aditya Grover and Kinjal Karwa

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Not many in the Indian middle class are lucky enough like him - not just to fully recover but also to maintain their hard assets. With partial or no insurance protection, the impact is often full-blown.

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Over 60% of healthcare expenses in India are paid out-of-pocket - one of the highest rates in the world. Even for India’s largest hospital chain Apollo Hospitals, 40% of revenue comes from patients who have no option but to pay out-of-pocket. Private hospitals have now become the default option due to the poor state of public healthcare. Soaring consultation fees, expensive diagnostics, and skyrocketing insurance premiums have made many medical care services a significant financial burden.

While government’s ambitious schemes like Ayushman Bharat aim to cover the bottom 40% of the population, but the middle 30–40% - roughly 400 million people - are left to fend for themselves. They earn just enough to be ineligible for subsidies but not nearly enough to afford private healthcare without stress. All these elements contribute to the fact that the total health spend as a % of GDP has been falling in last 2 decades and is just 3% of GDP incase of India which is one of the lowest among major economies - making our healthcare system chronically under-resourced.

While in many countries government does the heavy lifting of ensuring that healthcare is adequately funded but this hasn’t been a focus area for Indian government. Developing countries with relatively young population like Brazil & South Africa have this ratio at 9% of their GDP, with China about to reach 6%. Countries like Japan with an old population stand at ~12%. (Source)

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How poor affordability impacts quality of healthcare?

Recently, I got to attend a 2-day conference in Mumbai where one of the panel discussions was on ‘India's Medical Devices Journey’. This market for advanced devices is still very small in India, and a small market forces us to import most of our requirements, as no manufacturer is willing to produce such sophisticated devices at a small scale just to cater to domestic demand. India imports most of its high-end and advanced diagnostic machines (like digital X-ray, CT scan, MRI) from companies like Siemens, GE Healthcare, Philips, etc.

During the Q&A session, I got a chance to discuss why this market remains so small despite India being the most populous country in the world - and we concluded that one of the key reasons for the poor demand for technologically advanced equipment is the low penetration of insurance in India. People simply can't opt for better treatment due to their limited ability to pay or restricted insurance coverage.

India has one of the lowest penetration of ‘health insurance’ in world. Our penetration level of just 0.4% of our GDP against 5.6% for USA in 2023.

Let’s take the example of a ‘Basic’ X-ray, which might cost you ₹500 per test. On the other hand, using an advanced, accurate, and instant digital X-ray machine might cost you ₹1,500 - ₹2,000 per test. But since your affordability is low and you don’t have insurance coverage, you might end up opting for the former option, especially since you’ll need to do the test a couple of times during your treatment. This is where you indirectly promote the adoption of basic or obsolete machinery, and as a result, the market for high-end and advanced diagnostic machines continues to remain small. Here’s a price list of the best-selling X-ray machines in India, showing how drastically the prices and features vary:

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When affordability is low, people often delay or avoid seeking medical help until absolutely necessary, leading to worse health outcomes. Instead of preventive care or early diagnosis, treatments happen at advanced stages, when complications are harder - and more expensive - to manage. Many middle-class families also opt for cheaper, lower-quality hospitals, unqualified practitioners, or cut corners on medicines and follow-up care, all of which directly compromise the quality of healthcare they receive. This creates a vicious cycle where poor affordability leads to poorer care, which then leads to even higher costs and deteriorating health.

Can better insurance penetration help?

Immediately after the panel discussion ended, I struck up a conversation with a fellow attendee who shared her frustrating experience with insurance claims when her dad was recently hospitalized for a week. Despite her dad having insurance, she not only had to pay the full amount upfront in cash to the hospital, but also had to wait several months to receive the claim amount, which was only partially approved. To make matters worse, the insurance broker from whom her dad had purchased the policy was based in Goa at the time and provided very little assistance.

“An insurance company and a hospital have exactly opposite interests which causes the system to have a lack of trust. ”

- Yashish Dahiya, Co-Founder, PB Fintech

In India, around 4 crore people pay insurance premiums with the hope that they won’t face difficulties when they fall ill and visit hospitals. But the reality is far from smooth – customers often face significant challenges – sometimes even more than expected, as the fellow attendee mentioned earlier. High delays in claim settlement, an extensive pre- and post-hospitalization process, lack of communication and transparency, hidden costs, and poor grievance redressal all contribute to bad customer experiences. Hospitals benefit from inflating bills – while such claims result in losses for insurance companies.

When Families Shrink, Vulnerability Grows

Back in 2008, only 37% of Indian households were nuclear, which has now risen to 50% in 2022, implying ~160 million households out of ~320 million households are now nuclear. Infact, as per Kantar’s Consumer Connections 2023 research, 3 out of 4 incremental households in India over the past 14 years are nuclear. Where our average family size used to be above 5 members as per 2001 Census, this has fallen to ~4.4 members in 2021.

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Once, extended families stood like a fortress against life’s uncertainties. There was always a senior member in a large family who would step forward to support, or everyone would contribute towards the cause – just like an insurance policy. Today, as families shrink to just two or three earning members, that shield is gone. In a nuclear household, a single illness, a hospital bill, or a sudden job loss can shatter years of careful savings and stability. There are fewer shoulders to lean on, fewer hands to share the burden, and when crisis strikes, it hits harder and deeper. Vulnerability isn’t just a possibility – it’s the new reality for millions of middle-class families.

India is destined for the ‘Private’ path

It took 80+ years for France & Sweden in doubling of its older population with over 60 years age from 7% to 14%, whereas it’s expected to happen in just 28 years in India. By 2061, every fourth Indian might be 60 or older. We are ageing must faster than the trajectory followed by the rest of the developed world. And unlike the West, India will be aging at a time when its per capita income will still be relatively low, making it harder for the healthcare system to support an older population.

While healthcare continues to be a low priority for the government, as reflected by the small percentage of GDP spent on it, even by the time India ages, government finances won’t be sufficient to support the elevated needs of its population.

Impact? India’s healthcare system will, in all likelihood, eventually become a privately-run, profit-driven system similar to that of the United States.

Always For Profit - U.S. Healthcare

In the U.S., healthcare isn’t just about treating people - it’s big business. Unlike Europe which has state-funded universal healthcare, U.S. has a largely privatized healthcare system. Insurance companies make billions every year by collecting premiums and finding ways to pay out less in claims. Hospitals, especially the big private ones, charge eye-watering amounts for even basic procedures, and the prices are rarely clear upfront. Then there are the pharmaceutical companies, pricing life-saving drugs so high that even insured patients sometimes struggle to afford them. From diagnostics to surgeries, almost every part of the system is designed to maximize profits. At the end of the day, it’s not just about healthcare anymore - it’s about who can afford it.

Think of what that leads to?

The country ranks as the worst performer among 10 developed nations in critical areas of health care, including preventing deaths, access (mainly because of high cost) and guaranteeing quality treatment for everyone, regardless of gender, income or geographic location, as per the report by the Commonwealth Fund.

Second Order effect?

In the European market, where governments run hospitals and often negotiate drug/device prices centrally, you’ll not often find big listed insurance or hospital chains. The listed healthcare space is primarily led by pharmaceutical giants such as Novo Nordisk, Roche, AstraZeneca, and companies like Siemens Healthineers and Essilor Luxottica in medical technology and devices – with a key focus on exports.

On the other hand, the USA has a privately owned, for-profit healthcare system, with multiple private players involved in each part of the value chain. Non-pharma companies like UnitedHealth Group, Elevance Health, Cigna Corporation, and HCA Healthcare are some of the biggest listed companies in the country. In fact, it was initially the hefty profits from their insurance business that helped Berkshire Hathaway build its "investment fund" over the years.

Read more about US healthcare here: A Deep Dive on US Healthcare

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What PB Health aims to solve in India?

Till now, in this blog, we’ve discussed several instances that highlight how broken the Indian healthcare system is, which are:

1. Low insurance penetration & financial implications: One hospital bill can wipe out all you career savings if you don’t have adequate insurance.

2. Limited use of technology: India’s small market for advanced medical equipment disincentivizes innovation for better healthcare in the country, making us heavily import-dependent for most of our needs.

3. Poor customer experience: Lack of trust between stakeholders (hospitals, insurance, and customers) creates friction, promotes scrutiny, and deteriorates customer satisfaction.

With family sizes shrinking and minimal focus on healthcare by the government, India is destined to follow the U.S. path — a for-profit system that ranks poorly on global parameters due to the existing gaps.

Now, the reason we were excited to write this blog is due to a first-of-its-kind experiment happening in our country. India’s largest insurance aggregator, PolicyBazaar’s parent company, recently incorporated PB Healthcare Services on January 1, 2025, and raised ₹2,000 crore from its parent and external investors to carry out healthcare and allied services in India.

Taking the Road Less Traveled

“I can keep standing outside a large hospital for the next 10 years and never get access to build their tech and experience, I might as well do it rather than waiting outside the gate of the hospital.”

- Yashish Dahiya, Co-Founder, PB Fintech

An internet platform company entering the hospital/healthcare business is reason enough to send alarm bells ringing for its investor community. But those alarms don’t deter the ambitious Yashish, who knows exactly what he wants. While they start by owning a few hospitals to get the model in place, the goal isn’t to own hospitals but to have better control over all the touchpoints that a customer encounters once they’ve taken private health insurance.

India’s first HMO - (Health Maintenance Organization)

This concept originated in the United States in the 1920s and later gained federal support with the signing of the HMO Act by President Richard Nixon in 1973, which encouraged the creation and expansion of HMOs by private players. It became popular in the 1990s as a way to control rising healthcare costs, and today, organizations like Kaiser Permanente operate on this model.

Think of an HMO as being part of a carefully managed club for your healthcare. You have a team of doctors and hospitals you can visit, but you need to stick to the club’s list - the "network." You also choose one main doctor, called a primary care physician, who becomes your go-to person for everything - regular checkups, advice, and even when you need to see a specialist. However, you can’t just walk into a specialist's office; your primary doctor needs to give you a referral first.

“A narrow network of hospitals would help create a full-stack model where the customer experience can be better controlled through vertical integration.”

- Yashish Dahiya, Co-Founder, PB Fintech

With this aim in mind, they plan to start their operations and open their first hospital by December 2025 in Delhi NCR. The first 4 to 8 hospitals will be self-owned, with future hospitals controlled through partnerships. While they will offer customers much less freedom of choice, here are three things they aim to solve:

• Bring down the cost of insurance premiums paid by the customer and increase the penetration of health insurance in the country

• Better and wider utilization of advanced technology at their controlled hospitals for treatment, leading to better and faster cures

• Bridge the trust between insurance providers and hospitals, enhancing the customer experience

To accelerate implementation, they are onboarding global partners as co-owners of this project [Update - General Catalyst investment in PB health as biggest investor] who are equally bullish on Indian healthcare, though the quantum of benefit their flagship platform company, Policybazaar, will gain is still unknown.

To END: More than 2 years ago, we wrote how Policybazaar revolutionized how Indians buy insurance. Today we wrote on how they are aiming to revolutionize how healthcare is delivered in India. Excitement is much higher this time & we shall continue to track it closely in our future blogs.

Connect with us on LinkedIn here: Aditya Grover and Yash Agarwal

Finding Outperformers is a free-to-access website, and each blog takes a month of effort to finalize. If you've read this far and you find our research useful, consider supporting our efforts by contributing here:

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Read 2 year year old post when we became bullish on the stock⬇️

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We are not a SEBI registered advisors; personal investment/interest in shares can exists for any company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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On March 17, 2025, India's trade data for goods and services was released, revealing a surprising drop in the trade deficit to $14 Bn, significantly lower than the expected $21 Bn. What followed after that was also Indian Rupee strengthen from sub - ₹ 87 levels to below ₹ 86/$ towards weekly closing, along with a sharp rebound seen in the stock market. Today, we discuss the strong undercurrent in India’s services exports, which has the potential to transition the country from ‘Current Account Deficit (CAD)’ to a ‘Current Account Surplus(CAS)’, on a sustainable basis.

CAD occurs when a country's total imports of goods, services, and transfers exceed its total exports and transfers out, indicating a net outflow of dollars. India has long been in a deficit due to its high oil imports, as the country lacks domestic crude oil resources. India's gross oil import bill is projected to be approximately $140 Bn for the current year, given that nearly 90% of the country’s crude oil demand is met through imports. Back in 2015, Modi government had targeted to bring bring the import dependency on foreign produced crude oil to 67% by 2022 with 33% met via local production, but the reverse has happened with dependency actually increasing to ~90% today.

Over the last decade, the only full year in which India recorded a CAS was during the COVID-19 pandemic in 2020. With minimal movement and a sharp reduction in the oil import bill, India saw a surplus for the first time in decades as shown in the chart below⬇️

We are focusing on this because one key segment of the current account is signaling a major structural uptrend and has the potential to drive India into a sustainable surplus for the next decade: India’s Services Exports.

India today is where China was in 2000s

Since the onset of the 21st century, the biggest beneficiary of globalization has been China. Its annual exports have surged from $0.25 trillion in 2000 to $3.5 trillion today, making it a dominant player in global trade. Over the last 25 years, China's share of the global economy has risen by 13 percentage points, from 3.58% to 16.8%, and exports now account for approximately 20% of its GDP.

The table below illustrates how various countries' shares in global trade have evolved over time. In contrast to China’s meteoric rise, India's share has grown marginally by just 2 percentage points over the same period, currently standing at around 3.4% - roughly where China was 25 years ago.(Source)

Just as China revolutionized manufacturing exports, India today has the potential to replicate that success in services exports.

Rise of Indian Services Exports

India today accounts for ~5% of global services exports against less than 2% share in global goods export. Services exports grew from $53 Bn to $338 Bn between 2005 and 2023 - almost double the rate of the rest of the world - and have come to form nearly a tenth of our national GDP. (Source: Goldman Sachs).

A significant portion of this growth has come from computer services (IT/BPM), which has consistently remained the dominant category in India’s services exports, accounting for 40% to 50% of total exports over the past two decades.

But now, things are evolving. While computer services continue to hold a significant share, the category - 'Professional Services' - is rapidly emerging. Also known as 'Global Capability Centers' (GCCs), these are offshore facilities set up by multinational corporations (MNCs) to manage various business functions, leveraging global talent, cost advantages, and operational efficiencies.

It is no longer just the IT segment being outsourced to India. Companies are now shifting core functions such as Operations, Finance, HR, Marketing, and Sales - classified under ‘Professional Services’ - to India.

Among organizations currently leveraging Global In-House Capabilities Centers (GCCs), 73% plan to increase their GCC investments in 2025. Additionally, 58% of organizations that have not yet adopted the GIC model are actively exploring its implementation.

- 2024 Global Outsourcing Survey, Deloitte

Below is a collage of global CEOs who visited India in March 2025 alone, reaffirming their commitment to invest and expand hiring in the years ahead. From Goldman Sachs to Citi, from Boeing to Blackstone, India has become a strategic hub for a majority of Fortune 500 companies today.

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As per Goldman Sachs, the number of GCCs has more than doubled from 700 to 1,580 in last 20 years, and the sector has added around 1.3 Mn jobs, taking the total employee headcount to 1.7 Mn in the 2023 fiscal year. In a bull case scenario, they expect services exports would form 12.4% of India’s GDP by 2030 to a value of $900 Bn, which is more that double of what it is today in 2025. The Indian government estimates are even more bullish, expecting GCCs to expand to $105 Bn in terms of global services exports by 2030, employing over 2.8 million people, implying over 1.1 million new jobs in period of next 6 years!

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But why would the world shift jobs to India?

The primary driver behind this shift is cost. Economies like the U.S. have long faced a labor shortage, which has only worsened post-COVID. As of January 2025, there are roughly 7.74 Mn job openings in the U.S. alone. Similar trend on shortage of skilled manpower is seen in Canada, Australia, and other developed markets, leading to rising wages as companies compete for talent.

This cost arbitrage is pushing global companies to seek talent outside developed markets. In India, the same employee is available at just 1/7th of the cost in the U.S. as per a BCG slide shared below, with no significant differences in skill set, language proficiency, or technological adaptability.

This cost difference is significant and enough to convince any global company like Chevron to setup their first office in India. Slowly overtime as they realize that it is working well, they expand & hire to offshore all their business operations to India.

For example, lets take case of Goldman Sachs:

1. In 2004, opened its first major office in Bengaluru, India

2. In 2014 started construction of a ‘Campus’ in Bengaluru, costing $250 Mn

3. In July 2021, opened a new office in Hyderabad, India

4. Today, has 10,000 employees in multiple divisions like technology, operations supporting global businesses

How much is India benefitting?

It's not just about jobs - it’s also about the foreign exchange inflows into India. The rise in services exports, driven by Professional Consulting/GCCs (whose share in India’s services exports has grown from 10% pre-COVID to ~20% today), has doubled the country’s monthly ‘Services Trade Surplus,’ now reaching a net inflow of $20 billion every month!

This is a significant boon for India, the world's second-largest crude oil importer, which spends $140 billion annually on oil imports.

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If this monthly surplus of ~$20 Bn grows by another $10 Bn over the next two years, reaching ~$30 Bn per month, India would see an additional $120 Bn in dollar inflows annually. This could transform India into a ‘Current Account Surplus’ nation, with a surplus of about 2% of GDP - compared to the ‘Current Account Deficit’ of about 1% of GDP today - assuming other factors remain constant.

What gives us confidence of this surplus rising that fast?

COVID-19 proved that 'work from anywhere' is not only feasible but often just as efficient - whether from home, another office, or even another country. This realization has led companies to increasingly offshore key business verticals to countries like India, significantly reducing costs.

As a result, since COVID, the U.S. commercial real estate market has been in a downturn. Office vacancy rates have been rising every quarter, and today, nearly 20% of U.S. office spaces remain vacant, according as per Cushman & Wakefield.

While the U.S. commercial real estate market remains bearish, the scenario in India is the complete opposite. Global companies are struggling to find high-quality, large office spaces in major Indian cities, often having to wait several years before gaining possession of their bookings.

The chart below from Knight Frank illustrates how transaction volumes in India have been peaking since H2 2023. The number of deals far exceeds the actual completion of office spaces, indicating a growing backlog of excess demand.

With 35–40% of these transactions driven by Global Capability Centers (GCCs), it is increasingly clear that companies from the U.S. and Europe now see India as the ‘Office of the World,’ shifting more business functions and operations to their Indian offices.

Number of Forbes Global 2000 having a base in India is set to increase from 450+ today to 620+ by 2030, adding roughly 6 lakh new jobs.

- GCC Quarterly Landscap, Dec’ 24, ANSR

Key Predictions

With the election year (2024) for India & USA behind us, with more businesses look towards India as their home, here are key expectation:

1. Momentum on shift of global operations by MNCs to India will gain further strength and surprise on upside. Exports from GCCs/Professional Consulting can cross the IT/BPM exports by 2035.

2. India’s Services Trade Surplus which hovers around $20 Bn monthly as we end FY25, could actually reach $30 Bn monthly by the time we end FY27.

3. India can become Current Account Surplus nation with 1% of GDP as surplus by FY27.

4. Indian Rupee can appreciate significantly and head towards ₹ 80/$ by FY27, reversing a multi decadal trend.

The above expectations are very away from what street expects the Indian currency to continue depreciating ~3% per annum which has been the long term trend.

Key Risks

Multiple reasons could prove us wrong:

1. Tariff war on global trade (primarily goods trade) create an environment of uncertainty, making it hard to predict what could be next move coming from US President.

2. Inflation in India must remain under control like it is currently at start of 2025, hoping better rains to keep food inflation under control.

3. Global wars continuing/start of new war in various parts add to major uncertainty.

4. Moment of Dollar index would partially impact currency move.

5. AI could emerge as a risk for IT, but we don’t expect a severe impact on trade surplus of the same

6. Any new risks or amplifications of existing risks that are unknown today but could emerge later.

TO END: We hope you enjoyed this comprehensive analysis on this structural shift happening for India making us even more bullish on the country’s long term growth trajectory. Stay tuned for Part 2!

Connect with us on LinkedIn here: Yash Agarwal and Aditya Grover

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We are not a SEBI registered advisors; personal investment/interest in shares can exists for any company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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Fast forward to today, as I write this blog, I have decided to exit the stock. I have sold the majority of my holding of the bank recently and plan to sell the remaining soon. It was a difficult decision, filled with doubts about being wrong, but I will try to justify why I made this call after closely following the company for many years.

Before we begin today’s blog, I’d like to welcome the ~500 new subscribers who have joined us in the past month since our Zomato’s Social Ads blog. We now have around 4,000 subscribers, and it’s great to have you all here as we continue our journey to find the next potential outperformer. Activity on this blog website has slowed down a bit due to certain professional commitments, but I’m hopeful of keeping it going with even more momentum in the future.

Let’s get started!

Jan 2023

About two years ago, I shared an extremely bullish view on IDFC First Bank, which can be read here. In that piece, we discussed why the bank had the potential to outperform other banking stocks over the year.

Thankfully, 2023 played out along similar lines, with the stock rising ~60% during the year compared to Bank Nifty’s ~11% return, as shown in the 2023 chart below:

But 2024 didn’t turn out well for the stock. With retail participation peaking, it delivered a negative return of 25% for the year.

I didn’t publish any follow-up blog on the company after that, as my focus shifted to my current main holdings, including Zomato, Tata Power, DLF, PB Fintech, IHCL, and more. However, as I exit my position, I wanted to share my thoughts. I won’t discuss valuations or other technical aspects (which I rarely do anyway) but will focus more on the soft factors that led me to this decision.

Doubt on Profitability Prospects

“FY2023-24 should be better than '23, '25 should be better than '24, '26 should be better than '25, that is something you should expect from us”

- V Vaidyanathan, CEO & MD (July, 2023)

The bank had a strong turnaround post-Covid, delivering solid profits in FY23 and FY24. However, that momentum now seems to have stalled. It is often said that in banking, real underlying risks can be easily hidden beneath the surface - I anticipate that could be the case here as well.

The company has struggled to meet its profit growth guidance due to several issues, including a high cost-to-income ratio, NIM compression, and more. A recent hit to profitability has come from issues in its microfinance loan book, where asset quality has suddenly deteriorated. At the end of 2023, this segment accounted for ~7% of the bank’s total loan book, but it has now declined to below 5% by the end of 2024.

Cracks are visible & getting deeper

“Microfinance business was an amazing silver bullet, which met 3 requirements …. we were lending at ~ 24%, we had some additional fees on top of it, our cost of funds was really nothing like 6% or 7%, and it just made a lot of money.”

- V Vaidyanathan, CEO & Founder (Jan ‘25)

Sweet grapes turned sour very quickly for the bank. The credit cost (which includes write-offs and provisions against that part of loan book) for IDFC First’s microfinance portfolio was just 1.6% in 2022 and 2023. However, in 2024, it has suddenly surged to ~10%, indicating that a significant portion of the loan book would never be recovered now.

The management has warned that the worst of the sector's pain is expected to peak in the Jan–March '25 period, suggesting this 10% figure could climb even higher.

Alongside, the recent development in Karnataka can’t be ignored.

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Recently, on February 12, 2025, the Karnataka government issued a notification to enforce a new law regulating the microfinance sector in the state. The law includes strict penal provisions, such as imprisonment of up to 10 years and a fine of ₹5 lakh for violations by agents. This ordinance was introduced following multiple suicide cases linked to coercive recovery tactics, including criminal intimidation by moneylenders. While the intent behind the law is justified, its impact on the sector will be significant, as many borrowers may now choose not to repay their small loans, given the limited recovery powers left in the hands of microfinance lenders.

A similar situation occurred in Andhra Pradesh about 15 years ago when the state government introduced laws to protect borrowers.

On October 14, 2010, the Andhra Pradesh government announced an ordinance to curb ‘harassment’ by collection agents—much like what is happening in Karnataka today. In response, many rural financing companies, including SKS Microfinance and other MFIs, decided to cut interest rates. However, this move backfired as it highlighted the already widely criticized high interest rates, reportedly between 24% and 28% annually - a range that, as per V. Vaidyanathan’s statement, remains unchanged even today.

The rate cuts also exposed the fact that lower interest rates were feasible all along, but MFIs (Microfinance institutions) had been unwilling to offer them.

Politicians began attacking the microfinance sector, urging those living in poverty not to repay their loans. As a result, SKS was forced to write off 90% of its loans in Andhra Pradesh and lay off 10,000 employees.

“When the crisis broke out in October 2010, we had ₹ 1,430 crore exposure in AP. We collected some ₹ 129 crore. So we had to provide for about ₹ 1,300 crore. We did that over seven quarters so that it doesn’t ignite a crisis of confidence.”

- S. Dilli Raj, CFO, SKS Microfinance, 2013 (Source - click here)

Now, with a similar situation unfolding in Karnataka, the worst for the sector may still be ahead. This crisis could easily spill over to neighboring South Indian states and other regions where governments are actively seeking populist measures to win public support.

Additionally, the microfinance turmoil could extend to other rural-focused or high-interest loan segments, including rural finance and consumer durable loans within the state. IDFC First has a 9% exposure of its loan book to Karnataka as of Dec ’24.

“The credit discipline in Andhra Pradesh has been wiped out and the biggest task is to bring it back”

- S. Dilli Raj, 2013

Are we presenting the data correctly?

Shifting focus to how the company presents data in its investor presentation - something I’ve recently started analyzing more critically.

For context, the bank’s microfinance loan book has declined by 20%, from ~₹13.6K crore in 2023 to ₹11K crore in 2024, primarily due to write-offs and controlled loan disbursals to the sector. In its investor presentation, the company reports ‘collection efficiency’ for each month of 2024. However, it does not account for loans that were either written off or had provisions made against them during the quarter. Instead, it chooses to display collections only from healthy loans, thereby reflecting a high collection efficiency of 98.6% at year-end - even at a time when the sector is under severe stress.

In reality, the bank’s microfinance loan book shrank by about ₹1,500 crore in Q3 FY25 alone which is 10%+ of their loan book to that sector, with a significant portion of the decline driven by write-offs.

Had the company presented the collection efficiency by including all loans (both healthy and written-off) in the denominator and actual collections in the numerator, the percentage would have dropped sharply - providing a more accurate & better representation of the true picture, in my view.

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In other words, I believe the company has the discretion to decide what data to present and how to present it to investors. However, I would have expected them to act more transparently in this case. It makes little sense to showcase such data merely to reassure investors that everything is fine when, in reality, that may not be the case. This isn’t just a one-off case; I have been getting this sense over time after tracking them for years.

After Microfinance, what could crack next?

As of December 2021, the bank’s retail loans stood at around ₹87,000 crore, growing to ₹187,000 crore by December 2024. This implies that the majority of the bank’s loan book has been disbursed within the last three years, in line with management's guidance.

However, what concerns me is the possibility of stress emerging in other parts of the loan book, just as it did with microfinance. In most downcycles, the microfinance segment is typically the first to witness defaults, and this has the potential to spill over into other loan categories - which is worrisome.

In banking, where evergreening is common and real stress is often concealed, it can take years for bad loans to surface. While I still don’t believe IDFC First Bank is actively engaging in such manipulative practices, my confidence has eroded over time - especially given how they chose to present data in the case of microfinance.

For instance, let’s look at the NPA percentage in the bank’s consumer durable loan book:

This is another high-risk, high-reward financing category in which the bank is actively involved, with ~4% of its loan book allocated to it.

The NPA levels in this segment are now almost on par with industry averages (including both banks and NBFCs), indicating the level of risk the bank may have taken to expand its loan book in this category over the past 2–3 years. This raises concerns about the stability of this growth and casts doubts in my mind about its foundation. In fact, the credit cost for their loan book (ex-microfinance) have already been on an uptrend from 1.7% in Q1, to 1.8% in Q2 to ~1.85% in Q3 of FY25.

Is the Margin party over?

IDFC First has enjoyed very healthy net interest margins (NIMs) of over 6% in past many quarters. Over the past year, as the RBI tightened regulations, banks with a high Loan-to-Deposit (LTD) ratio were instructed to raise deposits more aggressively to bring the ratio down - I had written about this more than a year ago here. Among the most impacted were banks like HDFC Bank and IDFC First. However, IDFC First has done an impressive job in growing its customer deposits. The bank expanded its branch network aggressively post-Covid, now reaching ~1,000 branches. Additionally, its digital strategy, particularly its mobile app, has been highly effective in driving growth.

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One major factor contributing to the growth in deposits is the high interest rates IDFC First Bank offers on savings accounts. While Axis Bank offers around 3–3.5%, IDFC First provides a significantly higher ~7.25% on deposits above ₹5 lakh.

These customer deposits also helped the bank repay its legacy infrastructure bonds, which were issued by the pre-merger entity at higher rates. This, in turn, supported the bank’s margins (NIMs). However, that advantage no longer exists, as most of these bonds have now been repaid.

With emerging challenges in the microfinance segment and other high-margin products, further margin compression is highly likely, casting a shadow over the bank’s profitability prospects further. And if they reduce the saving rates in coming months, I wonder if they will be able to sustain the growth momentum in deposits anymore.

“The reason why the income will not grow directly in proportion next year is that the microfinance, like I said, is a highly profitable business. We were lending at 24% rate (but that loan book is expected to further reduce taking away that margin advantage)”

- V Vaidyanathan, CEO & Founder (Jan ‘25)

Yet another fund raise needed!

The bank has been consistently raising funds, with the most recent being a ₹3,200 crore preferential issue to mutual fund houses in July 2024. But despite all fund raises, its Capital Adequacy Ratio (CAR) stands at 13.68%, which, while above the regulatory requirement, indicates the need for another fundraise.

While the RBI mandates a minimum Capital to Risk-Weighted Assets Ratio (CRAR) of 11.50% for banks in India, IDFC First Bank currently stands at 16.11% on this parameter. However, this is still significantly lower than other large private banks that IDFC First aspires to compete with, making additional equity infusion highly likely to enhance the bank’s financial stability and investor confidence.

This suggests that IDFC First Bank will likely undertake another round of equity dilution in the near future. While this may strengthen the bank’s capital base, it is a negative for existing shareholders as it reduces their stake and share in future profitability.

Good Bye, IDFC First!

The reasons I focused on today are primarily driven by how issues in the microfinance loan book have significantly impacted profitability and led to margin compression. The way this unfolded over the past year raises concerns about the quality of the loan book, and the way it was presented in investor communications has been disappointing. If a similar issue arises in another segment of the loan book - which I now anticipate - it could become a nightmare for investors, especially retail investors, who hold a substantial portion of the stock.

Additionally, on a broader level, I am not particularly optimistic about the banking sector as a whole. I strongly believe its weight in the index should decline over time, with technology stocks taking the lead instead. That’s where I’d prefer to shift my focus going forward.

So, it’s goodbye to IDFC First - for now! Connect with me on LinkedIn here.

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Disclaimers-

We are not a SEBI registered advisors; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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Today’s blog is a bit lengthy, recommended to view it on our website. Let’s get started!

Zomato got big goals?

(In this blog, we refer to Zomato/Blinkit as Z/B)

About two years ago, when the company was valued at around $5 billion, Deepinder (the founder/CEO) boldly shared his ambition to make Z a $100 billion company by 2030. At a time when the share price was below its IPO level and had plunged over 70% from its peak, it took immense courage to articulate a 20x vision with a clear deadline.

As of the year ending 2024, the company is valued at ~$30 Bn, marking a 5x increase over the past 2 years.

The team not only emerged as a winner in the rapidly growing quick commerce industry with B (Blinkit) leading the market, but also scaled its B2B supply chain subsidiary, Hyperpure, by ~4x in revenue terms over the last two years. Another aspect that the market has appreciated is their ability to identify new growth opportunities, execute them effectively, and gain customer loyalty - the latest example being the launch of ‘District’, their going-out app.

The company has successfully leveraged technology to scale operations, build strong customer loyalty, utilize India’s abundant and cost-effective workforce, and cater to the top 20% of the population, who now value the convenience of ordering not just food but almost everything they need, delivered within 10 minutes.

However, as we step into 2025, much of the future growth is already being factored in by the markets:

1. We now better realize that the potential of Quick commerce (QC) is huge, which was not the case 2 years ago. Recently in Nov’24, Morgan Stanley estimated the QC market to be worth US$42bn (6X growth in next 6 years), with Blinkit’s EBITDA margins reaching 5.1% by 2030 which is at break even today.

2. We now better appreciate Z for their exceptional ability to execute swiftly and establish market leadership. The latest example of this is the successful launch of the Zomato Live/District app.

3. We now recognize Z's strength in marketing, technology, app UI/UX, and product innovation, all of which have played a crucial role in retaining and growing their customer base, maintaining market leadership without excessive cash burn, and swiftly responding to emerging risks. The latest example is the launch of the Bistro app, aimed at capturing the growth of 10-minute food delivery.

So while they now have proven their ability in profitably building successful operational heavy businesses (All 4 - Z/ B/ Hyperpure/ District) it might be time for them to pivot. When it comes to incremental value generation and growing from $30 Bn to $100 Bn+ valuation journey which Z aims to achieve, main chunk of that might not come from what we now admire already. Z needs much more from its existing model. Time to pivot is here.

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Enters Flywheel!

About 85 Crore (850 Mn) food orders were delivered by Z in 2024. The scale at which the company today operates is becoming crazier year after year. With its subsidiary, B, growing at 6X the rate of Z, very soon it would cross the scale of its parent.

At such scale where you are constantly capturing ‘what’ whole India requires, ‘when’ it requires and ‘how’ it requires, puts you into a sweet spot of launching a ‘flywheel’ wherein you continue to grow with reduced efforts. (Source)

“A flywheel effect occurs when small wins for your business build on each other over time, eventually gaining so much momentum that growth seems to happen effortlessly”

Think of it like pedaling a bicycle. Initially, you need to exert extra effort to break through the friction, but once you gain momentum, it becomes much easier to accelerate with less effort. In the case of Z, which interacts with 300,000 restaurant businesses, B, which partners with all FMCG giants and nearly every major D2C startup in India, and District, which might engage with every major public event in the future - there are numerous B2B (business-to-business) touchpoints that Z could be positioning to revolutionize through their flywheel.

If successful, this flywheel will enable Z to easily onboard new businesses opening in India, helping them reach their customers in the most efficient way possible. Let’s explore this concept further.

What is SocialAds by Zomato?

Imagine the following scenarios:

• Case 1: On a lazy Sunday morning, you come across a mouth-watering Instagram reel of a ‘Chole Bhature’ dish from your city’s famous restaurant. At the same time, it offers you a 40% discount if you order immediately by clicking on the reel. You click, are navigated to Z’s app, and just like that, your breakfast plans are set.

• Case 2: You have a house party planned for tomorrow, and just a day before, you start receiving targeted ads on Google search for all the essentials you’ll need as a party host. These ads lead you to B’s party essentials section, where you complete all your purchases with just a few clicks, and everything is delivered to you in 10 minutes.

• Case 3: A premium D2C brand is about to launch its latest product and wants to sell it exclusively to people living on Golf Course Road in Gurugram (a posh area of North India). It targets its digital advertisements to specific localities and ensures that the required inventory is available in nearby B’s dark store. The brand also has real-time control over the Ad campaign, stopping the digital ads as the inventory begins to exhaust.

Above cases^ are only possible when your ‘Off-app data’ (social media/ search activity data) is in sync with your ‘On-app data’ (Availability of provider/ consumption behavior/ location details, etc.) which drives maximum marketing ROI for any business.

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“Impact created for the early adopters is unreal”

So about 5 months ago, Z officially launched SocialAds in association with Meta for its multiple restaurant partners post few months of trial with few of chains like Chinese Wok (Chinese Food QSR brand with 200+ locations pan India). (Source)

They now also call it an Ad-tech platform.

The platform aims to integrate high-reach ad platforms (Meta & Google) with a super-efficient conversion funnel that drives repeat buying behavior on Z(and now B as well). This makes it easier for brands to control their campaigns. As a business, it enables you to launch and monitor the performance of any ad campaign run across both off-platform (Meta & Google) and on-platform (Z, B, District) metrics in just three clicks!

The core proposition of the flywheel can be broken down into four key segments: (Source)

• Audience Science - Using the user data from Z/B, targeting signals are pushed to Meta/Google for a brand’s campaigns

• Hyperlocal catalog tech - Real-time integration of funnel to ensure no Ads are shown if the restaurant/Blinkit store isn’t serviceable due to closure or stockout

• Full funnel optimization - From Meta / Google AI inputs, brands constantly learn about their campaign like what is working for them or what to stop

• Transparent reporting - Brands can view real time sales & campaign updates real time and independently spend as per their budgets and desired customer audience

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Aim here seems to be creating a ‘Plug and Play’ solution for businesses, where their entire digital marketing spend flows through Social Ads. These ads then communicate with Google/Meta platforms for targeted advertising and route sales through Z apps.

But is this really an ‘AWS moment’?

Amazon Web Services (AWS) helped Amazon transition from an online retailer to a tech giant by leveraging its infrastructure to provide services to other businesses. Today, AWS is valued at around $ 1 trillion, which is estimated to account for half of Amazon’s overall valuation according to many forecasts.

In contrast, the Social Ads platform primarily accelerates the growth of Z’s own apps and is not necessarily viewed as a new innovation— or is it? To explore this, let’s take a look at Shopify.

How Shopify became a $100 Bn Giant?

When Tobias Lütke & Scott Lake decided to build an online store in 2004, they had no idea they would end up creating the world’s biggest e-commerce platform.

1. In 2006, Shopify was merely a set of tools businesses could use to build their own websites with basic features

2. In 2007, they built analytics into the product to help merchants track their inventory and sales

3. Then in 2009-2013, they did a pivot from merely a tool to an actual platform, a complete toolkit for businesses

4. Later, Shopify then focused a more holistic/broader mission of helping everyone sell on- and offline which led to what it is today.

Initially, Shopify’s plan was simple - to build a site where they could sell snowboarding gear. However, they pivoted to solve a much bigger problem and kept evolving along the way.

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So what’s the opportunity in front of Zomato?

A tech platform has the powerful ability to scale quickly while maintaining flexibility. As Z builds its 3-click (scalable) Ad-tech platform through Social Ads, there is every possibility that they could widen or change the scope of the platform over time (flexibility). While it may seem like an exaggeration today, just like B didn’t stop at selling daily groceries but expanded to offer everything from beauty products to electronics and now ambulance service, the Ads tech platform could also evolve into a one-stop tech stack for businesses interacting with Z in any form. Some easy-to-implement examples could be:

• Z could integrate a real-time inventory management toolkit for brands, dark stores, restaurants, event organizers, and other businesses—particularly on the B side. This would provide access to real-time inventory data through a dashboard on the platform. While they may already have some form of this, there is a great opportunity to enhance it through a combined offering along Ads.

• Given the volume of data they handle, Z could also add a comprehensive 'Data & Analytics' toolkit, similar to what Shopify did for businesses on its platform, integrating it via APIs with other data sources.

Apart from this, Z also has the largest on-ground network of weather stations installed across the country, providing real-time updates on rain, wind speed, temperatures, and more. This data is primarily used for its own on-ground fleet and smooth operations. However, this real-time data could be incredibly valuable for anyone involved in supply chain, commerce, hospitality, and many other industries. It could also serve as a useful add-on feature on the platform for the businesses Z deals with daily.

In its pursuit of faster growth and reaching a $100+ billion valuation, Z might reconsider its global expansion strategy with Plan 2.0. A decade ago, in their Plan 1.0, they were involved aggressively in acquiring food delivery businesses worldwide (including in the USA, Poland, Czech Republic, etc.), only to wind them down later after realizing the massive cash burn required to sustain those subsidiaries.

If Z is able to pivot and successfully build B2B tech solutions for businesses and brands in India, it could gain the capability to discover and launch a tech solution that could be scaled globally. Amazon’s journey with AWS started as internal project to create a shared layer of infrastructure services for Amazon’s e-commerce tech teams. Later, Amazon recognized the huge external market potential for their internal solution, and AWS was born.

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Long Story Short

In this blog, we initially focus on how Zomato has delivered exceptional execution, driving its valuation from $5 billion to $30 billion in the last two years. However, when it comes to incremental value and growing from $30 billion to the targeted $100 billion+, a significant portion of that growth may not stem from what we already admire about the company, as much of that potential is already priced in. Z is now opening the door for itself to pivot away from solely operations-heavy businesses toward more tech-driven solutions, such as Social Ads. This Ad-tech platform further lays the foundation for multiple tech-based B2B offerings and could even revive their global expansion plans someday.

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Disclaimers-

We are not a SEBI registered advisors; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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Has India Decoupled?

The amount raised in India by IPOs in 2024 is set to touch $20 Bn, marking a fresh peak and significantly surpassing the previous high of 2021, which was driven by excess global liquidity. What’s surprising is the stark contrast with the developed markets, which remain significantly below their peak.

Let’s take a closer look at the U.S. & European primary markets since 2020:

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The boom that began in the second half of 2020 and extended through 2021, fueled by excessive liquidity from central banks worldwide, propelled the U.S. IPO market to record levels. Notable offerings included Airbnb, Snowflake, and Rivian, while in Europe, companies like Deliveroo and Wise raised billions despite mixed post-IPO performances.

However, as the liquidity tap dried up, both secondary market valuations and primary listings suffered. For instance, Instacart (Maplebear Inc.) went public in September 2023 at a valuation of $9.9 Bn, a sharp decline from its peak private valuation of $39 Bn. There is also an traded ETF in U.S. which tracks performance of newly listed companies which shows how companies performed post listing.

Renaissance IPO ETF: This ETF offers access to newly public U.S. companies, aiming to capture returns from innovative businesses post-IPO. Companies are included shortly after their IPO and removed after three years of trading. It rebalances quarterly and focuses on the largest and most liquid IPOs.

While the S&P 500 recorded more than 57 record closing high for 2024, the IPO ETF remains 40% below its peak from 2021.

Another notable point is that IPO activity in the U.S. tends to rise significantly in post-election years, averaging a 39% increase (219 IPOs) compared to election years (149 IPOs) and a 24% increase compared to other non-election years (176 IPOs). With pro-capitalist Republicans winning the 2024 elections, a surge in public listings is anticipated in 2025.

2024 - The Indian Contrast (Part 1)

While the U.S. and European markets faced challenges, the trend in India has been completely opposite. Indian primary markets are setting a new record in 2024 by raising approximately $20 billion - 40% higher than the previous peak achieved in 2021, which was driven by global liquidity.

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In 2024, India witnessed landmark IPOs, including Hyundai’s Korean parent listing its Indian arm on domestic exchanges, raising over $3 Bn entirely through an offer for sale. Swiggy’s IPO, the largest tech IPO in India raising $1.34 Bn, followed closely by NTPC Green’s $1.2 Bn offering, the biggest in India’s renewable energy sector by the government-owned NTPC’s arm.

Looking ahead, 2025 holds a promising IPO pipeline with notable names like India’s largest private bank - HDFC Bank’s subsidiary HDB Financial, LG’s Indian arm, and several others set to hit the market.

A key driver of India’s contrasting primary market performance compared to developed markets is the strengthening equity culture. The public’s inclination towards equity as an asset class has grown tremendously, with a shifting attitude that now views the stock market not as a mere “satta bazaar” (betting market) but as a reliable long-term wealth creation tool.

The robust momentum of monthly SIPs (Systematic Investment Plans) has significantly boosted domestic ownership of Indian equities.

According to SEBI estimates, the Indian Mutual Fund industry has cumulatively purchased equity shares worth $160 Bn over the last decade - over 5% of India’s total market capitalization. Notably, Indian equities are now 83% domestically owned, with promoters remaining the largest stakeholders. This is the highest domestic ownership proportion among emerging markets.

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Listing on New York vs. local stock exchange

Ringing the NYSE bell in the United States is a dream for many tech entrepreneurs. For countless startup founders worldwide, Silicon Valley serves as the ultimate source of inspiration. With listed tech giants valued at trillions of dollars and unlisted startups raising millions and billions from deep pools of PE/VC funds eager to support innovative ideas, the U.S. often seems like a paradise for aspiring global entrepreneurs.

Interestingly, the largest IPO in U.S. history by size wasn’t from an American company but the Chinese giant Alibaba. In 2014, Alibaba chose to list on the New York Stock Exchange instead of Hong Kong or China, debuting with a staggering valuation of over $160 Bn and raising $25 Bn (including options)—a record that still stands today!

Although Alibaba had a secondary listing in its home country in November 2019, its decision to initially list abroad highlights a missed opportunity for China’s domestic financial system. When a prominent leader in e-commerce and payments opts for a foreign listing, it should be seen as a setback for the local ecosystem and here is why domestic listings are vital:

1. Domestic listings enhance the depth and liquidity of local capital markets, attracting more investors and fostering a robust financial ecosystem. A vibrant local stock market can spark a virtuous cycle of domestic wealth creation and reinvestment, making it easier to fund innovative and risk-taking ideas.

2. Domestic listings are often more straightforward compared to foreign ones. Successful large-scale listings on local exchanges at favorable valuations serve as a positive signal to Private Equity and Venture Capital, encouraging them to invest for long term with greater confidence due to higher chances of profitable exits.

3. Keeping future tech giants listed locally ensures that the country retains a degree of control & oversight over its critical industries. This is especially important for safeguarding national interests, including data protection and strategic autonomy.

Prominent domestic IPOs often become a source of national pride, helping to build a positive narrative about the country’s economic strength. It’s important to recognize that not every company can list on U.S. exchanges. When a major local company chooses to list abroad, it can inadvertently diminish the credibility and attractiveness of the domestic exchange. This sets a precedent, encouraging other companies to look outside for their listings, potentially weakening the local financial ecosystem.

While China’s e-commerce giants like Alibaba and JD.com chose U.S. listings a decade ago, India has the privilege of seeing its E-commerce giants (read Quick commerce) are now listed domestically. Companies like Zomato and Swiggy have already made their mark on Indian exchanges, and Zepto is hopefully next in line! This trend underscores India’s ability to retain its homegrown champions while building its financial markets.

2024 - The Indian Contrast (Part 2)

Following the IPO listing contrast highlighted in Part 1, the impact is now visible in bringing back startups that had previously domiciled outside India for tax-saving reasons or with plans for future foreign listings. As India strengthens its domestic financial ecosystem and offers favorable conditions for local listings, these startups are now more inclined to return and list on Indian exchanges, contributing to the growth and credibility of the local market.

𝐑𝐞𝐯𝐞𝐫𝐬𝐞-𝐅𝐥𝐢𝐩𝐩𝐢𝐧𝐠: An increasing number of major Indian unicorns who were registered in foreign countries including PhonePe, Groww, Pepperfry, Razorpay, Pine Labs & Meesho are now coming back/have already domiciled themselves in India in 2024. While amongst the key reason for this shift is the ability of Indian markets to list tech companies on domestic indices - other contributing factors include clarification by government on tax laws which has made the absence of tax advantage evident in certain scenarios. The fact that multiple start-ups have become household names, yet the Indian public wouldn’t be able to participate in their IPOs due to these companies being overseas entities, is also a major reason for the shift back.

Does it make a difference?

While foreign listings may bring in dollars from IPO proceeds strengthening local currency, large listings in domestic markets can lead to liquidity being drained from the system, which can also affect domestic banks. So, why not prefer foreign listings?

That’s a short-sighted perspective. For the sake of short-term gains, we shouldn’t allow our financial markets to stagnate, as we've seen in other markets like the UK and Singapore. We need a vibrant, expanding ecosystem with diverse investors that can support the innovation shaping India’s future. A future led by tech companies should not feel the need to list abroad. This is precisely what makes the U.S. the financial hub of the world where tech from across the world goes to list themselves.

Take the case of a 2023 listing of Arm Holdings, Softbank owned semiconductor company:

Arm Holdings was previously listed on the London Stock Exchange (LSE) from 1998 until 2016, when it was taken private by SoftBank Group. In 2023, Arm Holdings went public on the NASDAQ in the U.S. at valuation of $54 Bn and was seen as the biggest IPO event of the year.

Incidentally, the weight of U.S. stocks in the MSCI All Country World Investable Market Index (ACWI IMI) has now reached a record high of 67%:

In fact, India reached Rank 6 in terms of its weight in this index, crossing China and Taiwan as per mid September 2024 list of Top 10 Weighted countries - this keeps on fluctuating though.

“India will continue to gain share due to market outperformance, new issuance and liquidity improvements.”

- Jonathan Garner, Chief Equity Strategist for Asia & EM, Morgan Stanley

Fresh issuances, such as IPOs, increase the market weight, which in turn attracts greater foreign flows into the country.

Biggest Risk?

As CLSA aptly puts it, “Suffering from Success” - the risk of suffocation from primary flows is real. While the amount raised from IPOs has already reached a new high in 2024, secondary market transactions are also on the rise, surpassing $70 Bn as of December 2024 - double its previous peaks!

With a substantial pipeline of IPOs set to hit the market in 2025, the question remains: Will the momentum of domestic flows continue to rise to sustain this growth, or will the cycle slow down significantly in 2025 alongside impacting valuations in secondary market? We shall continue to track emerging developments closely.

That’s it for today. Connect with me (Aditya here) and my co-author Yash here.

Finding Outperformers is a free-to-access website, and each blog takes a month of effort to finalize. If you've read this far and you find our research useful, consider supporting our efforts by contributing here:

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“Quick commerce has been active and aggressive for approximately the last 8 months.”

- Dhairyashil Patil, National President of AICPDF (Oct ‘24)

This is certainly true, as since the start of 2024, all Qcom players have become increasingly aggressive. Zepto has successfully raised approximately $1 billion in funding in 2024 alone. Observing the store expansion of market leader Blinkit, it is evident that they are pressing the pedal and expanding their reach at a rapid pace:

Their store count has almost doubled, their gross order value (GOV) has more than doubled. Similarly, Zepto was able to raise its GOV from $1 Bn in Feb’ 24 to $1.5 Bn in July ‘24 and has now hit $2 Bn in ARR (Annual Recurring Revenue)! Further, they plan to open 100s of dark stores every quarter by burning a lot of cash. This clearly shows the size of players is growing at accelerated pace and as they get bigger, the impact on other sales channels (especially offline) is quite evident.

“We have seen disproportionately higher growth in organized channels viz. MT, Ecom & Qcom, which has led to increase in inventory levels in General Trade (Kiranas)...”

- Dabur (Quarterly Update - Oct ‘24)

With market leaders such as Blinkit, Zepto, Instamart, and BBNow aiming to deepen their presence in Tier 1 cities, alongside new entrants like Flipkart’s Minutes, these companies are ensuring they cover all relevant high-density pin codes, where business economics make the most sense (e.g., high average order value, repeat orders). Despite this focus, they are not hesitating to expand into Tier 2 cities, with most industry players convinced of the potential and profitability there as well. For instance, Blinkit is now available in 44 Tier 2 cities, including Haridwar, Jodhpur, Mohali, and Rohtak.

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“Thankyou for killing mom & pop shops across India”

In their Q1 FY25 results, the founder of Blinkit sought to distance the company from any potential adverse impact their growth might have on offline commerce in the country:

“We know that we are not taking share away from kiranas, or from value focused large retail players like DMart”

- Albinder, Blinkit CEO, July 2024

Public reactions on social media regarding the rise of Qcom have largely been marked by surprise, as users continue to observe the addition of newer SKUs in their offerings. Startup enthusiasts have been seen celebrating and congratulating the founders on their festive updates, highlighting the rapid increase in sales.

However, recently, some reactions have shifted with changing sentiments. Browsing the comment sections on posts by Qcom founders about their expansions reveals that these companies are increasingly viewed as ‘culprits’ responsible for harming the livelihoods of small shop owners in cities. For instance, when Blinkit’s founder, Albinder Dhindsa, announced the launch of a dark store in Ajmer (Rajasthan), one notable comment directly accused Blinkit and other Qcom companies of destroying mom-and-pop stores in India.

Similarly, a closer look at the comments section on Zepto founder Aadit Palich’s posts about impressive sales growth during Diwali 2024 reveals a growing number of negative reactions concerning the impact of these companies on offline retail. This shift in sentiment might explain why Blinkit’s founder chose not to share their sales growth updates this Diwali season, despite a history of doing so around major festivals. In 2023 and throughout key festivals in 2024, they were notably active, sharing analytical charts to boost engagement. However, Diwali 2024 marked a departure from this trend.

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With the noticeable absence of posts around Diwali 2024, one might also wonder: is their sales momentum slowing down? This seems highly unlikely, considering the last quarter's growth was 130% year-over-year, and the continued opening of new stores and expansion into new cities suggests that momentum is likely to persist. The more plausible reason as mentioned is the growing awareness of the intensified competition faced by small offline retailers and shopkeepers, who struggle to match the speed and efficiency of larger players—a challenge emphasized by the recent retailers' association report as well as the Datum Intelligence report.

Is the Government action coming?

According to the latest Datum’s data, over $1.28 billion in sales from kiranas have shifted to quick commerce, accounting for approximately 21% of the total gross order value (GOV) on platforms such as Blinkit and Zepto.

Notably, around 5% of respondents in Datum’s survey indicated that they have stopped buying groceries from kirana stores altogether. These stores are projected to face the greatest decline in sales as customers increasingly favor more convenient and faster shopping options.

Clearly, the impact on India's 13 million Kirana stores is expected to be significant, which could suggest a high likelihood of government intervention. However, as of November 2024, such intervention has been minimal, and key government voices have not been overtly critical of the rise of Q-commerce. Instead, their approach has been more suggestive and advisory.

Quick Commerce must collaborate with Kirana stores for last-mile delivery if they want to sustain themselves in the long run and avoid losses.

- Shri Piyush Goyal, Minister of Commerce & Industry (Sep ‘24)

While Piyush Goyal has been highly critical of e-commerce platforms for engaging in “predatory pricing” and defends Indian businesses that similarly impact small sellers and enterprises, he has emphasized that the government supports technological advancement but expects e-commerce companies to adhere to the law. More than just being critical of e-commerce, he has actively promoted the government’s ONDC (Open Network for Digital Commerce) initiative, which he believes has significant potential for future growth and could provide new opportunities for small retailers.

In an interesting note, just the day after slamming Amazon at an event in Aug ‘24, he made his tone softer saying this:

“Online commerce has tremendous benefits in terms of convenience, speed and gives comfort at your homes, etc. All we desire is a fair play & honesty. We want to encourage online to grow. No intention to stop online.”

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Hence currently there is a status quo and a lack of clear messaging from the government on how it wants the Qcom industry to evolve, which ultimately works out as a favorable outcome for the industry.

Quick Commerce: The Masiha?

Blinkit, Swiggy Instamart, and Zepto have made efforts to present themselves as ‘enablers of the local economy’. In the following paragraphs, we will highlight a few examples of this. Their goal is to integrate themselves into both the local economy and culture to mitigate any potential backlash they might face from general public due to the disruption they cause.

Integrate themselves in the Local Economy

1. In a bid to support the local economy, Zepto announced a collaboration with over 500 local artisans to sell handcrafted Diwali diyas (earthen lamps). The company highlighted its partnership with 50 families from the Prajapati clan, a community of Kumhars (potters), to support their livelihoods, which heavily depend on festivals like Diwali. Co-founder Aadit Pachalia shared shared a video on LinkedIn, showcasing key aspects of this collaboration with the community.

   In the video, local artisan Pradeep Kumar discusses the community’s concern about the growing influence of Chinese goods during festivals like Diwali, as many customers prefer them. However, Zepto turned this concern into joy for the artisans. Watch full video here.

2. Blinkit's recent expansion in South India (as also covered by us in our previous blog) has been strongly focused on promoting local economy products and brand collaborations. Here's a snippet from their launch in Kochi, Kerala. This approach also helps them onboard local customers more quickly.

Integrate themselves in the Local Culture

To celebrate Ganesh Utsav 2024, Swiggy Instamart installed a unique modak dispenser on Carter Road, Mumbai, offering free modaks to passersby as part of a creative out-of-home advertising initiative. Similarly, Zepto’s founder keeps sharing pictures of Ayudha Puja & Ashtami celebrations from their stores. Overall these helps draw eyeballs and builds a sense of culture integration of business in a society.

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What we think?

The possibility of a regulatory risk materializing as a head wind in future is real, but as of not there aren’t any material signs yet. We should also note that Qcom is a ‘labor-intensive’ way of doing commerce which helps create more jobs and benefits the consumer in a big way (no middle man which would keep prices down in long term, along convenience it brings to the table). The entry of Tatas (via BB Now) and other big names with deep political links could potential lead to higher competition intensity in future but can reduce the risk of an industry wide sweeping regulation that disrupts the Qcom industry. We shall continue to track any emerging developments closely.

Finding Outperformers is a free-to-access website, and each blog takes a month of effort to finalize. If you've read this far and you find our research useful, consider supporting our efforts by contributing here:

Support us in research

Connect with me (Aditya here) and with Harsh here. Read out previous blogs on Quick commerce & Zomato below:

Disclaimers- 

We are not a SEBI registered advisors; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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Last month we published our blog ‘No Permissions Required!’ in which we discussed the instances where Tata Power has demonstrated close proximity to the government across various timelines and levels, with minimal impact from changing political landscapes.

From Power to Real Estate, today we are discussing how Gurugram is poised for success despite the challenges it faces. Our goal is to convince readers that Gurugram has the potential to give Mumbai’s property market a run for its money.

Let’s get started!

Gurugram: The money spinner!

Having lived in Gurugram for the past 3 years, I’ve noticed that it’s rare to meet someone who was originally “born” in the city. Most people I’ve encountered either have families who previously lived in New Delhi (or a nearby city) and moved here in the last 10-15 years, or they came from other cities to work here many years ago and eventually settled down, or currently living on rent. There is hardly any "original/native" population in the city, because just 30 years ago, Gurugram was primarily a collection of villages and towns, with 92% of the district's land being agricultural. But now, that figure has dropped to around 40%.

This cluster of villages, located next to India’s national capital, New Delhi, in northern India, has transformed into a symbol of luxury and a hotspot for investment. It has attracted global firms to relocate their offices to India. Its proximity to India’s busiest airport, Indira Gandhi International (IGI) Airport, connectivity via NH8, Dwarka Expressway, and Golf Course Road, along with the presence of DLF—India’s largest real estate developer in both the commercial and residential sectors—has been a key factor in attracting more than ~350 of the Fortune 500 companies to call this city their home.

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This symbol of luxury is becoming so prominent that Gurugram alone surpassed Mumbai last year in terms of the number of properties sold with a price tag of INR 1 crore or more (chart below). While Mumbai has been India’s largest real estate market since Independence, this development could be significant if it continues. In fact, over the past two years, the entire New Delhi ‘National Capital Region - NCR’ (including Gurugram and Noida) has comfortably held the top position in India, with the majority of high-value deals occurring in Gurugram, according to research from Knight Frank India.

With "Luxury" and "Gurugram" becoming synonymous, India’s largest developer is taking things up a notch by launching the country’s most expensive project here. As of October 2024, flats in the first phase of this project start at around INR 70 crores, with the potential to reach ~INR 100 crores in upcoming phases over the next few months. The project, named ‘DLF Dahlias’ will feature ~420 yet-to-be-constructed flats. Mumbai’s property market has never seen anything on this scale.

“Our existing customers always back us with strong support & we continue to mine every day our NRI business which had earlier grown from 3% to 8% to now 28% (of total bookings)”

- Aakash Ohri, Joint MD & CBO, DLF (Investor Con-call, Oct ’24)

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Gurugram on Fire🔥: Is this Sustainable?

While Gurugram remains the hotspot for nearly all listed property developers in India, the bigger question is whether this trend is sustainable in the long term. I believe it is!

1. Lack of Clear Alternative

When examining the Indian map and plotting the top 8-10 cities that represent the biggest real estate markets in the country, a stark realization emerges: in North + Central + Eastern India (the white portion), there are hardly any true metropolitan alternatives to the Delhi NCR region. In contrast, the southern half of India (the shaded portion) boasts Mumbai, Pune, Hyderabad, Bengaluru, and Chennai, all relatively close to each other.

With the rising aspirations of modern India—driven by a hunger for opportunities, better facilities, greater comfort, and a luxury lifestyle—wealthier individuals from Tier 2 cities and beyond often seek to migrate to Tier 1 cities.

“We don’t only have buyers from Delhi NCR, but also families from Tier 2 - Kanpur, Bhubaneswar buying ‘Camellias’ to experience the lifestyle that Gurugram offers”

- Aakash Ohri, Joint MD & CBO, DLF (Investor Con-call, Oct ’24)

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These structural contributors are not just a 1-2 year phenomenon; they can last for decades. While there is undoubtedly a degree of subjectivity involved, another aspect that specifically benefits Gurugram is the Delhi NCR region itself, which has a total population of ~ 3.2 crore, with only a small portion calling Gurugram home yet. As a result, a significant demand continues to come from core Delhi residents seeking better amenities and lifestyles, often leading them to shift to the premium societies of Gurugram.

2. Opening an office in Gurugram - a necessity?

The under-construction office building you see in my background is Block 4 of DLF Downtown, Gurugram, which is expected to be commissioned by mid-2025. An interesting fact about this building is that at the beginning of 2023, Amazon India had already committed to leasing 3.38 lakh sq ft (four complete floors) once construction and fit-outs are complete.

With this expansion, Amazon would roughly 2.5 times its total presence in Gurugram, having already occupied ~2 lakh sq ft of office space in nearby Ambience Tower 2.

Amazon is a prime example of a company choosing Gurugram for its expansion into the North, Central, and Eastern regions of India, following a significant presence in Hyderabad and Bengaluru. Similarly, Air India is relocating many of its staff from across India to its new headquarters at Vatika One-on-One in Gurugram as it merges Vistara and Air India Express.

Additionally, in May 2024, American Express opened its 5th office in Gurugram, which is also their largest self-built office in world, located in Sector 74, and is now estimated to house around 20,000 employees.

"Our new India campus is the largest office we’ve built from the ground up globally”

- Gagandeep Singh, Senior VP, American Express (May, 2024)

Back in 2015, it was estimated that ~250 of the Fortune 500 companies called Gurugram their home. Today, that number has increased to ~350 as per an estimate, making it an increasingly attractive choice for companies entering or expanding within India.

As part of the Delhi NCR, Gurugram has access to a rich talent pool from prestigious institutions like IIT Delhi, DTU, IIIT Delhi, FMS, MDI, and exceptionally talented students from Delhi University, which is considered the best universities in India, especially for undergraduates, where companies prefer to hire directly from these campuses. Furthermore, among India’s major corporate cities, Delhi NCR boasts the largest population, with approximately 3.2 crore, compared to Mumbai’s 2.2 crore, Bengaluru’s 1.4 crore, Hyderabad’s 1.1 crore, and Pune’s 0.7 crore. This large population base serves as a target audience for startups. For instance, Delhi NCR contributes contributes ~40% of sales done by Blinkit (India’s largest quick commerce company).

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3. Within NCR, the downfall of the Noida market

Due to the core Delhi city area having its own set of government restrictions and a very limited land bank for further development, offices and residents are primarily left to choose between the two adjacent options: Gurugram and Noida. However, the Noida market has faced its own set of challenges that have troubled home buyers for over a decade.

The fortunes of a city are often defined by the quality of its builders and the integrity of the governing authorities. When builders prioritize profit and authorities are corrupt, a city’s progress can be set back by several years, if not decades. Let’s take a look at what has happened with the Noida/Greater Noida real estate market.

On 28th August 2022, the famous 'Twin Towers' of Noida by a prominent builder in the country named ‘Supertech’ were demolished due to multiple building norm violations after the Supreme Court had found breaches in minimum distance requirements between buildings and other safety rules. They also found unauthorized construction and collusion with Noida Authority officials.

Being the biggest builder in Noida & Greater Noida, the court order sent a ripple effect across Supertech’s ~40 projects in the region on 300+ acres of land. After the incident, it became very difficult for the builder to clear its existing inventory and launch any new project. And hence recently in June 2024, NCLT ordered bankruptcy proceedings against another Supertech's project - 'Supernova', which was also the tallest building of the whole North India with 80 floors under construction.

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Further in July 2024, the Comptroller and Auditor General (CAG) of India uncovered significant irregularities within the NOIDA Authority, leading to staggering losses. The report highlights a nexus between officials and builders, resulting in improper land allotments and approvals between 2005 and 2014, severely impacting the state’s exchequer.

On the other hand, Gurugram also faced the bankruptcies of a few builders like IREO but the biggest builder DLF stood strong through the tough times and the downturn of last decade. This has directly benefitted the Gurgaon region with greater buyer confidence leading to the highest price appreciation once the market turned post covid. As per the latest Knight Frank reports, out of the total Real Estate deals happening post-covid in the whole Delhi NCR region, about 50% have actually happened in Gurugram alone, whereas early 50%+ share used to be of Noida + Greater Noida's in the pre-covid era. So the tables have turned post covid.

My Take:

Gurugram has several fundamental factors supporting its long-term growth, and it has benefited from a lack of alternatives in the upper half of India's geography. This makes it a prime location for most global corporates, as more employees move to and settle in a city that has very few native residents. Additionally, Noida’s decline as a potential market for homebuyers and businesses has significantly contributed to the momentum Gurugram is currently experiencing and can continue to enjoy for years to come.

However, several challenges remain, posing potential risks, including poor development planning in many areas of Gurugram and significant air pollution issues during certain months of the year.

Despite these risks, I am excited about the future of Gurugram and my investment in DLF shares. That’s it for today!

Finding Outperformers is a free-to-access website, and each blog takes a month of effort to finalize. If you've read this far and you find our research useful, consider supporting our efforts by contributing here:

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Connect with me on LinkedIn here. Find our recent blogs on similar lines:

Disclaimers- 

We are not a SEBI registered advisor; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but my personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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To over 1,000 subscribers who have joined us in last 1 month, a warm welcome! At ‘Finding Outperformers’, we aim to bring you insights on stocks & macros that you won't find in research reports. For the past two years, we have been closely following trends in

• Quick Commerce / Zomato

• Banking / HDFC Bank

• Real Estate / DLF

• Power / Tata Power

and much more on our website here.

In this fortnightly blog edition, we share our research on how ‘Tata Power’ has maintained close ties with various governments and political parties in India, giving it a distinct advantage over other players in the power sector.

Now let’s get started!

No Government Approvals Needed!

In May 2008, during the visit of the then Prime Minister Dr. Manmohan Singh to Bhutan, the two countries signed a protocol in the field of Hydroelectric Power and agreed to increase the scale of power projects from 5,000 MW to 10,000 MW by the year 2020. The initiative was to be pursued through a joint venture, with the Druk Green Power Corporation (DGPC) of Bhutan holding a 49% stake in the projects, while the remaining stake would be held by Indian public sector (government owned) companies. It is important to note that private sector entities had ‘NOT’ been allowed in these bilateral projects. By November 2011, this cooperation was formally agreed upon by the Government of India, as outlined in a circular issued by the PIB, Government of India.

Later in June 2012, Tata Power was reportedly ‘urging’ the Central Government, according to an article in ‘The Hindu’ to formulate a policy that would allow private companies like theirs to undertake large-capacity hydroelectric projects in foreign countries and sell the generated power to India. What’s even more interesting is that Tata Power was already in discussions with Bhutanese government officials for the development of a large hydro project there. Bhutan’s officials were quite positive about the idea and had ‘advised’ the company to take up the matter with the Indian Government so that Tata Power could be permitted to co-develop the project in Bhutan.

Then in July 2012, Tata Power confirmed the commissioning a joint venture with the Royal Government of Bhutan (which would hold 74% of the equity, with Tata Power holding the remaining 26%) to implement the 126 MW Dagachhu Hydro Project in partnership with Druk Green Power Corporation, expected to be completed by the end of 2013.

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The reason we started today’s blog with this story is that in August 2024, Tata Power again announced its partnership with Druk Green Power Corporation (Bhutan’s largest and government-owned power company) to develop the 600 MW Khorlochhu Hydropower Project in Bhutan. The estimated project cost is ₹6,900 crore, and Tata Power’s shall hold a 40% equity stake in it.

“No Indian governmental or regulatory approvals are required for the transaction”

- Dr. Praveer Sinha, MD & CEO, Tata Power (2024) [Source]

The electricity produced is sold to India during the summer months, helping meet peak demand, while in winter, it is used within Bhutan itself.

Moreover, according to Tata Power CEO Mr. Praveer Sinha, "The hydro project with Bhutan is a game changer. This may be the beginning of many more such projects in Bhutan. We may look at three to four projects over the next five to seven years."

Now, for more context, let’s understand two additional points:

• Unfortunately, most of India’s neighboring countries face either economic or political instability, or India does not have strong relationships with them. To name - Pakistan, Afghanistan, Bangladesh, Myanmar, and Sri Lanka all grapple with significant political and economic challenges that can take years to resolve. On the other hand, India's strained relations with China, Maldives, and occasionally even Nepal are well known globally. In this scenario, Bhutan stands out as the only neighboring country where there is stability, and India’s ties remain strong (which is crucial for us due to its geographical location). Given this, the Indian government’s Foreign Ministry always acts vigilantly to ensure that relations with Bhutan remain positive. It is telling that a private entity like Tata Power, setting up a long-term project in collaboration with Bhutan's government-owned Druk Green Power Corporation without needing formal permissions, speaks volumes about the immense influence that the Tata brand holds within political circles.

• In 2012, India was under the Congress-led UPA alliance government, while the BJP was in opposition. Fast forward to 2024, and we now have the BJP-led NDA alliance in power. This transition makes it even more evident how Tata Group companies, particularly Tata Power, enjoy a quiet yet influential reputation across the political spectrum. The continuity of their projects, irrespective of the ruling party, underscores the deep-rooted trust and respect the Tata brand commands in political circles. In sectors like utilities, especially power, where governments worldwide typically hold substantial influence, Tata Power emerges as the biggest beneficiary within the Tata Group. Its ability to navigate political transitions while advancing strategic projects highlights the unique standing it holds as a private entity in an otherwise government-dominated space.

Even though Adani has also signed an MoU with Bhutan's Druk Green Power Corporation (DGPC) to set up a 570 MW green hydro plant, similar to Tata Power’s project, they face a distinct risk tied to India's shifting political landscape as they are often known for close ties with the ruling party BJP led NDA alliance in India. Should the opposition Congress return to power, Adani’s rise could face significant setbacks, while the Tatas would have a higher likelihood of continuing their upward trajectory. This positions Tata Group as a potential beneficiary, capitalizing on reduced competition in such a scenario.

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India’s DISCOM mess!

A DISCOM, or Distribution Company, serves as an intermediary that purchases electricity from power producers and sells it to consumers. DISCOMs are a crucial link between consumers and the electricity transmission system, with over 90% of them in India managed by state governments.

And as of March 31, 2023, the cumulative losses incurred by DISCOMs in India exceed INR 6.47 lakh crores, according to government data!

This is where the interaction with the ultimate consumer occurs, and several reasons explain why power distribution companies (DISCOMs) in India have been operating at a loss:

• Inefficient operations: Ineffective power procurement, billing, and collection practices contribute to financial losses

• High debt: The total debt of DISCOMs increased due to higher interest rates, rising power demand, and the costs associated with imported coal

• Poor cash flow: Delayed consumer payments results in insufficient cash flow, preventing DISCOMs from making timely payments to energy generators

• Insufficient tariffs: Politically influenced low tariffs that do not reflect the cost of supply, can lead to financial shortfalls

• Theft: High levels of electricity theft significantly impact financial viability

Read more about DISCOM problem here.

“(Tata Power will look for) new distribution expansion (privatization) opportunities in other states, as & when these opportunities arise in line with government policy”

-Chandrasekaran, Chairman, Tata Power (At AGM in July 2024)

But what happens when you privatize a DISCOM?

Privatization is a politically sensitive issue, which is why 90% of states continue to have government-controlled power distribution and have not moved toward privatization. However, in 2020, Odisha became one of the few states to privatize its four state-owned distribution companies (DISCOMs) by partnering with Tata Power, aiming to improve power supply reliability and reduce losses. Tata Power acquired a 51% stake in the DISCOMs, while the remaining 49% is owned by the state government. The Odisha government initiated this process in 2017, and it concluded on June 1, 2020, under the leadership of Naveen Patnaik, who served as Chief Minister from 2000 to 2024. (It is worth noting that Naveen Patnaik leads the Biju Janata Dal (BJD) and faced off against the BJP-led NDA in the 2024 state elections, ultimately losing by a significant margin after two decades)

And BOOM! Odisha is now back in profits as per NITI Aayog’s data:

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Tata Power focused on improving efficiency, reducing losses, and investing in upgrades, leading to a swift turnaround. One of the key reasons for this success was the expertise and experience of its CEO and Managing Director, Dr Praveer Sinha. Let’s take a closer look at his background.

Delhi’s DISCOM Privatization Story

Delhi touched 52.3°C temperature in Summer 2024, and the company that benefitted the most from the rising demand for power in the region - TATA Power. They supply electricity to over 20 Lakhs houses of Delhi, roughly implying about 70 Lakhs customers. It alone handles about 30% of the peak power load of Delhi, without any major outage. In fact for FY25, the distribution is expected to profit INR 500 Crores! However, the road to glory and profits was not easy at all:

1.) In year 2002, the government owned 'Delhi Vidyut Board' was privatized, and TATA Power had formed a 51% : 49% joint venture (JV) with the Government of Delhi. At that time of takeover, the entity had only two dusty computers in a non-functional state, with all documentation being done solely on paper (offline).

2.) This was the first privatization of its kind, with 5,400 erstwhile government employees being taken over by the TATA Power-led joint venture. (Imagine the outcry that would have occurred during that era, when privatization was not even discussed by most politicians)

3.) The cultural differences were so significant that when the Tatas attempted to install a biometric system at the office, the old employees interpreted it as an insult and would pour water/sand over the machine to display their resistance.

But there was one man — 'Dr Praveer Sinha',  the former CEO & ED of the Joint Venture, who not only understood the challenges but also tackled them head-on, transforming the loss-making entity into a cash machine for Tatas. Later, in 2018, he was promoted to become the CEO of the parent company, TATA Power. Thanks to leaders like him, Delhi today enjoys uninterrupted power supply, while neighboring cities like Gurugram and Noida suffered from long outages during summer. Now when Odisha’s Discom privatization opportunity came in front of Tatas, they knew that they got the right man to handle it.

“We are in discussions with 3-4 states to privatize their DISCOMs”

- Dr. Praveer Sinha, MD & CEO, Tata Power (2024)

In the future, if more state governments seek to eliminate their loss-making operations (DISCOMs), Tata Power is well-positioned to seize that opportunity, thanks to its past experience, expertise, and relatively politically neutral reputation.

After discussing Bhutan and DISCOMs, let’s now turn our attention to nuclear energy and how Tata Power is playing a key role in helping the government achieve its ambitions.

India’s Nuclear Energy Goals

India has adopted an aggressive stance on nuclear energy for the medium to long term. The Department of Atomic Energy has been tasked with achieving a 20 gigawatts (GW) capacity of nuclear power generation by 2030, which would position India as the third-largest producer of atomic energy in the world, after the US and France. As of July 2024, India has an operational capacity of 8 GW across 24 nuclear power reactors, with a long-term goal of reaching 100 GW of nuclear power by 2047.

“Energy is an important pillar of cooperation between India and Russia and we are eager to further cement ties in this sector”

-Narendra Modi during Russia visit July 9, 2024

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But how is Tata Power closely working with the government?

In the latest central budget announced in July 2024, India’s Finance Minister highlighted key aspects of the nuclear power strategy, emphasizing a shift toward encouraging private sector participation in small nuclear reactors. This marks a significant policy change, as current laws prohibit private companies from building nuclear plants independently, although they can supply equipment and necessary components for construction, excluding reactors. Additionally, atomic energy remains on the list of ‘prohibited’ sectors for foreign direct investment.

Tata Power has taken this development seriously, and their involvement with the government is evident in the management's commentary on the matter:

1. Dr Praveer Sinha, CEO & MD (Aug ‘24) - “We are discussing with the concerned authority in the government and the company involved in such activity, and we hope to play very very important role once there is clarity on fuel & tech”

2. N Chandrasekaran, Chairman (July ‘24) - “The company will explore participation in small modular nuclear reactors, once government gives necessary permissions”

Hence they have got themselves closely involved in this new initiative too, as per the statements.

To Summarize

The key focus of this blog was to highlight instances where Tata Power has demonstrated close proximity to the government across various timelines and levels, with minimal impact from changing political landscapes. Notably, Tata Power has also played a significant role in various government schemes like installing solar pumps under PM KUSUM scheme and has been actively involved in the ‘PM Surya Ghar: Muft Bijli Yojana,’ which aims to install solar rooftops in over 1 crore homes. Tata Power holds approximately 20% market share in this initiative and is actively promoting the scheme at the grassroots level, as previously discussed in our blog post, “Modi's 3rd tussle with Solar”. With all these points we tend to believe it is a privately-owned Public Sector Undertaking (PSU).

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We are not a SEBI registered advisor; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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The pace of such exits often depends on factors unrelated to the company's performance. For example, in 2022 and 2023, as central banks worldwide tightened liquidity to control inflation, major PE/VC firms like Tiger Global and Softbank sought to liquidate their global investments. Similarly, post-COVID, as relations between China and global economies became strained, many nations grew critical of Chinese investments (especially India, leading to Chinese FDI hit a 10-year low in FY23). This led Chinese giants like Alibaba and Tencent to accelerate the sale of their holdings in companies such as Zomato, Paytm, and PB Fintech in India.

Such selling in open markets significantly increases the free float that public market investors must absorb. Given that public markets in India are new to understand business models of loss making startups, its requires more time to access their right value, causing a delay in true price discovery.

Today, we discuss the case of India’s largest food delivery and quick commerce giant – Zomato - its rise, fall, and rise again! We hope you enjoy today's analysis, lets get started. (today blog is little lengthy, would recommend to read on the website)

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Zomato at time of IPO

As per the information disclosed in DHRP of Zomato, the top 10 shareholders had ~75% ownership in the company as show in the picture below.

The only Indian entities/individuals in this list are:

• Info Edge (India) Limited

• Deepinder Goyal (Founder)

• The 2014 ESOP Pool Trust

Interestingly, the above mentioned 3 owners are the only ones remaining among the Top 10 holders. Other key holders such as Uber, Alipay/Antfin (Alibaba Group), Tiger Global (Internet Fund VI), Sequoia (SCI Growth Investments II), D1 Capital Partners LP, and Temasek (MacRitchie Investments Pte), have either completely exited or are in the process of doing so.

Life after IPO - When the Lock-in Ends!

Zomato was listed on Indian indices on July 23, 2021. Under SEBI guidelines at the time, pre-IPO investors, including institutional investors such as PE/VC firms, banks, and hedge funds, were restricted from selling their holdings for one year from listing.

During that period, the global landscape changed dramatically. The US Fed and other central banks became super hawkish, leading to turmoil in global markets, particularly in the high-beta tech sectors, which saw significant valuation compression as interest rates rose. From July 23, 2021, to July 23, 2022, Zomato's share price, along with its global peer DoorDash, plummeted by as much as 70% from their peak during that one-year period.

So on 25th July of 2022 (Monday) as the Lock-in of 1 year got over, there was a blood bath for Zomato’s shares. The worst of time had just begun!

Not just that there were sellers lining up, the ‘buyer interest was tepid and new investors may be ready to buy at a discount to ongoing market price’ as per Moneycontrol.

Shares worth Rs 1,000 crore are up for sale immediately and investment bankers have been building a book for block deals. - Moneycontrol, 25th July 2022

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The Sellers are finally here!

First 15 days…

Immediately after the lock-in period ended on July 25, 2022, there was a wave of aggressive selling over the next 15 days, up to August 8. Based on our analysis from share holding changes and news articles, a few key sellers were identified. In total, shares worth approximately INR 2,086 crores were sold, accounting for ~ 5% of Zomato's market cap at the time, which stood at INR 40,000 crores. The actual selling during this period could have been much higher, including from smaller pre-IPO investors who didn’t come on our radar.

Life after 15 days until Today!

On 10 August 2022, NSE issued a renewed shareholding pattern following the completion of Zomato's acquisition of Grofers (later renamed as Blinkit) This all-equity deal resulted in approximately 8% dilution for existing investors, as Grofers’ investors, such as SoftBank and Tiger Global, received Zomato shares in exchange for their holdings. This transaction worsened the situation as it introduced more PE players to Zomato’s cap table, who could sell their holdings after completing a one-year lock-in period from the deal's completion (i.e., post-August 2023).

In totality, in the 2 year period from 10th August 2022 to 31st August 2024, roughly 38% of Zomato's equity was sold in the open market by the funds listed in the table below.

Now that is the MOST UNDERAPPRECIATED fact of Zomato’s rise from $5 Bn to over $25 Bn, as it happened when more than 43% of its total equity (5% before 10 August 2022, and 38% after that) was actually being sold by pre-IPO investors/owners in open market post the lock-in ended! Ownership of Uber, Alipay, Tiger Global Management, Sequoia and more have fallen to 0% or at below 1%.

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Indian markets have never seen a similar situation before, where a listed entity continuously has shares being dumped into the market, increasing its free float, yet the share price doesn't stop rising and instead becomes part of the 'Top 50' most valued listed entities within the same timeframe.

𝐐: 40% was sold, did the retail investors buy it? What about Mutual funds?

Are retail investors buying Zomato?

People on social media have been discussing Zomato/Blinkit a lot in recent months. Is this impacting the share price? Since 'retail investors' are often considered the weakest hands in the market, this assessment is particularly important.

An indirect way to gauge rising interest is through Google Trends, which provides free access to search data and shows how trends have evolved over time. While not a perfect measure of stock interest and with its own limitations, it can offer some insights into investor behavior. People often search for the share price of popular stocks repeatedly, leading to discussion & purchase of the same.

For this analysis, we examined Zomato alongside two other companies with a market cap above INR 1 lakh crore that have seen a sharp rise of at least five times since February 2023:

• Zomato

• Suzlon

• Trent

All three have been on an uptrend, increasing five to ten times since February 2023. We then analyzed search trends for various related terms and narrowed it down to these two relevant terms with sufficient data:

• [Company + ‘Share’] - From July 2021 to Today

• [Company + ‘Share Price’] - From July 2021 to Today

While we anticipated an increase in search behavior on Google for all 3, alongside the sharp rise in share prices, especially when comparing current interest to past search trends, the results differed for Zomato compared to the other two companies. Unlike Suzlon and Trent, which have seen a rise in search interest consistent with their increasing share prices over the past two years, Zomato has not experienced a significant uptick in search activity relative to its past history in 2021 and 2022.

Another way to gauge retail investor interest is by examining changes in the total number of unique shareholders of Zomato. Of these shareholders, approximately 98-99% tend to be 'Resident Individuals', each having a holding of nominal share capital of up to Rs. 2 lakhs.

Following is a graph representing the number of unique shareholders (in lacs) which has been steady/rising:

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We see that number of unique shareholders have slightly risen over a period of 2 years, with January to June 2024 period adding roughly 4 lac new investors. But in terms of total % of shareholding it actually isn't a big number. New retail investments buying Zomato over first 6 months of 2024 did not even lead 1% rise in retail shareholding in the company. This % is minuscule also because just recently we saw Alibaba Group selling 2.40% shareholding of Zomato in a single day like many pre-IPO holders. Overall the retail holding has been in the range of 7% to 10% of Zomato’s holding (as shown in chart below) in the last 2 years, despite the huge continuous supply of shares.

If not Retail, are Mutual Funds buying?

Yes, it has been mutual funds that have absorbed a significant portion of the shares hitting the market. The ownership percentage of domestic mutual funds has roughly tripled, increasing from 4.5% in June 2022 to over 12.5% in June 2024, as shown in the table:

Few mutual funds like Motilal Oswal have made big money on the share by becoming super bullish on the share in mid-2023. Other funds houses who have bought Zomato in a big way are Mirae, Axis, ICICI, Kotak, Nippon & Franklin.

Even though the % holding rose for mutual funds by 8% in last 2 years, this is not good enough to absorb the 43% supply of share we have been mentioning.

Foreign Institutions!

“Whole world seems to be so bullish on Zomato!” - CNBC Anchor

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Many sell-side foreign brokerage houses, such as Goldman Sachs, UBS, JP Morgan, and Morgan Stanley, have been very bullish on Zomato in their reports for past several quarters. It is often said that money is made by going against the tide; when everyone is buying shares, it might be wise to avoid buying the same. However, it's important to note that these foreign brokerages have attracted a lot of buy-side foreign funds, including long-term pension funds, to invest in Zomato shares.

As per NSE data, Foreign Portfolio Investors today own 46% of Zomato which was at 9.85% in June 2022 under Category 1 & 2. Here is where the majority chunk of incremental addition of ~36% equity ownership addition has occurred. (There is also a minor NSE’s reclassification factor here, but even after accounting that, new FPI shareholding rise is the major reason for their ownership rise). In almost all the block deals where the pre-IPO investor is selling its shares, these are the banks who manage the transaction and buy it from the market.

Here are few long terms investors who have bought in last 2 years(having 1%+ stake):

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To Summarize….

Zomato has experienced significant selling and exits from its pre-IPO holders since the lock-in period ended, with roughly 43% of its equity coming to the open market in the last two years. Despite this continuous selling and the increase in free float, the share price has continued to rise, with Zomato’s market cap growing from $5 billion to $25 billion.

Retail investors have contributed little to this price increase; instead, it is the institutions—both domestic and foreign—that have driven the rise in value. While the selling pressure has predominantly come from foreign entities, the primary demand for Zomato’s shares has also been from foreign investors.

Finding Outperformers is a free-to-access website, and each blog takes a month of effort to finalize. If you've read this far and you find our research useful, consider supporting our efforts by contributing here:

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We hope you enjoyed reading the blog. You can find me (Aditya) here. Let us know your feedback and what more you want us to cover.

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We are not a SEBI registered advisor; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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In this blog, we're diving deep into Zomato's least-discussed subsidiary, Hyperpure, which quietly contributes about 27% to the company's total revenue today and has also crossed ₹ 5,000 Cr in annualized revenue. We'll explore what Hyperpure does, how it's growing, the size of the opportunity it presents, and how it can help create a moat for Blinkit through better supply chain management and hence becoming a crucial backbone for Zomato’s food and quick commerce businesses. Today’s blog is a bit lengthy, recommending to read it on browser here.

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What does Hyperpure do, and how is it growing?

Started by former PayPal executive Dhruv Sawhney as ‘WOTU’ in 2015, it was later acquired by Zomato in 2018 and rebranded as Hyperpure. It is a business-to-business (B2B) platform that provides kitchen supplies to restaurants. Through Hyperpure, restaurants can order all their necessary ingredients from one place and have them delivered the next day. It is operates on low margins and has large volumes due to the nature of industry. The average order value (AOV) is much higher compared to a consumer facing business like Blinkit.

At time of acquisition, Hyperpure offered Zomato a unique cross-selling opportunity, helping to strengthen relationships with partner restaurants while also boosting revenue. Today, Hyperpure is evolving into an end-to-end supply chain solution for not just restaurants, but the entire HoReCa (Hotels, Restaurants & Caterers) industry, serving over 40,000 customers and positioning itself as a one-stop shop for their needs. But there is another angle to it…

“Quick commerce is turning out to be an opportunity for Hyperpure. It has begun supplying to the sellers on Blinkit’s marketplace….this has the potential to further accelerate revenue growth for Hyperpure going forward.”

- Deepinder Goyal, Nov ‘22

A significant opportunity lies with partnering with Blinkit, where Hyperpure supplies essentials like farm-fresh fruits and vegetables to Zomato's quick commerce arm, which promises to deliver it from their dark stores in just 10 minutes. By leveraging Hyperpure's infra & capabilities along building new capacities, Zomato is scaling up Blinkit rapidly, with plans to expand to over 2,000+ dark stores across India within the next 1.5 to 2 years. The strategy involves cutting out middlemen, sourcing directly from farmers, and providing consumers with high-quality produce at lower prices.

This synergy between Hyperpure and Blinkit, after Zomato's acquiring Blinkit in 2022, is now reflected in Hyperpure's skyrocketing revenue (which have 4X since Blinkit’s acquisition!) as the supplies that goes to the dark stores, gets accounted as revenue here:

Hyperpure v/s Global Peers

Even though the overall revenue growth has been solid, but compared to global peers, Hyperpure is still scratching the surface. We identified a few globally listed companies in similar space namely Sysco Corp, Performance Foods, US Foods, and United Natural Foods with all of them having primary operations in the USA besides a few more nations. They are involved in the supply/distribution of fresh, frozen, dry food and non-food products to the foodservice customers (primarily restaurants just like Hyperpure) and are 100X to 200X in dollar revenue size compared to Hyperpure currently. Even when taking into account the differences in purchasing power between India and the USA, the revenue gap remains substantial primarily due to two key factors we believe:

• Larger Restaurant Industry Size in the USA: The restaurant industry in the USA is much larger, driven by a higher frequency of dining out. Unlike in the USA, eating out regularly is still not the norm for most people in India.

• Sourcing Practices: In India, a higher proportion of restaurants source their ingredients from multiple local vendors (unorganized channels). This contrasts with the USA, where restaurants are more likely to rely on organized suppliers for their needs.

Both of these factors are rapidly changing. Indian eating habits are evolving, with more people becoming comfortable with consuming outside food. As a result, the overall ‘Food Services Market’ in India is expected to be more than double between 2023 and 2030, growing at a healthy 10-12% CAGR in real terms, according to a recent report by Bain & Swiggy. When you factor in food inflation of around 5%, which has been typical in India, the growth is projected to be 15-17% in nominal terms over the coming years.

Additionally, there is a gradual shift from unorganized to organized sourcing of supplies by restaurants, which directly benefits Hyperpure. As more restaurants begin to streamline their supply chains and rely on organized suppliers, they stand to gain significantly.

While the global peers have been operating in a band of 2% to 5% EBITDA margins, Zomato’s Hyperpure also eventually aims to reach there or a notch higher in the medium to long run, but with the short-term focus continuing to be on growth as per management’s guidance.

“We expect 5% to 10% EBITDA margins for this business (Hyperpure) in a steady state”

- Akshant Goyal, CFO Zomato (Aug ’22)

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Finding the Moat in Retail

In a hyper-competitive space, finding your moat that gives you a distinct advantage over the competitors becomes crucial for any business, as it helps in protecting market share and profitability. As Blinkit, Zepto & Swiggy Instamart as essentially offering the same service to customers, Zomato’s management has been questioned about their moat in their quick commerce business (Blinkit) on various occasions, and we have 3 different responses from 3 key people:

1. Deepinder Goyal, Zomato Founder (Apr ‘24) - “Any competitive tactics in terms of delivery fleet or anything (in quick commerce) can be copied or paid for. I think the culture of the team and mindset to innovate on a constant basis is the only moat”

2. Sanjeev Bikhchandani, Zomato’s largest shareholder (Apr ‘24) - “ … every organization has a strategic focus & the only thing Blinkit does is quick commerce. Now if a broader horizontal e-commerce player like Flipkart/Amazon also does quick commerce, it will remain an ‘also’ with diverted focus”

3. Albinder Dhindsa, Blinkit’s Founder & CEO (Aug ‘24) - “Selection availability and consistency of high-quality services are better than competitors which helps us get customers in new cities wherever we enter (in South India).”

All responses seem interlinked and indeed its your culture in organization that derives execution, but one thing that definitely plays a very important role and could be your potential moat in retail is your supply chain management. From farms to your customer’s house, every step has to optimized to its max which would drive your profitability and push all inefficient players out of the game in long run once the funding tap runs off.

“More often than not, distribution is the only real moat”

- Vaibhav D. (CEO Better Captial)

Supply chain efficiency - Why is it important?

Over the past two decades, the modern retail and supermarket space in India has seen numerous global and local giants enter—and often exit—the market. In 2006, Walmart made its entry into India through a joint venture with Bharti Enterprises, launching large modern stores under the brand name ‘BestPrice’. By 2012, Ludhiana became one of the first Tier-2 cities in India to witness two of the world's biggest supermarket chains, Walmart and METRO, setting up shop right in front of each other. Local players like Pantaloons (part of Future Group), Spencer’s Retail, and Shoppers Stop were also highly active in retail commercial leasing during that period.

Following the government's approval of 100% FDI in single-brand retail and 51% in multi-brand retail, the landscape became even more competitive with the arrival of other global players like Tesco and Carrefour announcing their plans to enter the Indian market.

Surge in competition led to significant profit compression across the industry, as deep-pocketed players fought fiercely to gain market share. This intense rivalry eventually triggered a phase of consolidation, marked by key developments such as:

1. METRO Cash & Carry was sold to Reliance for Rs 2,850 Cr

2. Walmart (Best Price) was consolidated into Flipkart (also owned by Walmart) and never grew beyond ~30 stores

3. Future Retail Group (Big Bazaar) is bankrupt & owes more than Rs 30,000 Cr of debt to Indian banks

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Out of all this chaos, there were two players who stood out: DMart & Trent

DMart focused on ensuring best-in-class unit economics driving its topline and concentrated on enhancing its entire supply chain. This includes direct bulk buying from manufacturers, efficient warehousing and meticulous inventory management. By keeping operational costs low, DMart was able to offer lowest prices on grocery items, which consistently attracted customers.

Similarly, the apparel major Trent, which operates stores under the brands Zudio, Westside, and Zara (in a joint venture), has also paid close attention to its supply chains and private labels. They've focused on quicker stock replenishment compared to industry standards. For instance, Zudio’s inventory turnover ratio is 10 times a year, compared to around 4 times for its competitors. This efficiency has led to significantly better profitability compared to their peers.

If you're interested in learning more about Trent's strategies and operations, check out this podcast:

The outcome of these strategic efforts is that DMart and Trent are among the few retail companies in India who are cornering most of the profits made by the retail sector. This profitability has resulted in explosive returns for their shareholders over the past five years, making them standout performers in the retail sector:

Can Blinkit boost its supply chains with help of Hyperpure?

Blinkit has been investing heavily in building warehouses in South India in recent times. Whether its opening 3.08 lakhs sq ft warehouse space at Sumadhura Logistics Park in Bengaluru in early 2024 or the founder & CEO Albinder visiting the rural areas in South, meeting farmers and ensuring direct future sourcing from them, the team is getting all in to tap the potential as their aim to quadruple their dark stores by end of 2026.

“It (ongoing capex) is a combination of the Blinkit store scale-up and partly, we're increasing some warehousing capacity on the Hyperpure side.”

- Kunal Swarup, Corporate Development Head (Aug ‘24)

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“Farm to fork” as the key selling point of Hyperpure, it perfectly fits in as a key strategic asset for Zomato which help the parent in tapping the potential on both restaurants side as well on the quick commerce side.

And that is also the reason why they have been heavily investing big in building capabilities on workforce and warehousing side. The employee count for Hyperpure on Linkedin has gone to 3X in last 2 years (From July 2022 to July 2024) as show in chart below:

On the other side, they have been investing heavily towards building warehousing capabilities in new major cities like Chennai in month of May 2024 and also achieved 94% ‘On-time delivery’ on first day of operations itself. Here is a picture of their latest large warehouse designed for 170 tonnes of throughput capacity:

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To Conclude…..

Things are moving quickly for Blinkit, especially in South India, as they expand into cities traditionally dominated by Zepto and Swiggy Instamart. As Blinkit continues to execute at a lightning pace, opening newer and larger dark stores, Hyperpure is perfectly positioned to support them through its supply chains that source directly from farmers and deliver fresh produce to customers' doorsteps.

On the other hand, as more restaurants choose to source all their inputs from a single vendor rather than multiple suppliers, coupled with the expected healthy mid-teen growth for many years in the overall food service market, the growth drivers for Hyperpure remain strong. This synergy between Blinkit and Hyperpure is setting the stage for continued success in both ventures.

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We are not a SEBI registered advisor; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but our personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the decision maker is responsible for any outcome.

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Even though banks like HDFC are making strong efforts to regain their former glory, we believe it still has a long way to go. While the systemic issues continue which we highlighted in the January 2024 blog when we outlined our bearish view of HDFC Bank, in today’s blog we write on why we continue to have a bearish outlook for the bank over the medium term (1-2 years). We plan to write another update by the end of the year to keep our readers informed about how our perspective is evolving. We would recommend reading our previous 2 blogs on HDFC Bank of 2024 for better context, before reading today’s one:

1. Did the elephant fall while dancing? (January 2024)

2. Is the Elephant back in the ring? (April 2024)

We hope you enjoy reading this blog, let’s get started!

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Is the Golden Phase for Private Banks Over?

Indian banking experienced several major shocks between 2010 and 2020. This period saw the emergence of significant NPAs (Non-Performing Assets) for banks involving prominent names such as Kingfisher Airlines, Bhushan Steel, ABG Shipyard, Amtek Auto, Essar Steel, Jaypee Infratech, Gitanjali Gems, and Electrosteel, among others.

In 2014, the political landscape in India changed, bringing the harsh realities of the banking sector to light. Public sector banks (PSU banks) suddenly faced the burden of thousands of crores in bad loans, particularly in the infrastructure, steel, and power sectors, due to poor lending practices and inadequate risk assessment.

These NPAs choked the PSU banks to such an extent that the former finance minister - Arun Jaitley, had to announce the recapitalisation of Public Sector Banks (PSBs) to the tune of Rs. 2.11 lakh crore in October 2017. Due to poor performance, these banks already suffered from low valuations and were not in a position to raise capital from the market through QIPs, which necessitated Arun Jaitley's intervention. The biggest beneficiaries of this situation were their private counterparts, who doubled their market share of lending over the last decade as shown in the graph.

(SCBs, or Scheduled Commercial Banks, refer to the overall banking system.)

As shown in the left chart, public sector banks continued to experience slow growth due to ongoing troubles, fresh NPAs, and a low equity base. In contrast, private sector banks saw their books grow by 20% to 30% during the pre-COVID period, while public banks grew at an average rate of just 5%, which was sometimes below the prevailing inflation rate.

However, since COVID hit, the gap in growth rates between public and private banks has significantly narrowed. PSU banks have started to grow at a decent pace, approaching, if not matching, the speed of private banks. As a result, the rate at which public banks lost market share to private banks has significantly reduced post-COVID.

Amongst, the biggest beneficiary of PSU banks losing market share was HDFC Bank which was able to double its share in less than 10 years by FY23:

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However, this pace of gaining market share has been significantly impacted for HDFC over the last 2 years on the front of the advances (after adjusting for the merger). Here is a chart depicting how HDFC has been able to grow its incremental deposits at a good pace, but SBI has been able to widen the gap between the two when it comes to incremental loans given by both (in Crore Rs) as HDFC bank continues to struggle due to its merger. Do note, SBI continues to be the biggest bank in India, with over 20% market share.

PSU banks are no longer dependent on the government for recapitalization, as they were in 2017. Due to ongoing market buoyancy and share prices rising up to 5X in the last five years, these banks can now easily raise capital independently whenever necessary. Just some time ago, an Economic Times article reported PSU banks like PNB, Bank of Maharashtra, Union Bank of India and more banks planning to raise up to Rs 40,000 Crores in the coming 6 months via QIP.

Opening branches - A desire or a necessity?

One of the key reasons HDFC has successfully grown its deposits and gained market share is its aggressive branch expansion strategy, particularly in the years following COVID. The bank has been opening new branches across Tier 1, 2, and 3 cities since the last few years as shown in the graphs below.

At the time of the merger between HDFC Bank and HDFC Ltd, the management had set an ambitious target to continue this expansion, aiming for 1,400-1,500 new branches in FY24. Their medium-term goal was to increase the total number of branches to 13,000-14,000. However, they later adjusted this target to a slightly lower number for the immediate future.

It's important to note that SBI has not been opening branches aggressively because it already has an extensive network of 22,000 domestic branches, compared to HDFC Bank's 8,700.

Aggressive branch expansion comes at a cost. It affects the overall cost-to-income ratio due to increased rental expenses, higher operational costs, and the need to expand the workforce. For example, HDFC Bank’s employee base grew from 88,000 in 2018 to over 173,000 in 2023, which further touched 213,000 in 2024 due to its merger with HDFC Ltd.

In contrast, SBI has focused on improving efficiency and has reduced its workforce from 264,000 in 2018 to 232,000 today, representing a decrease of 32,000 employees at a government bank.

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HDFC Bank Vs SBI

While opening multiple branches isn’t an issue if it aligns with your medium- to long-term goals, we believe it has become a necessity for HDFC Bank at perhaps the most challenging time. We will explain why we think so through 3 points-

1. Credit to Deposit Ratio - This ratio measures how much a bank lends out of the deposits it raises. It has gained increased relevance over the past year, particularly due to repeated soft warnings from the RBI. The Governor has explicitly emphasized the need for a 'correlation' between credit growth and deposit growth for all banks, holding regular meetings to discuss this issue.

   Over the previous decade, the Credit-Deposit (CD) ratio was comfortably within the range of 70-80% for the banking system. However, post-COVID, this ratio has increased for most banks, especially private ones, with some banks now having ratios exceeding 100%.

   

   For every Rs 100 in customer deposits, SBI has issued loans amounting to Rs 68, whereas HDFC Bank has issued Rs 104 (a sharp rise due to the merger with HDFC Ltd). Considering the 80% benchmark that the RBI is reportedly aiming for, they will have to bring it down at a faster pace. Whereas SBI has considerable room to expand its loan book faster and aggressively gain market share, even if its credit growth lags its deposit growth for the next few quarters.

2. Net Interest Margins (NIMs)- The Net Interest Margin (NIM) represents the difference between the interest rate a bank charges on loans and the interest rate it offers on deposits (such as fixed deposits and savings accounts). Even before HDFC Ltd’s merger with the bank in July 2023, India’s largest private bank had been experiencing a clear downtrend in NIMs since the onset of COVID. In contrast, SBI had already been expanding its NIMs pre-COVID, due to an increased focus on retail loans which have higher margin. This trend continued from FY20 to FY23, while other private banks like HDFC Bank struggled.

   As a result of the merger, HDFC Bank’s NIMs fell below SBI’s domestic NIMs by March FY24, a scenario that would have been unexpected about a year ago.

   

   This impressive performance now gives a lot of headroom to SBI to offer attractive rates to customers to corner large sums of deposits even if it comes at a cost of little NIM compression in the near future. Just recently, SBI introduced "Amrit Vrishti," a term deposit scheme with 7.25% annual interest on 444-day deposits, effective from July 15, 2024. Senior citizens receive an additional 0.50%, available until March 31, 2025.

3. Competition from other banks: Recently in July 2024, RBI Governor Shaktikanta Das also held a meeting with the heads of public sector banks and select private sector lenders where he spoke about the high credit-deposit ratio of the system and the need to bridge the gap on deposit raising side.

   The impact? It is not just SBI that immediately launched its 444-day deposit scheme, many PSU banks including Bank of Baroda, Indian Overseas Bank, Union Bank of India and Bank of Maharashtra have also now started deposit plans offering 7.25% to 7.30% on investments stretching from 399 to 444 days from July 2024, further fueling the fight for deposits.

   

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   Add to it the fierce competition HDFC Bank is facing from big private players like Axis, ICICI & Kotak Banks with all of them having CD-ratio above 80% right now, along with the systemic issues on the deposits front don’t appear to be resolving themself anytime soon.

To summarize the 3 points: HDFC Bank faces challenges due to its deteriorated CD ratio compared to SBI, slow momentum on NIMs relative to SBI's significantly higher NIMs before COVID-19, and the RBI's pressure on all banks to grow deposits faster. This situation leaves HDFC Bank with limited options to open more branches and attract additional deposits (at high operational costs), while also offering competitive rates on fixed deposits. Furthermore, the RBI Governor expressed concern on July 19, 2024, about household savings shifting to riskier assets like equities and mutual funds rather than staying with banks. For your reference, we've included a video link below.

“There could be structural changes happening which lenders need to recognize …. Household savings are increasing turn to capital markets & other intermediaries over bank deposits. They are allocating a greater portion of savings to mutual funds, insurance funds & pension funds.”

- Shri Shaktikanta Das, RBI Governor

Is HDFC Bank technologically well-placed?

In this era of digitization, almost everything has moved online—from shopping on Amazon and Flipkart to ordering food through Swiggy and Zomato. Consequently, another way to increase market share in deposits is by implementing advanced & customer-friendly tech that attracts more people to open accounts with your bank. While opening more branches across cities can indeed bring in more deposits, having robust technology in place can also significantly enhance customer acquisition and retention.

But despite having information technology (IT) spending being 7% of their total expenditure, HDFC lags significantly on various digital banking experiences highlighted in the average ratings they have for their banking apps. One must note that even RBI had to push HDFC bank on several occasions in past to improve its tech. In fact in Dec 2020, RBI had ordered HDFC Bank to temporarily stop all launches of its digital business-generating activities following incidents of service outage over the previous two years. Similar action was also taken by RBI on Kotak Mahindra Bank just recently.

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SBI’s banking app, YONO, has a much better rating compared to HDFC Bank's app. Additionally, SBI is set to launch YONO 2.0 soon, which has the potential to be a game-changer in enhancing customer experience.

Will SBI’s YONO 2.0 make a big difference?

SBI launched its mobile banking app, YONO (You Only Need One), in November 2017, marking a significant step in the bank’s digital journey. Today, YONO and YONO Lite have around 10 crore registered users. The upcoming launch of YONO 2.0 is particularly noteworthy because of the involvement of Nitin Chugh, the former CEO of Ujjivan Small Finance Bank. For the past 27 months, Chugh has been working quietly on enhancing this digital platform, which is currently undergoing trials with selected customers before its full launch.

Nitin Chugh led the digital transformation at HDFC Bank from 2013 to 2019, playing a crucial role in establishing their credit card business, which now holds the highest market share of 20%. In 2019, he became the CEO of Ujjivan Small Finance Bank but resigned within two years due to a dispute with the founder. Following this, he was offered the role of heading the digital banking segment at India’s largest bank, SBI. He is now preparing to launch the results of his work, with the new YONO 2.0 expected by the end of the year. If this initiative goes well, it shall be a game changer for SBI and big achievement on digital front. Read more about YONO 2.0 here.

To Summarize

During Modi’s first term, banks that depended on government recapitalization are now able to raise significant funds via QIPs. Banks like SBI have improved their margin profiles due to a changing loan mix, with a greater emphasis on retail loans—an area HDFC Bank is also targeting to accelerate its NIM growth.

In a scenario where systemic issues with deposits continue to concern the central bank, SBI's resurgence, coupled with its renewed focus on technology through YONO 2.0, could make it challenging for private banks like HDFC Bank to reclaim their former glory in the medium term.

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We hope you enjoyed reading the blog. You can find Aditya here and Yash here. Let us know your feedback or what more you want us to cover on HDFC Bank.

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Today, we will be discussing whether the Gurugram’s residential property market (formerly Gurgaon - name used interchangeably in this blog - part of Delhi NCR region) is showing signs of a bubble. We will look at a few instances of excesses before examining whether there are fundamental issues in this market to determine if the excesses are short-term or if we are at a multi-year peak mania. Let’s get started!

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Signature - The Sign Of Luxury?

When the BJP government came to power in 2014 in India, affordable housing became a key focus area, evident through initiatives like the Pradhan Mantri Awas Yojana (PMAY), which was launched the next year. Its primary aim was to provide affordable housing to the urban poor by 2022. The scheme offered interest subsidies on home loans, making housing finance more accessible to economically weaker sections (EWS) and low-income groups (LIG). Even though the target of "Housing for All" remains a distant dream in 2024, the BJP (NDA) government continues to prioritize affordable housing. Their first decision after the recently conducted national election was to further expand PMAY to construct 3 crore additional rural and urban houses.

2014 was also when a real estate company named ‘Signature Global’ was started in the Delhi NCR region—India’s National Capital Region—to benefit from the push for affordable housing led by the Modi government. During this period, there was a dearth of property players as many had gone bankrupt, including Unitech, Amrapali, Ireo, and Jaypee Infratech, which led to severe distress in the Delhi NCR property market for several years. Signature Global attempted to fill that gap in the lower rate segment. Here is a December 2021 video of the management discussing their vision and mission to continue thriving in the “affordable housing” segment.

Over the years the company became a well-known name within the region and launched multiple projects. As of the Financial Year 2022, the company did revenues of INR 900 Crores as per their DRHP - continuing to launch products in the range of INR 15 Lacs to 1 Crore. However, by the end of 2021-22, they began to realize that focusing solely on 'affordable' housing was no longer viable. After the onset of Covid-19, it was the premium/luxury segment that started performing extremely well, driven by India's K-shaped recovery. Consequently, Signature Global decided to pivot and launch luxury products starting at INR 4 crores. Recently, they achieved pre-sales of INR 2,700 crores in their latest luxury launch in Sector 71 of Gurugram. Following a trend started by DLF in 2023, Signature Global also placed a full-page advertisement celebrating the successful launch of its product. Such advertisements help generate more interest in the product, aiding developers in clearing remaining inventory in a shorter span of time:

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But here are 2 catches to take care of when you see these Ads in the newspaper:

1. Assuming a new product launch has been technically ‘sold out,’ it actually implies that the builder has received only 5-10% of the total value of the flat as an initial payment from the customer, with 90% still due to be paid over time. Even considering payments made during the first year after being considered ‘sold,’ builders typically receive just 20% to 35% of the flat's value. Additionally, customers are free to sell the under-construction flat whenever they want, which leads to a wide set of investors and speculators entering the market. Here is a snippet from one of DLF’s recent projects named ‘DLF Privana West,’ which sold out in early May 2024:

   

2. Recently, a few of Gurgaon’s realtors have actually increased the sales commission twofold which they offer to their channel partners/brokers on successfully bring customers to purchase the property. Many developers are giving 7-8% commission to brokers so that they get buyers fast, which will help them clear their inventory. This has not been the case with the larger players like DLF who give 2% commission to brokers on pre-sales. A point here is that many times those brokers over-commit in order to get the commission by getting the product sold and the consumer suffers in the end.

Hence, in such scenarios, the purchase of real estate becomes a ‘push’ product rather than a ‘pull’ product, making it difficult for the actual buyer to distinguish between lower-quality and higher-quality offerings.

The Tale of Gurugram Developers

Let’s shift focus to some other developers like Ashiana Housing (listed) and M3M (unlisted), which have had a presence in the Delhi NCR/Gurugram region for many years.

In April 2024, Ashiana Housing's Amarah project in Gurugram sold out all 224 flats in Phase 3 within just 15 minutes of launch, generating a total pre-sale of INR 440.32 crores. The project was oversubscribed four times, with the company receiving 800 cheques for the 224 units, showcasing the immense demand from buyers in the Gurugram market. To put it in context, they received bids from just one project equal to half of their market cap at the time of the project. After the news of the sell-out was received, the share price of Ashiana Housing went up by over 25% in 2 days.

These high over-subscriptions are also happening because of the low entry barrier, where a buyer just has to submit a refundable cheque of a mere INR 5-10 lakhs at the time of applying during the launch of the product (EOI) to participate in a lucky draw. As a result, multiple members of the same family often submit separate EOIs to boost their chances in the draw, which pushes the over-subscription levels higher. In response, large developers like DLF have recently increased their application amount to INR 50 lakhs by cheque and allowed only one application per family during their recent DLF Privana Series product launches in an attempt to curb this practice to some extent.

Another major and controversial developer with a multi-decade presence in the Gurugram property market and one of the largest land banks in the area is M3M India. This developer has delivered multiple projects, but its promoters were arrested by the ED in June 2023 for a money laundering case and were granted bail in March 2024. Recently, we came across a few social media posts about ‘Flash Sales’ where their existing unsold inventory was offered at a discounted price of 10-20% by some channel partners. Many of their projects are under construction and have been facing delays, which has forced the builder to offer higher discounts to customers and increased commissions to brokers to push sales.

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Will the Gurugram Property market crash?

People tend to overestimate a trend in the short term but also tend to underestimate it in the long term - Amara's Law

After examining the different cases of builders in the affordable housing space suddenly entering luxury segments and experiencing rapid sell-outs at their launch events, let's take a step back and look at the Gurugram market holistically.

About 30 years ago, the city was merely a collection of small towns and villages with vast open spaces and a sparse population. In 1990, 92% of the Gurugram district was agricultural land which was little over to 85% at onset of 21st Century, even after 9 years since the economic reforms of 1991 spurred rapid urban growth in Indian cities due to increased corporate activity. However, after 2000, the depletion accelerated significantly. Today, it's estimated that less than 45% of the city's land remains as agricultural, marking a sharp decline of 40% in just over two decades.

Today, the city area is ~25% of Gurugram and 29% are sub-urban areas (Note: the data points were available only till 2017 in the research paper, hence were estimated for later years based on trend):

The fate of Bengaluru, Hyderabad, and Pune has followed similar lines where rapid urbanization has placed immense pressure on city services. One significant factor contributing to population growth is their proximity to New Delhi and its airport. Considering the population pools of big corporate cities in India, Delhi NCR has a population of 3.2 crore(Cr), Mumbai stands at 2.2 Cr, Bengaluru at 1.4 Cr, Hyderabad at 1.1 Cr, and Pune at 0.7 Cr.

Where the core Delhi city has land bank constraints with hardly any open areas, and major parts are government-owned considering it is India’s national capital, a significant chunk of demand for real estate in the region is shifting to Gurugram. Core Delhi now contributes merely 4% of total property sales that happen in the NCR region. Even a few of politicians like Priyanka Gandhi are now living in DLF Magnolias in Gurugram where her husband Robert Vadra owns a flat, leading Sonia Gandhi frequently paves visits to the place as well.

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From Insolvency to Prosperity

While the adjacent Noida property market has seen bankruptcies of major developers like the recent insolvency of Supertech Goup’s Supernova project, which is North India’s tallest building project of 80 floors and the demolition of Noida’s Twin Tower in 2022 after a Supreme Court order, it is the Gurugram market that has witnessed significant turnarounds post-bankruptcies. An interesting case study which we shall now discuss is a project located on Golf Course Road in Gurugram, which was up for sale for approximately INR 450 crores about three years ago. Today, its value stands well over INR 4,500 crores—a remarkable 10X increase!

This project named 'Tulip Monsella' (formerly known as 'Aarohan Residences') by Vipul Ltd went bankrupt and was acquired by Tulip Infratech in a joint venture only in March 2021.

Location being north India's hottest market right now, Tulip knew that if they executed this well and fast, it was going to be a gold mine for them. And today, the flats of this project are amongst the hottest under-construction flats in the town, selling for well over INR 9 Crore for 3BHK. Tulip is not only selling the remaining flats at a huge premium but also plans to launch another set of 5 towers on the remaining land bank attached to this project.

In Gurugram, the presence of big names like DLF, India’s largest listed real estate player, has safeguarded property demand and prices despite many big projects failing to deliver. Recently, DLF acquired 29 acres of land from bankrupt IREO in Gurugram, taking over bad loans amounting to INR 825 crore associated with the land. The liquidity in the market has attracted other major players from different property markets to enter Gurugram in a significant way, including Sobha, Oberoi Realty, and even Godrej, all launching multiple projects post-COVID.

Supporting the argument on a significant increase in liquidity, Anarock’s report recently highlighted that within India, Delhi-NCR has clocked a maximum of 12 land deals for 160 acres during January-March 2024 and 29 land deals for 313 acres in the entire 2023-24 fiscal.

This liquidity is not just limited to land banks and bankrupt residential projects but also extends to under-construction commercial projects, which has been unprecedented in Gurugram.

Japanese investors enter Gurugram!

We shall now talk about 'DLF Atrium Place' being developed by a joint venture of DLF Ltd and Hines. It is a 2.88 msf, Grade A+ office project in Gurugram spread across nearly 12 acres with the first phase of four towers, anticipated to be completed by 2025. In totality, it's a whopping $3 Bn commercial project. This under-construction building just provided the sovereign fund investor - Abu Dhabi Investment Authority (ADIA), with its biggest *Indian* exit of 2024.

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But how did UAE's sovereign wealth fund, ADIA, come into the picture? Hines, which is a leading global real estate investment manager owns and operates $93 Bn of property assets on behalf of a diverse group of institutional/private wealth clients with ADIA being one of them. Consequently, ADIA became the ultimate backer as a Limited Partner (LP) in this joint venture on behalf of Hines, which holds a 33% stake, with the remaining stake held by DLF.

Now, Hines has brought in a big Japanese investor - Daibiru Corp, who is investing INR 1,000 Cr in this under-construction 'DLF Atrium Palace' and hence facilitating an exit for ADIA. A large Japanese institutional investor providing an exit for a sovereign fund investor in a world-class commercial office project developed by DLF and Hines is a one-of-a-kind deal. This transaction highlights global investors' confidence in the maturity of the Gurugram real estate market and brands like DLF.

To Summarize

The Gurugram market is now witnessing buoyancy after over a decade of dullness caused by multiple factors, the biggest being the bankrupt builders who destroyed the value for years. This buoyancy supported by immense liquidity, has caused some excesses in a few pockets we discussed in the first half of the blog, but doesn’t not appear as the end to the bull run we are witnessing in the demand for the property, especially in the luxury category.

As Gurugram prepares to add the highest amount of office space it has ever added in the next 1 to 3 years, if everything goes well, this bull run can have many more legs before we call it a day!

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As I write, competition is heating up with many players in this space raising huge sums:

1. Zepto is in talks to raise $650 Mn in a funding round led by Nexus Venture Partners and multiple reputed names including Lightspeed Venture Partners, DST Global, and Avra

2. Similarly, Invesco and Baron Capital-backed Swiggy is about to launch its IPO of $1.2 billion, of which $450 Mn is expected to be a fresh issue that goes to the company

3. Then we have Walmart-backed Flipkart, which is entering this space in a big way. Google recently infused $350 Mn into it in May 2024

4. Reliance Retail (part of India’s highest valued group, Reliance Industries) is re-entering the space after their Dunzo investment didn’t work well

5. Tata-owned BigBasket has started to expand significantly, including in my Tier-2 town of Ludhiana, where previously only Blinkit was present

Firstly, the above activity is a testimony to the fact that quick commerce is the future of Indian retail. From groceries to clothes to electronics and more, delivered in under a few minutes, QC is now easily eating away the share of other channels, including online/e-commerce channels.

Mentioning it upfront, I have been long on Zomato for many months now, and today’s blog focuses on whether Zomato’s subsidiary, Blinkit, will be able to survive such tough competition. Early signs show the company is capable, well-prepared, and has enough past experience of surviving the toughest situations they have faced, always emerging stronger. We will discuss our reasoning one by one today. I hope you enjoy reading our blog. If I add value to your hypothesis, please consider supporting me and my team to perform better research - click here. Now, let’s get started!

What differentiates you from competitors?

In the startup world, one must remain humble at all times as disruption is the foundation upon which an organization is built. If you don’t innovate constantly, somebody else will and can overtake you in just a few months. Given the lucrativeness of the opportunity, big money is bound to join the fight. Remember, India's retail industry is projected to expand to $4.5 trillion by the end of this decade. Even if QC captures a 2-4% share of that pie from 0% at the start of the decade, a significant shift is underway that will impact existing retail players and channels.

Recently, in an interview, when asked about competitors raising big funds, Deepinder (Zomato’s founder & CEO) acknowledged that the real competition between them and other players is not about fleet size, stores, discounts, or any tactics, as these can be financed or replicated easily in a few months. The real differentiating factor, or the moat, comes when your employees think differently and there is a culture within the organization to constantly innovate to stay ahead. This is what Zomato has been striving to inculcate.

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The constant need to innovate is what makes investing in companies like Zomato a ‘high-risk, high-reward’ proposition. It’s about disrupting existing practices or being disrupted by newer, better ones. Zomato's attempt to develop this moat is partially reflected in three different examples:

1. Every new employee at Zomato receives Deepinder’s written piece - ‘Culture at Zomato: How to Rewire Your Brain for Greatness’, as part of their welcome kit. While it's uncertain how many new employees actually read the book, it sends a strong message that work culture is a top priority at Zomato.

2. The company has appointed a CFO (Chief Fitness Office) dedicated to employee well-being, promoting a culture of sports and exercise. Deepinder and Albinder (Blinkit’s founder & CEO) themselves strive to be benchmarks in fitness, which motivates many employees to focus on their health, fostering a sense of belonging (I confirmed this with a few current employees - many employees at Zomato/Blinkit are now fitness freaks)

3. Zomato has also been very generous with ESOPs (Employee Stock Ownership Plans), particularly before the IPO. They recently launched another ESOP pool worth Rs 3,000 Crores for key senior employees, boosting morale and fostering a sense of ownership within the firm

So the attempt is there, and only time will tell how successful they become in nurturing that moat. I shall continue bringing you the latest insights here in my blogs time to time. Now, let's move on to how Blinkit’s parent, Zomato, has fought and thrived in similar situations in the past.

When Swiggy was on the Rise….

Back in December 2018, Swiggy raised over $1 Bn to provide itself with ammunition against Zomato, Ola-owned Foodpanda and Uber Eats. Swiggy's existing investors like Naspers along with new strong names like Tencent & Hillhouse Capital, together closed the biggest funding deal in India's food tech at the time.

On the other hand, Zomato had almost nothing in its bank account to fight back and then sold its UAE business a few months later in March 2019 to Delivery Hero for $172 Mn in order to survive the storm caused by Swiggy's mega fundraise.

Small players couldn't compete, and in May 2019, Ola decided to shut down Foodpanda. A few months later, even Uber Eats was up for sale in the latter part of 2019, and Zomato acquired it in January 2020 in an all-equity deal, giving 10% of its equity shares to the parent company Uber to acquire 100% of Uber Eats. In fact even big pockets players like Amazon who entered the Indian food delivery market in Nov 2020, and launched the business in select pin codes of Bengaluru only to shut it down later after 2 years and terming it as an 'experiment'.

𝐑𝐞𝐬𝐮𝐥𝐭𝐬? - Zomato today continues to enjoy over 60% market share in the food delivery market in India. Zomato has demonstrated the ability to navigate through tough, near-death situations, which instills greater confidence that, come what may, the company's leaders—along with guiding figures like Sanjeev Bikhchandani—have the capability to steer the company successfully in the future as well.

Who is winning the Rich Indians?

In India, income and wealth distribution is skewed, with a small group of high middle class and rich individuals driving the majority of consumption in the economy. Goldman Sachs expects this so-called ‘affluent’ group of Indians to touch 10 crore individuals by 2027. These individuals will be the key drivers of consumption growth, especially in discretionary spending. This group will drive demand for flights, hotels, cars, and of course, iPhones.

Bringing this into today’s context for quick commerce, let's compare the app last 3 months downloads trend of Blinkit, Swiggy, and Zepto on iPhones and Android phones, as reported by SensorTower:

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In the last three months of app downloads for the three major names in quick commerce (QC) in India, it is interesting to note that Blinkit has consistently led in download rankings, even surpassing Swiggy (integrated both food delivery and QC) by slight margin in daily app downloads on iPhones. On Android phones, however, Blinkit currently ranks third, below Swiggy and Zepto. Hence Blinkit has been a consistent hit for iPhone holders (which are relatively convenience preferers) but not so for Android holders (which are relatively value seekers). It’s important to note that this data fluctuates frequently and is influenced by multiple variables. For instance, a player pushing the pedal on app advertising can cause a sudden spike in downloads.

If we step back from analyzing just three months of download data and look at how things have evolved over the two years from the onset of QC until the end of the Financial Year 2024 in March, Blinkit has consistently led with the highest number of monthly active users. Meanwhile, Zepto has been catching up quickly. (Source: Goldman Sachs)

Who does the Delivery Free? Blinkit Doesn’t!

The reason I showed you the latest three-month app download data and monthly active users data is to highlight a significant change: Blinkit has started charging a delivery fee on almost all of its orders, regardless of the order size. According to their shareholder's letter for Q4 FY24, they mention:

Almost 100% of our orders in March 2024 had a non-zero delivery fee with an average delivery fee per order of INR 20. - Zomato Shareholder note, May 2024

This is another sign that Blinkit has successfully tapped into the premium segment of customers who prioritize convenience and service over price. Not only are they able to charge for the service they provide, but they also continue to maintain their growth momentum. This is evident in their increasing number of monthly active users in March 2024 and beyond, growing at a faster pace.

This is happening at a time when Zepto launched its ‘Premium Pass’ for providing free delivery providing unlimited free deliveries to its pass holders at mere Rs 19/month subscription fee and Swiggy on the other hand is trying to push sales higher with its attractively priced ‘Swiggy One Premium’ which was earlier priced at Rs 200/month for most users but are now being offered to many at Rs 49/month. This can help Swiggy gain back market share, and show good QoQ growth before coming for IPO that is expected to happen towards end of 2024/start of 2025. Here is an insert from The Arc:

In an environment of increasing competition, how Blinkit reacts becomes critical. Their response is clear till now: they won’t engage in unsustainable short-term actions but will continue to focus on quality -

We believe that a business built on the back of great service quality is much tougher (more defensible) than just offering lower prices (unsustainable subsidies). We plan to stick to making our service even more reliable and loved for our customers. And just like today, we will strive to maintain an edge over competition for the quality and innovation that we stand for. - Zomato Shareholder note, May 2024

It is obvious that at some point in the future, Blinkit will need to launch a membership program like Zepto and Swiggy to gain further customer loyalty. However, that is still some distance away, as the company is currently focused on improving supply chains for greater efficiencies, expanding dark stores, and increasing SKUs. They are attempting to build a business model that helps them get the products available at the lowest price to consumers as Blinkit is able to pass on those efficiencies and benefits of scale over time along with help of another Zomato’s subsidiary - Hyperpure, which streamlines the entire perishable ordering process by being a one-stop-shop

More SKUs, more profitability?

While the primary selling point for all existing players continues to be ‘free delivery,’ Blinkit has consistently taken a different approach by launching new categories. They recently introduced various products under the sports category to tap into the growing craze for outdoor activities, which usually peaks in summer. These new categories help Blinkit acquire new customers and assist in margin expansion, as these are high-margin products. Though, competitors have followed suit and have also widened their SKUs.

Quick Commerce continues to be an every evolving space and we shall continue to track it closely for you. In case you liked reading today’s blog, do share it with your friends who would enjoy reading it too. If my emails end up in the ‘promotions’ tab, please move them to inbox so you don’t miss out.

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