Swiggy or Zomato?


Good morning,

It’s a question we often find ourselves pondering come dinner time these days: Swiggy or Zomato? SoftBank has made its choice — and run up a $450-million bill in the process. But will Swiggy deliver?

Also in today’s letter:

  • Pay vs Pe
  • Licious in demand
  • Wipro Q4 results

Why SoftBank chose Swiggy

Food

Hi, it’s Samidha. I’ve been following SoftBank and its India investments for many years now. And all of this time, I’ve asked folks at the Japanese firm why they haven’t taken a bet on food delivery, especially because it has grown significantly in scale and size.

I was told the unit economics don’t make sense in India, unlike the US where SoftBank has invested in DoorDash, which went public last year. You make money by charging a fee from consumers, which is far higher in the US (could be anywhere between $2 and $8) compared to India.

Also, a merged entity of Swiggy and Zomato was possibly a better idea to back for SoftBank till a few years ago, but that never happened.

So, when yesterday we broke the news of SoftBank Vision Fund II finally closing a $450 million investment in Swiggy, it didn’t come as a surprise to me that the Japanese group was finally doing what it’s expected to do—back a significant player in a big consumer internet sector.

What’s cooking? After more than three years of flirting with both Swiggy and Zomato, Masayoshi Son got back to talking to the two founders—Sriharsha Majety and Deepinder Goyal—as he sensed an opportunity in India. Covid-19 had given a boost to the sector after the initial few months of suffering for the two leading players. Son and SoftBank were also enthused by the successful IPO of DoorDash, and big growth in orders for Uber Eats and GoPuff, which saw its valuation more than double in a few months as delivery services boomed in the US amid the pandemic.

Son picked Swiggy, but why? Son approached Zomato but with the company’s plan to go for an initial public offering, a pre-IPO round didn’t make sense for SoftBank, said a source. Talks were serious this time but didn’t fructify. Simultaneously, SoftBank was in discussions with Swiggy, which had been pulling in investors for its ongoing financing. “They wanted to back Swiggy as it’s diversified into other kinds of deliveries beyond food.”

What next? Zomato and Swiggy have raised more than $2 billion over the past year despite a lockdown-induced slump in the early months of the pandemic. Since then, it has been a spectacular turnaround for both the companies. But with Amazon expanding its food-delivery services in Bengaluru, the incumbents have a fight on their hands.

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While monthly burn for Zomato is down to less than $2 million, Swiggy too has pruned its high burn rate amid the Covid-induced upheaval last year. But if Amazon doubles down and decides to splurge, things may change. With a massive war chest for both and Zomato likely to go public soon, this space is only just hotting up!


Pay vs Pe

PHONEPE

Last month, the National Payments Corporation of India (NPCI) issued new rules that said no single Unified Payments Interface (UPI) app would be allowed to process more than 30% of transactions in any three-month period, starting January 1, 2021.

NPCI gave Google Pay and PhonePe, each of which process well over 30% of UPI transitions every month, until 2023 to reduce their market shares to below 30%.

But wait: Experts we spoke to said, however, that this was easier said than done, because the NPCI’s rules base ‘market share’ on the number of transactions an app processes rather than the number of customers it has.

“The way NPCI has suggested apps do this [reduce their share of transactions processed] is by limiting new users. But what if existing users increase their number of transactions on a given platform? How does a platform then ensure compliance without disrupting the customer experience?” an industry executive said.

Different strokes: This ambiguity, experts said, may be the reason why PhonePe and Google Pay have responded very differently to the new rules.

  • Google Pay is learnt to be reassessing initiatives such as cashbacks to lower its share to below 30%.
  • PhonePe, one the other hand, said it will not stop its aggressive marketing strategy for at least a year and continue to increase its user base. Last month it announced it had signed no less than six sponsorship deals for IPL 2021.

“The guidelines don’t kick in for us until January 2023 and there is no immediate impact on us per se. There is no question of stopping our marketing initiatives or new customer onboarding efforts for now.” — Sameer Nigam, the chief executive of PhonePe

These differing approaches are reflected in the numbers. In December, Google Pay was the top UPI app, processing 40.3% of transactions that month to PhonePe’s 38.2%. Fast forward to March and PhonePe processed 44.2% of UPI transactions while Google Pay handled just 35%.

How Google Pay

Tweet of the Day

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Investors lining up for a chunk of Licious

LICIOUS

Licious is in demand, from consumers and investors alike.

Driving the news: Private equity investors Multiples Alternate Asset Management, Premji Invest and Goldman Sachs are looking to invest a combined $150-200 million in the meat and seafood brand at a post-money valuation of $800 million, sources told us.

  • The round will see a fresh issue of shares and stake sales by early backers.
  • The funds will be used to expand operations and offerings.
  • Avendus Capital has the mandate to scout for investors.

ET had on Jan. 19 reported that Multiples’ and Premji Invest were interested in Licious.

“Multiples and Goldman Sachs are definitely investing in the company, but the third investor and the exact quantum of how much each fund will bring in will be decided at a later stage,” said a source. “The idea is to have one domestic and two global investors on board through this round.”

Plain facts: Around 92% of the Indian meat and seafood industry is unorganised. India consumes meat worth around $30 billion a year. Clearly, this is a segment waiting to be tapped.


Delaporte makes Wipro intent clear

del

Wipro intends to close a billion-dollar deal every quarter, CEO Thierry Delaporte told ET’s Raghu Krishnan and Ayan Pramanik after announcing the company’s fourth-quarter results.

  • “We have created a big deals team. We are hiring talent. We have got a leader for this team. Our chief growth officer Stephanie Trautman is actively driving this as a priority…” — Wipro CEO Thierry Delaporte


Highlights from the interview:

  • On revenue growth guidance: “We are in this phase we will feel comfortable to grow at the same speed that’s the best in our industry, and then there will come a time where we can accelerate again and grow faster. We are satisfied with the strong performance.”
  • On the Wipro-Capco deal: “Capco and Wipro combined have a much stronger value proposition but also complementary capabilities and talent in order to connect and drive those large programmes with our clients.”
  • On the cloud business: “I have zero concern about the opportunity to grow this business in the next months and years; we are at the beginning of the cloud transformation wave that is going to disrupt most of the industries we work in.”
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Infographic Insight

meat

What happened at Amazon Smbhav Summit

  • Amazon Smbhav Venture Fund: Amazon India has launched a $250 million venture fund to invest in startups working on digitising MSMEs, and those innovating in agriculture and healthcare technology.
  • First investment made: The new fund has led an investment of $10 million in M1xchange, an online invoice discounting startup catering to MSMEs.
  • E-commerce & MSMEs: “E-commerce will play a definite role in helping India’s MSMEs succeed,” Union Minister Nitin Gadkari said at the event, adding that online retailers need to enable small businesses with capacity-building.
  • Protest Summit: The representatives of small retailers, distributors and merchants organised an ‘Asmbhav Summit’ to highlight the allegedly unfair trade practices and predatory policies of large e-commerce firms.

Permanent WFH for IT firms in SEZs?

wfh

Employees of IT companies operating out of special economic zones (SEZ) may soon be able to work from home permanently. The Ministry of Commerce and Industry is discussing the issue internally and a decision is likely by month end, senior officials told ET.

The $191 billion IT industry has been seeking a permanent work from anywhere arrangement for units within the SEZ, from where nearly 60% of IT services are exported. The industry is also seeking clarity on whether services rendered by SEZ employees while working from home (WFH) are eligible for exemption under the Income Tax Act, 1961.


Top Stories We Are Covering

Flipkart announces Cleartrip acquisition: The Flipkart-Cleartrip deal comes at a time when Flipkart and Amazon are aggressively pushing hotel and travel bookings on their sites as they diversify into new services, such as food delivery and e-pharmacy.

L&T Infotech gets a new CFO: Anil Rander’s financial leadership and business acumen will enable L&T Infotech to chart its next phase of growth, CEO Sanjay Jalona says. Rander was previously senior vice president for finance and legal functions at Tech Mahindra.


Global Picks We Are Reading

■ How Amazon Strong-Arms Partners Using Its Powers (WSJ)

■ Bitcoin is normal now. Yay? (NYT)

■ US House panel approves blueprint for Big Tech crackdown (Reuters)





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