BLAST 24 April 2020

24 April 2020

Asia Consumer Blast - India Online Grocery. Category winner

during Covid-19. Will it be permanent ?
Rahul Malhotra +91-22-6842-1431 [email protected]

David Dai, CFA +852-2918-5704 [email protected]

Venugopal Garre +65-6230-4651 [email protected]

Melinda Hu +852-2918-5727 [email protected]

Chris Lane +852-2918-5710 [email protected]

Cherry Leung +852-2918-5756 [email protected]

Euan McLeish +852-2918-5780 [email protected]

Vitaly Umansky +852-2918-5706 [email protected]

Robin Zhu +852-2918-5733 [email protected]

By Rahul Malhotra and Ritesh Khichadia

The current lockdown has created a structural shift in consumer
EXHIBIT 1: India's retail market
behavior in India and has driven significant online adoption
across categories – a shift that is likely to be permanent and US$ 676 Bn US$ 1,277 Bn
large, as new consumers in India get used to transacting from the 3.6%
comfort of their own home. There has been sharp increase in 10.4%
8.4%
adoption of one such category - Online grocery as engagement
level and order volumes have accelerated for e-grocery apps. 14.6%
DAU (daily active users) has seen strong growth for many e-
grocery apps.
Within ecommerce categories, Online Grocery is a low
penetration category in India with currently <1 % compared to
15-20% for other categories. Growth is expected to increase 88.0%
75.0%
driven by higher online penetration, offline/online integration by
retailers and acceptance of consumers to order grocery online.
The online grocery ecosystem is changing with multiple new
entrants - Food delivery apps like Zomato and Swiggy have
started delivering grocery. Offline retailers like Reliance Retail
and Dmart aggressively entering online (Jio Mart, Dmart ready). 2018 2025E
Pure online grocery players (Bigbasket, Grofers) continue to
Unorganized Organized (offline) retail Ecommerce
scale pan India

INDIA RETAIL MARKET Source: Technopak, Redseer, Bernstein estimates and analysis

India's retail market is dominated by unorganized sector (~88%).

However, mix is expected to change with organized retail gaining The food and grocery market is the largest category in India and
share and ecommerce accelerating. is expected to grow at 9% CAGR to US$ 942 Bn by 2025.

Analyst Page Bernstein Events Industry Page

See Disclosure Appendix of this report for important disclosures and analyst certifications www.bernsteinresearch.com
Rahul Malhotra +91-22-6842-1431 [email protected] 24 April 2020

EXHIBIT 2: India's retail market (US$ Bn) GROWTH OF ONLINE GROCERY

Adoption of online grocery has increased with engagement level
1,277
& order volumes accelerating. DAU (daily active users) has seen
105 strong growth for many e-grocery apps. Big Basket (leading
1,063 120 online grocer) has seen 2x increase in total website visits
78 110 between Jan/Feb and March 2020. Online grocery has demand
96 side advantages of 24 / 7 shopping, wide SKU ranges and same
94 day/next day delivery models
676
48 EXHIBIT 4: DAU has jumped sharply for online grocery
501
60 apps (indexed to 100 on 1st March 2020)
60
33 942 300
43
45 795

508 250
380

200

2015 2018 2023 2025

Food & grocery Apparel & accessories 150
Jewelry & watches Consumer electronics

100
Source: Technopak projections, Bernstein analysis

LOW PENETRATION OF ORGANIZED FOOD RETAIL 50

1-Mar 8-Mar 15-Mar 22-Mar 29-Mar 5-Apr
India organized food and grocery penetration is low compared to
global markets. There are structural challenges- High rental BigBasket Grofers

costs in India which are ~10% of total revenues compared to less SuprDaily Dmart Ready
than 2% for US/Europe markets. Inefficient and broken supply Spencer's Online
chain.
Source: Apptopia, Bernstein analysis
EXHIBIT 3: Penetration of organized retail in food and
grocery

EXHIBIT 5: Total website visits (mobile + desktop)

89% increased sharply in March (in million)
85% 85%
80% 80%
9.1

60%
52%
46%
5.1

3.4

2.3

3%

BigBasket Grofers

Average for Jan and Feb 2020 Mar-20

Source: Euromonitor, Bernstein analysis

Source: SimilarWeb, Bernstein analysis

INDIA TECHNOLOGY, MEDIA & INTERNET BERNSTEIN 2

Rahul Malhotra +91-22-6842-1431 [email protected] 24 April 2020

WHY IS GROCERY IMPORTANT AS A CATEGORY? EXHIBIT 7: India online grocery (US$ Bn) is expected to
Grocery is a habit formation category with high average monthly have strong growth in next 2-3 years
revenue retention and the highest order frequency per customer
per year. India's food and grocery segment is expected to
become a ~US$ 900 Bn opportunity by 2025. Currently, grocery 8.7
has the lowest online penetration at <1% and offers the largest
opportunity for growth. The online grocery market is expected to
growth at 60% CAGR to US$8.7 Bn by 2022.
60%
EXHIBIT 6: Indicative matrix of average order value (AOV) CAGR
vs. annual transaction frequency for consumption

Electronics
2.1
12500

Furniture
Travel
AOV (INR)

Grocery
2500 Fashion 2019 2022

Source: Redseer projections, Bernstein analysis

500
EXHIBIT 8: India eCommerce penetration across retail
Movie categories
tickets

100
1 2 4 8 16 10.5%
# of transactions per year

Source: Bernstein estimates and analysis. Note: Size of bubble is indicative of

annual spend

SIZING THE ONLINE GROCERY CATEGORY

Online grocery category is expected to reach US$ 8.7 Bn by
2022 growing at a 60% CAGR. Currently eCommerce 3.0%
2.7%
penetration is at <0.5% in India, significantly lower compared to 2.5%
other categories. There is significant room for driving higher 1.5%
penetration in existing cities with high traffic, increase in <0.5%
conversion and retention.

Source: Redseer, Bernstein analysis

ONLINE GROCERY IS A COMPETITIVE MARKET

India's online grocery market is dominated by verticalized
eCommerce players BigBasket and Grofers which were early
entrants in the category. However, the market is seeing
increased competition with entry of horizontal players (Amazon,
Flipkart), food delivery platforms (Zomato, Swiggy), offline

INDIA TECHNOLOGY, MEDIA & INTERNET BERNSTEIN 3

Rahul Malhotra +91-22-6842-1431 [email protected] 24 April 2020

retailers (Reliance Retail, Dmart), hyperlocal delivery (Dunzo) and

EXHIBIT 11: Online grocery apps – BigBasket and Grofers
daily staples providers (Licious, Milkbasket).

EXHIBIT 9: India's online B2C grocery market is

hypercompetitive

Segment Players Market share

Grocery specialists BigBasket, Grofers 75-80%

Large horizontal Amazon Pantry, Flipkart

eCommerce Supermart

Online food delivery Zomato, Swiggy

Offline retailers Reliance Retail, Dmart 20-25%

Hyperlocal delivery Dunzo

Staples specialists Licious, Milkbasket

Source: Bernstein screenshots
Source: Company reports, Bernstein analysis

CONVERGENCE OF OFFLINE AND ONLINE RETAIL

The business models varies significantly in terms of supply chain COVID-19 lockdown has accelerated the trend of offline retailers
control, category mix, daily order frequency and AOV (average expanding their digital footprint.
order value). This is due to the significant difference in the
The large offline retailers have invested in own e-commerce
purchase and consumption patterns across sub segments – daily
platforms and partnered with online players. The offline players
staples (milk, fruits and vegetables), other foods and non-foods.
can leverage their large store network and
Players also need to have specialized supply chains for fresh warehouse/distribution network (e.g. Reliance Retail has
categories compared to other grocery categories. Thus, most of 11,000+ stores and 100+ warehouses) against online grocery
the players target a specific niche within grocery first and then players with presence limited to large cities.
add adjacent categories.
The largest player Reliance Retail has launched its JioMart
platform where it partners with neighborhood/Kirana stores to
EXHIBIT 10: Online grocery market mix
deliver groceries to consumers. It offers supply chain integration,
inventory management and advertising support for the partner
stores. During the lockdown, Reliance Retail has partnered with
e-pharmacy player Netmeds to deliver groceries. The second
36%
largest player Dmart has seen sharp uptick in DAU on its mobile
app as people increasingly preferred delivery vs store visit. The
75% third largest player Future Retail has partnered with Amazon's
20% Prime Now.

EXHIBIT 12: Kirana store

38%
14%

8%
4% 6%
GMV mix Order mix

Fresh Meat Daily essentials

Express delivery Regular online grocery

Source: Redseer (May 2019 data), Bernstein analysis

Source: Company reports, Bernstein analysis

INDIA TECHNOLOGY, MEDIA & INTERNET BERNSTEIN 4

Rahul Malhotra +91-22-6842-1431 [email protected] 24 April 2020

PRIVATE LABEL
Indian online grocery retailers have been focusing on increasing
penetration of private label brands to improve margins.
BigBasket has Fresho, Royal Organic, Tasties, etc. while Grofers
has Mother's Choice, Happy Day. Private label brands have been
in increasing with 30% + contribution of BigBasket sales coming
from private labels.

SUBSCRIPTION/LOYALTY PROGRAMS
Grocery is a classic category for subscription-based purchase
models because of repeat orders and product/brand stickiness.
It is a win-win for both consumers and online retailers. The
consumers gain discounted product/delivery prices on
daily/weekly/monthly subscriptions. The retailers are able to
better forecast demand and delivery schedules. Customers with
premium subscription for Grofers and BigBasket have average
order size ~50% large than regular customers.

EXHIBIT 13: Big Basket's loyalty program

Source: BigBasket app, Bernstein analysis

INDIA TECHNOLOGY, MEDIA & INTERNET BERNSTEIN 5

Rahul Malhotra +91-22-6842-1431 [email protected] 24 April 2020

DISCLOSURE APPENDIX

TICKER TABLE
23 Apr 2020 TTM EPS Reported P/E Reported
Closing Target Rel.
Ticker Rating Price Price Perf. 2019A 2020E 2021E 2019A 2020E 2021E
INFOE.IN O INR 2,462.85 2,560.00 37.8% INR 23.32 21.43 34.80 105.6 114.9 70.77
MXAPJ 458.58 32.81 36.07 41.57 13.98 12.71 11.03

O - Outperform, M - Market-Perform, U - Underperform, N – Not Rated

VALUATION METHODOLOGY
Info Edge India Ltd
We value Infoedge on SOTP method.

RISKS
Info Edge India Ltd
Upside: strong volume growth or margin improvements in loss making segments - 99acres.
Downside: growth slowdown in Naukri segment, valuation mark downs in portfolio companies, unfavorable regulatory changes (eg. privacy
protection) in India

INDIA TECHNOLOGY, MEDIA & INTERNET BERNSTEIN 6

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12-Month Bernstein Rating History as of 04/22/2020

Ticker Rating Changes
INFOE.IN O (RC) 04/15/20 M (IC) 06/26/19

Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated

Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change
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