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The findings part of report: Indian Ecommerce-Tip of the Iceberg, by Macquire Equities Research back this high growth rate on rising internet population, over 300 million middle class population, increasing mobile penetration and low levels of e-commerce activity.
“Compared to the west, India’s ecommerce industry is still in its infancy. E-commerce contributes only 0.6% of the country’s GDP vs 1-3% for other countries, with only 12% of India’s online population transacting online vs 64% for the US and over 50% for China,” said Atul Soni and Nitin Mohta in the report.
This growth will further be accentuated by companies going in for public listing. In the Indian context, only two internet-based companies are listed on the markets, including Infoedge, which runs India’s largest job portal (naukri.com), and justdial, which is India’s largest local search site.
“In our conversations with various founders and top management leaders in Indian e-commerce companies, we got a sense that most companies would be hitting relevant milestones with regards to revenues and profitability in 12-24 months’ time frame. This should clear the way for multiple IPOs from this segment,” said the report.
The nature of Indian e-commerce is also different. Travel has the lion’s share of 71% of Indian e-commerce, but e-tailing has grown the fastest, at a 59% CAGR between FY09-13E, to reach 16% market share.
Compared to the west, India’s e-commerce industry is still in its infancy, but we believe that it may become a bigger part of the entire retail universe than in the west. Internet companies tend to trade at high multiples of 20x-50x 1 year forward earnings due to the very nature of high growth estimates in comparison to traditional brick and mortar businesses.
“We believe that for many young Indians, online shopping may become their primary way to shop throughout their lives. Whenever significant opportunities such as e-commerce present themselves, many market participants compete aggressively to try to emerge as undisputed leaders to gain brand recognition and customer loyalty, and oftentimes these players change their business models along the way to grow with the market,” said the report.