Indian online shopping industry to touch $45 bn by 2020 vs $4 bn in 2013: Report

Motilal Oswal Securities sees Snapdeal, Jabong, Mydala, DotZot as strong e-commerce players in the future

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With internet users in India growing rapidly and investors willing to fund companies in the internet space, brokerage firm Motilal Oswal Securities on Wednesday said it expects online shopping of physical goods in the country to grow at a compounded annual growth rate (CAGR) of 50 per cent over the next six years and touch $45 billion by 2020. The estimate includes companies across online travel, e-retailing, classifieds and online financial services.

The estimate would mean an over 11 times growth from $4 billion estimated for 2014, the report titled 'Fast and furious: Just the beginning of multi-year explosive growth' said.

"On a low base, multiple enablers of this explosive growth include increase in the number of internet users, increase in the proportion of online shoppers within those users, growth in the per-shopper transaction value, and continued flow of capital by willing investors, arming firms with ammunition to woo consumers online," the report said. According to estimates, India added around five million internet users to its base of 213 milion in 2013, driven by a rapid growth in smartphones.

While so far, travel has dominated the online shopping space with a CAGR of 32 per cent between 2009 and 2013, the report said that going forward e-retailers would drive growth, with expected CAGR of over 60 per cent to $7 billion in 2016 from $1.7 billion in 2013.

Within the e-retail segment, the report said fashion would be the driving segment, which was at $559 million in 2013 and is estimated to by between $3 billion-$6 billion by 2016.

Among the leading online sellers, Motilal Oswal Securities said it sees Snapdeal.com, Jabong.com, mydala.com and DotZot having a strong edge above others.

The report further compared the Indian e-commerce space with China, which is soon expected to overtake the US as the world's largest online retail market, saying that the drivers of expansion of e-commerce in India are the same as China. "Growing internet population, limitations of physical retail beyond large cities, and well-funded ecosystem players are all drivers (in India). These are similar to those in China, where e-commerce grew at a CAGR of 76 per cent since 2003 to $306 billion."

Highlights of the report:

* Why Snapdeal's marketplace and strategy will likely work: Snapdeal's investment requirements have been limited. Its sales have significantly outgrown the industry in FY14, given its focus on adding more sellers.

* On single-category players: There is room for single-category players in select segments, most prominently in fashion. There could be space for 3-4 horizontal (multi-category) players to co-exist in the market, there is enough room for category-focused players in segments that require a differentiated approach.

* Opportunity for allied industries: For every Rs 100 spent on e-commerce, it is estimated that around Rs 35 is spent on supporting services like warehousing, payment gateways, logistics, among others.

* Funding and profitability: Most of the money raised by Flipkart, Snapdeal, and that committed by Amazon is yet to be invested, indicating that we may not be anywhere near the end of round-the-clock discount seasons at online stores. Applying the five competitive forces model to the industry, we find a 'red ocean' at large. Profitability could be a few years away.