[The Outline By Inc42 Plus] New Breed Of Big Tech In India

Dear reader,

Throughout December, we have looked to sum up the major trends and defining features of tech in India this year — like the 15-minute economy or startup IPOs or the implications of the funding boom in 2021. But any retelling of 2021 from the perspective of Indian tech would be poorer without a chapter dedicated to the emergence of big tech in India.

And by that we don’t mean FAANG. While the likes of Facebook, Amazon, Apple, Netflix and Google have an obvious and sizable presence in the Indian market, 2021 saw a new breed of tech giants in India. From startups that went public to large conglomerates looking to bolster their digital umbrella companies and march towards super apps.

Conglomerates On The Digital Highway

Among the corporate giants, after a busy 2020, Mukesh Ambani-led Reliance has been relatively quiet in 2021. But it still remains firmly on course for its super app ambitions. On the other hand, the Tata Group has accelerated its plans.

For Reliance, a key piece of the puzzle is JioMart, around which the corporate giant is building a slew of services. As a consequence of the digital and consumer tech pivot by Reliance, RIL’s consumer-facing businesses now comprise 50% of the company’s pre-tax revenue.

The takeover of Justdial and Milkbasket this year have added more weapons to Reliance Jio’s arsenal, and it is also reported to be in talks to invest in Dunzo in a further push for ecommerce dominance.

Ambani’s retail business got a major boost towards the end of 2021 as the Competition Commission of India all-but cleared the path for Reliance’s acquisition of Future Retail, after a prolonged court battle between Amazon and Future Group had blocked the deal.

The biggest super app competition for Reliance comes from the Tata Group, which was the busiest among the biggest corporations this year.

TataNeu, the conglomerate’s super app, is set for a public launch in early 2022 after delays in 2021. This year, besides acquiring BigBasket, US-based AccessBell and 1mg, the Tatas invested in Grameen eStore, Urja, and CureFit.

Tatas have also brought startup founders on board as key leaders, and the group is taking a page from startups by offering stock options to retain top management. It’s also looking to bring on board investors such as Microsoft, Singapore’s Temasek, SoftBank and others who have a significant network in the tech and startup ecosystem.

Adani Group has now thrown its hat in the ring to build a super app through Adani Digital Labs, a newly incubated division under Adani Enterprises, which is envisioned as the “Ferrari of the digital world”. Adani Group kicked off this journey with an investment in Flipkart-owned travel aggregator Cleartrip looking to gain a toehold in the digital services space.

In the past, startups such as Paytm, Hike and others have attempted super apps to limited success, but the deeper market presence of conglomerates and the sheer breadth of their business network increases the success likelihood in what has remained thus far an elusive category in India.

Among tech startups, the ones that have crossed the IPO tape are making moves to bolster their core businesses, leading to more than a few debates about the scattered focus of listed companies.

Public Tech Cos Eye M&As

Startups are used to being acquisition targets of large well-established conglomerates, particularly for strategic initiatives. But there’s a whole new breed of acquirers that have emerged in 2021.

Well-capitalised public tech giants are the new contenders, and are becoming a more attractive proposition for startups, because unlike conglomerates, these tech companies understand the value of speed and velocity and momentum.

Zomato’s announcements of investments in Curefit, Magicpin and Shiprocket, along with Nazara’s and Nykaa’s acquisition moves in 2021 underline the M&A itch among public tech companies. Zomato also made a significant investment in Grofers and the quick commerce segment, with the reasoning that these deals will unlock various use cases for its delivery fleet.

As founder Deepinder Goyal said at the time, “We think we can be the primary contenders for building large businesses in hyperlocal ecommerce in India. We want to take an investment route to building these businesses instead of building them in-house,” elaborating on a vision of building an ecosystem similar to Alibaba or Tencent in China.

Zomato has already spent over $285 Mn on these investments, and one expects that Grofers (now Blinkit) in particular will need more capital to scale up its 10-minute express deliveries, after pulling out of many markets recently.

Unlike Zomato, which is yet to acquire a company after the IPO, other newly-public tech cos such as Easemytrip, Nykaa, Nazara and Paytm have taken over companies. The idea is to buy verticals that feed into the core revenue channels and thereby convince shareholders about the long-term potential of the company.

Paytm acquired 100% stake in Mumbai-based digital lending startup CreditMate to shore up the lucrative loans vertical, while Nykaa acquired Pipa Bella and Dot & Key to beef up its jewellery and nutraceutical offerings.

Similarly, gaming giant Nazara Technologies raised INR 315 Cr through a fresh issue to fund deals in gamified learning, skill-based real money gaming and esports companies, and expand the so-called “Friends of Nazara” ecosystem. Nazara spread its wings beyond India and acquired Turkey-based Publishme and followed this up with the acquisition of skill gaming startup OpenPlay in October.

The obvious comparison for such acquisitions is Sanjeev Bikhchandani’s Info Edge which also entered into post-IPO deals with Policybazaar, Mydala, Happily Unmarried, Meritnation and others.

Big Tech Ambitions In 2022

The acquisitions by newly-listed companies have attracted the attention of SEBI, which has proposed capping the allocation of IPO fundraises towards acquisitions and general corporate purposes (GCP). The public markets regulator is likely to institute a 35% combined cap on both these activities, with certain exceptions, from the current 25% individual caps on the allocation for inorganic growth activities and GCP spending.

Only deals which have been earmarked in filings ahead of the public offering will be allowed to exceed the cap. This would likely give newly-listed companies a bit of pause when it comes to acquisitions, but it would make them less reliant on inorganic growth to provide value to shareholders.

Among the 2022 batch of IPO-bound startups, we are likely to see M&A moves well in advance due to the SEBI rules. The likes of BYJU’S, which are eyeing public listings next year, has already spent more than $2.7 Bn this year on M&As, while PharmEasy also made high-profile acquisitions ahead of its expected 2022 listings.

Ultimately, it will boil down to how companies are putting to use the plethora of capital available in the market — whether it is private investments or stock markets.

The key objective behind acquisitions has so far been about growth or acqui-hiring the right talent, but as the number of public companies increases in 2022 and beyond, the nature of acquisition deals will also change. Particularly among companies that have gone public in 2021, the focus will shift to revenue-centric M&As, making high-growth startups a bigger target for public tech giants.

At least, that’s our expectation for 2022, which promises to be a great sequel to a record-breaking 2021.

Here’s wishing you a Merry Christmas and a very Happy New Year from the entire Inc42 team.