India Business and Finance, August 30th
What happened in the Indian business world during the past week
Tycoon watch. India is 1.4bn people and a few families that really really matter
At the August 28th annual meeting of Reliance, India’s most valuable company, Mukesh Ambani said he would lead the company for another five years and his three children received board seats. His wife stepped down from the board but will continue to run the company’s foundation which must contributes 2% of net profits under Indian law, a massive spigot of funds to favoured causes. The move is a familiar (in India) effort to continue family control. A Tata was at the helm of the giant Tata conglomerate (founded 1868) until 2017. The Adani family is firmly in control of the Adani group, the other Indian mega giant.
That, for now, settles a succession issue that gained resonance because of pervasive private reports that Mukesh had been seriously ill (which the company denied). But India is changing. Reliance is an extraordinarily complex entity and like all behemoths are not easy to lead. As in the case of many smaller Indian princely business empires, there is a widely shared sense that none of the children have the odd combination of political and technical skills of their father (or in this case grandfather). It is a sentiment that is both unfair (the accomplishments were unique) and valid. As a result, at the same time as the announcement nominally settled questions about the group's future, it merely underscored a difficult challenge that lies ahead.
Bill Gates and Larry Fink (whose company, Blackrock, is starting a joint venture with Reliance) each appeared by video-link during the annual meeting. This was presumably done to demonstrated the global standing of Mr Ambani and Reliance. Their comments were obsequious and dull.
Coming back to earth
A key element in the global excitement now surrounding India was an explosive streak in the creation of unicorns, meaning startups with a billion-dollar valuation extrapolated from a small investment by a venture capital firm. There were nine in 2019, 13 in 2020 and 44 in 2021, when the trend peaked. Another 25 followed in 2022, almost all in the first part of the year. Last week was the first new unicorn birth in 2023 and the first since September, 2022. A $200m fundraising round for Zepto, a fast delivery service, gave an implicit value of $1.4bn.
It is tempting to see this as a thaw in the market but –
a) Viewed narrowly.
Zepto has a wonderful story and a tough reality, meaning it is the kind of ambitious company that characterized much of the India startup boom and that is increasingly viewed with skepticism. Competitors include swarms of local companies (eg Zomato and Swiggy) and big foreign ones (Amazon and Flipcart/Walmart). To the extent they have a shared characteristic, it is that they lose money. Operating conditions illustrate the clash of ambitions and hurdles. Order anything from samosas to a hair dryer to onions to medicine and a Zepto delivery says it will come in 10 minutes and actually may arrive within 20. Digital aspects of the system, like ordering, benefit from India’s tech talent and are amenable to economies of scale. Physical components are another story. Fast delivery companies depend on hard-working delivery men who ignore obstacles such as traffic lights, pedestrians and bans on sidewalk driving to deliver a package for a payment of 25 rupees ($0.30). That means labour is cheap but also unstable. Even if the delivery men are able to avoid traffic laws and competing vehicle, they will, quite reasonably, shift loyalties for even slightly higher compensation. Zepto is considered to be particularly competent. Dunzo, a competitor backed by Reliance, seems to be in a death spiral but it is not clear that any of the smaller companies can survive.
b) Viewed broadly.
Zepto’s valuation comes notwithstanding a broad consensus that the prior valuations that led to many companies becoming unicorns were ludicrous. These need to be written down for investment to start again but the mechanics of private, as opposed to public, markets inhibit accurate disclosure. That, in turn, impedes fresh investment. I was recently in Chennai and Bangalore where I heard that many incubators that sprung up to support startups will likely close and new pitches to venture capitalists have slowed dramatically. There are, though, two other areas somewhat related areas that show promise.
IPOS
Oddly, at the same time that private startup world has tanked, a handful of small initial public offerings have been greeted with tremendous enthusiasm with multiple listings over-subscribed. The companies are mainly in defense, chemicals, construction or manufacturing and the recipients are profitable with recent audited financial statements. Enthusiasm for India is, in short, being funneled into areas that have demonstrated they are credible rather than fanciful.
New horizons
The second exception is a venture-like area that did not receive much venture attention: the private business of space which emerged in the aftermath of the May 2020 change in government policy that lightened the control of ISRO, India’s NASA, leading to the creation of 200 or so companies. At the moment, India is in the midst of space fever. It is impossible to capture the enthusiasm generated by the success last week of India’s Chandrayaan-3 moon project. I was on a packed, silent flight when the captain came on the audio system to announce the mission’s successful landing and the passengers erupted in sustained, loud, applause. The failure of Russia, once India’s technical advisor, made the landing all the more poignant.
But as in the case of the G20 meeting to be held in two weeks, the abundant publicity surrounding the flight struggles to provide practical benefits. Scant attention has been focused on a characteristic that has at the very least a carry-over virtue: cost. The price of the Chandrayaan mission is estimated to be under $75m By contrast, NASA’s manned trip around the moon scheduled for next year is estimated to cost at somewhere between $13bn and $224bn. That disparity ripples through the Indian private space firms. I have been speaking with many of them. In late September or early October, a small private launch firm, Agnikul, based out of IIT Madras, will have a key test flight. The company’s goal is to build customized rockets capable of carrying a satellite to space within two weeks of receiving an order. Take off will be from mobile launch pads. This addresses a problem in the launch industry – long queues. The price will be in the range of what is charged by Space X for smaller satellites. In Bangalore, a company named Bellatrix is developing a new kind of rocket fuel. It began in a small lab on the campus of the Indian Institute of Science. A one-minute walk away in an even tinier space is an office Digantara, founded by a 24-year-old. The company maps the crowded network of orbiting satellites and the surrounding graveyard of floating space debris. The images it produces show a crowded world around our world. Government agencies are on board with providing raw data and, presumably, using the results.
Digital law
Very little has been written about a sweeping new personal digital privacy law India passed on August 11th. I have read the law and one possible reason is that the consequences are so sweeping no one believes they will be reflected in forthcoming regulations. The intent is clear: Individuals will be required to provide approval for the use of their data and their data may only be used for what is approved. While anonymous aggregate data will still permit many forms of artificial intelligence to operate, and for companies to use collective sales data to guide production, the law may throw a spanner in numerous data-driven businesses. Currently, for example, individual data is used without specific approval by credit bureaus which are at the heart of lending. The sharing of data is why big companies like Reliance and Tata believe they can build “super-apps” linking customers to possible purchases. One question about the new law is how it will be translated into operating rules (I can only assume India Inc will extend its lobbying muscle). If the rules are to be enacted at all, meaning if the restrictions aren’t stripped or “clarified” or preserved, it will likely be within the next two to three months. After that, upcoming election will cause activity to freeze.
Back on Earth
Residential property prices in Mumbai and Auckland will likely have the steepest increase in the world, rising by mid-single digits, according to a forecast by Knight Frank, a real estate consultancy. This reflects a stabilization of steep hikes in Dubai, Tokyo and Manila coming at the same time as the market in India, notwithstanding a resurgence in supply, continues to harden.
Do Indian businesses discriminate against non-Indians?
A court in New Jersey threw out disparate impact charges by a former employee of Tata Consultancy Services, India’s second most valuable (and likely most global) company. The American employee claimed he was denied opportunities provided to South Asians. Some claims of discrimination will be allowed to proceed to trial.
Safer India
A voluntary program will allow automakers to have their cars tested for safety in the event of a crash. Many of the most common tiny cars, such as the ones made by India’s largest producer, Maruti Suzuki, seem to be as light, fragile and battered as the old tables in Mumbai cafes with just as many dents. Does anyone care? Not so far. They are inexpensive, start, stop and can easily be repaired. In the big cities they spend most of their time stuck in traffic. A rating, though, could change marketing and with it, perhaps, perception.s
Quiet India
The central government is once again considering a mandator reduction in the blare of car horns to 50 decibels (“not generally harmful to human health) from the current level which can be precisely described as super high and super harmful. Tones that are “soothing to the ear” may also be required. Many have tried to change how India looks. This could change how it sounds.
Loved reading this!