The next wealth creators you should be looking at

Valuations of consumer tech companies in India are not sky high or crazy, and there is method in the madness. At least, that’s what Venugopal Garre, MD, Bernstein feels.
He says several consumer tech brands have been around for years, probably more than a decade, growing at a steady pace. Now, Covid has contributed to their growth by accelerating demand and forcing consumers to go online for a lot of things. This spurt has created new consumer tech brands and these are also going to last.

“A lot of these business models would have thought about tapping the IPO market before but they are now coming in now because it is not just about liquidity and valuations. It is also because they are now much closer to reaching a certain scale for some profitability as well as top line perspective, where they would have wanted to list in the public markets,” says Garre.

Globally, private investors are looking at the scale-up potential of consumer tech companies, creating fresh unicorns in India.

“If you look at the private market, there are a lot of mature companies with numbers of years of operation and probably decent track records in terms of the consumer base and the revenue run rate that they would have created. Their listing may be 12 to 24 months away,” says Garre.



“The private funds are participating in the so-called pre-IPO rounds which may not necessarily be the public pre-IPO round but general pre-IPO rounds and we are seeing valuations lifting 30% to 40%.”

PE funds are also betting on small and new start-ups who don’t have actual revenues, based on calls on individual founders or individual end markets. These calls can be termed high-risk calls. Indian start-ups should participate in such opportunities.

Three areas
Garre considers three areas as poised for growth in the consumer tech space: B2C e-commerce, food delivery and edutech.

“Food delivery has seen pretty tremendous scale up globally in terms of the revenues and GMVs for a lot of companies in a lot of geographies. This is an area which tends to be pretty important even where I live. This is another area where you are going to see a scale up,” says Garre, who lives in Singapore.

For edutech growth, India has the right resources, such as bandwidth and good teachers, even in small towns.

“We will see a lot of B2C models like food delivery models globally but when it comes to edtech, India offers an opportunity because it is primarily a significantly good cost model. Given fairly good bandwidths, teachers and educators in tier-2, tier-03 cities could be utilising their talent to teach students outside India. This tends to be a fairly high margin industry if executed well,” says Garre.

In other consumer tech areas such as EVs, a disruptor has to emerge to challenge established auto players. It remains to be seen how Ola Electric will do, he feels, and whether it ends up shifting consumer preferences in favour of electric mobility.