India's first Internet IPO was an unqualified success. Info Edge's offer of 53.23 lakh shares at Rs 320 each was oversubscribed 84 times and raised Rs 170 crore. The stock listed on 21 November with the NSE ticker "Naukri" because Info Edge is the proud owner of the leading online employment portal. It opened at Rs 451 and closed at a high of Rs 592.
Undoubtedly the buoyancy of a runaway bull market had much to do with the windfall gains. But six years after the dotcom bubble burst, e-commerce is back in focus. And this time, it isn't just a matter of hype and inflated valuations.
India's demographics have improved in key ways that have made e-commerce into a channel for high-revenue growth. By March 2006, some 39 million surfers were spending five hours (or more) a week online. By March 2008, there will be 100 million surfers in this category. Credit card penetration has increased substantially--another pre-requisite for e-commerce.
The adoption of e-ticketing by many airlines and above all, by the Railways, has been a big driver. Given spends across travel tickets, books, movies, music, gadgets, hotel bookings, jewellery and apparel, it's obvious that e-consumers aren't lacking in a sense of adventure. While most transactions are in the range of range of Rs 300-odd, a siginificant minority of transactions are Rs 10,000-plus.
In the service sector, the success of portals like Naukri, Shaadhi and Monster among others is ample indication that e-commerce is here to stay in its second avatar. Estimates by bodies like the Internet and Online Association of India (IOAI) and the Internet and Mobile Association of India (IAMAI) suggest that the business to consumer (B2C) segment has grown from about Rs 130 crore in 2002-3 to about Rs 1,180 crore in 2005-6 and B2C will hit Rs 2,300 crore by 2006-7. That into a compounded annual growth rate (CAGR) of 105% over four years.
Growth in the online advertising segment has been almost as impressive with a CAGR of 95%. Online ad revenues have jumped from Rs 15 crore in 2002-3 to about Rs 162 crore in 2005-6. By March 2007, the online ad market should be worth between Rs 220 -250 crore depending on which estimate you like.
The specialised search engine market will hit Rs 230 crore by then, according to Mumbai-based Pinstorm, which is reckoned among the best search engine marketers in the world (Pinstorm's been rated amongst the hottest companies in Asia two years in a row by Red Herring magazine). While e-commerce 2.0 seems quite sustainable, there are caveats. We don't have reliable profitability numbers. Even the revenue numbers are conjectural and extrapolated on thin data samples. Until a few more ebusinesses go public, we won't really have a sense of typical balance sheets. But the success of Info-Edge (currently trading at a 2005-6 PE of 120-plus!) should encourage more e-business IPOs.
Never read a statistic for what it is alone. Cynics who believe that the retail and residential development boom has started to wane, would do good to read the office space absorption figures (see table on the next page) with the same philosophy.
With new office spaces in India's top cities being snapped up even before they're formally up for sale, the residential market is also set to continue its dream run. The demand for office premises is usually a good leading indicator of where and how much the demand for housing will be created in the near future. As businesses expand in cities, families and civic amenities follow suit.
Bangalore still leads the pack of the fastest growing cities with office space absorption of 9.28 million sq ft till the third quarter (January to September) of 2006. It is estimated to reach 11 million sq ft by the end of the year.
Globally, this growth places Bangalore second to only Tokyo (12.33 million sq ft) and London (9.96 million sq ft) in that quarter, even ahead of Shanghai (6.83 million sq ft). The demand for new commercial spaces continues to be driven by the IT and ITeS sectors followed by the backoffice operations of financial services.
The absorption in the national capital region also crossed 6.36 million sq ft by the end of September (estimated to be 8 million sq ft by the year end, nearly 3.5 times of the absorption in the entire year of 2005- 2.36 million sq ft). Surprisingly, in the third quarter (July-September), Noida overtook the much-touted Gurgaon in office space absorption of NCR by accounting for almost 48% of the total absorption in the region, a rise of nearly 21% from the previous quarter. Till the first two quarters of 2006, it was Gurgaon that accounted for 63% of all office space absorbed in the NCR. Inadequate supply of commercial space, higher occupancy cost in Gurgaon and its better connectivity and infrastructure has given Noida a distinct advantage.
However, analysts believe that Gurgaon will soon close the difference with many new companies set to open shop there. The regional variations apart, the continuted boom in demand for office space means real estate will continue to be a wealth creating machine for some more time.