Grofers registers a Revenue climb of 111% to cross INR 100 Crore mark in FY20; looks at indirect US listing through the SPAC route

The Indian food and grocery market have been one of the few sectors that have shown a massive spike in business during the Covid -19 pandemics.

As per the figures between 2013 and 2019, the sector doubled from $300 billion to $600, and by 2024, it is expected that the sector will register a jump of another $200 billion.
Grofers, an Indian online grocery delivery service, has also registered steady growth, as have its competitors operating in this segment.

The revenue for Grofers has grown 111% YoY to over INR 176 Crore from INR 83.62 Crore in FY2019.
Grofers, which came into existence in 2013 and will be clocking its eight-year in 2021, and while its biggest competitor is BigBasket, which will enter its tenth year, Grofers, while behind in terms of numbers, is catching up fast.

While the grocery and food market is set for a spectacular rise, the competition between the major players is also heating up at an equally faster rate.
The Softbank backed Grofers, competing with JioMart (Mukesh Ambani’s pet project at the moment), BigBasket (which Tata Group is in talks with for a majority stake) tough as it is in terms of competition, it is equally tough to raise money.

In keeping with the difficulty of raising money online and offline, Grofers is now looking to opt for a listing in the US through a special purpose acquisition company (SPAC).
The difference between an IPO and SPAC is – through an IPO, a company is looking out for money while a SPAC is a money looking for a company.

Hence Grofers has decided to go the SPAC way and is currently in talks for an indirect listing in the US by merging with a SPAC.

According to sources, an advisor has been appointed for the same, and the talks have now surpassed the early stage, though it is still quite early to reach a final decision.

The advantage for Grofers is that if it merges with a SPAC entity already listed in the US, it gets fresh liquidity, which will give it an edge in the already competitive sector.

Earlier reports had also come in that Grofers was eyeing a public listing later this year, but perhaps if the above talks with a SPAC get through, it will prove to be a significant turning point for Grofers.

What are SPACS?

SPACs or otherwise known as blank – cheque companies, are investment vehicles that raise money by listing on a stock exchange. SPACs or such companies use the proceeds of the IPO solely to acquire or merge with private firms that want to avoid the costs and the lengthy process of an IPO in the US.

In recent times SPACs have found significant popularity in the US as an investment vehicle. They have become one of the most popular channels for private companies to go public.
As SPACs have gained such popularity, hundreds of SPACs have now raised billions of dollars in cash and now seek to acquire companies.

This has caught the eye of many Indian companies as well, which now want to explore this route for listing on US exchanges.

Grofer’s plans

The net loss of Grofers in the year 2019 -20 rose to 42%, Rs 637.4 crore from the previous Rs. 448 crores; however, its revenue more than doubled to Rs. 176.7 crore.
By 2021, Grofers wants to achieve its target of turning profitable, which it had hoped to do by 2020.

The company was also in acquisitions and funding talks with online delivery Zomato and e-commerce player Paytm Mall; however, the talks were unsuccessful.
Hence, it would be a better alternative for Grofer’s to try the SPAC route since, given the financial metrics and profitability in India, it would not be easy for Grofer’s to get a domestic listing.

In the last few years, Grofer’s has been majorly focusing on its private-label business, and it currently forms 42% of its revenue.

The Growth Story of India’s Food and grocery market.

Even though traditional retail’s market share is shrinking, and the market share of modern retail is rising, traditional retail is still dominant at around 90% level.
However, the favorable government policies and market trends are contributing to the rise of India’s food and grocery market towards new heights.

Modern retail, which is growing at a compound annual rate growth rate of 16%, modern retail is set to occupy more than 6% of the food and grocery market by 2024.
The sector is seeing a flush of money, and the collateral benefit has seen an improvement across the entire food processing ecosystem, ranging from product development to cold storage and logistics.

This has resulted in it getting easier and more lucrative for the companies to enter the organized retail space. The fact that the trend has also seeped into the Tier 2 cities in India is an example of how attractive this segment has become.

Retailers are now realizing and are keen to participate and reap the benefits of entering the organized retail space, and hence realigning their business models to offer an extensive and bigger product range in a more optimized space.

Another growth factor is the boom in smaller cities due to the higher population concentration and robust demand in the smaller cities.

The fact that the Covid -19 pandemics also lent a helping hand in the boom in the segment is perhaps one of the few positives of the pandemic’s impact.

While people were huddled indoors, there was a massive surge in demand for online food and grocery delivery services.

Hence, this segment is all set to register an exponential rise, and for Grofer’s to compete for its fair share of this pie, going the SPAC way would be the ideal and the best way to boost growth.