'100-strong unicorn club drives change in India's corporate landscape'

India's fast-growing community of unicorns -- privately-owned companies -- valued over US$1 billion, are now driving radical change in the country's corporate landscape moving at an unprecedented pace creating in excess of $ 240 billion in value, Credit Suisse said on Tuesday.

A special Credit Suisse report on India unicorns delves into India's 100-strong unicorn market and what India's startup boom means for the economy and the corporate landscape.

According to the research report, an unprecedented pace of new-company formation and innovation in a variety of sectors resulted in a surge in the number of highly valued and as-yet-unlisted companies.

Against 336 listed companies with a $ 1 billion market capitalisation, there are now 100 unicorns in India with a combined market capitalisation of $ 240 billion.

"Our research found 100 unicorns in India in a diverse set of industries, including technology and tech-enabled sectors, such as, pharmaceuticals/biotech and consumer goods, benefiting from formalization and accelerating digital adoption. Fast-growing  and innovative (unlisted) firms are sprouting up in new sectors as well as locations across India, rapidly gaining scale as they ride unique growth opportunities from digital public infrastructure and partnerships," said Neelkanth Mishra, Co-Head of Equity Strategy, Asia Pacific and India Equity Strategist at Credit Suisse.

The Credit Suisse research found out that the sectoral split is highly diversified for the 100 Indian unicorns in addition to the largely expected e-commerce, financial technology (FinTech), education technology, food delivery, and mobility companies. Furthermore, there is a rapidly growing number of firms in industries such as Software-as-a-Service (SaaS), gaming, new-age distribution and logistics, modern trade, biotech, and pharmaceuticals. Even fast-growing consumer brands have benefitted from accelerating internet penetration and formalization of sectors.

Along with the rapidly growing economy, the market capitalization of listed equities in India has risen too, making India the eighth-largest market globally. Growth for the Indian start-up ecosystem has accelerated as well, making India home to the third-largest set of unicorns globally, behind the US and China, and commanding a total valuation of $90 billion.

Constituting 30 per cent of the Indian unicorn ecosystem, FinTechs, including e-commerce, have been leaders in the Indian unicorn landscape, with the sector spawning five unicorns having an aggregate valuation of $22 billion, the highest amongst Indian  unicorns.

Ashish Gupta, Head of Asia Financials Securities Research and Head of India Securities Research, Credit Suisse said, "Indian FinTech companies have attracted $10 billion of capital and are now at the forefront of India's startup ecosystem. Digital payments are primarily leading the FinTech scale-up in India and have grown 10 times over the last five years, now having a 30 per cent share totalling US$450 billion."

As per the report, digital payments in India continue to grow, with over 200 million active users and acceptance at more than 30 million merchants compared to 5 million traditional point-of-sale (POS) terminals. It further highlights that the FinTech  sector has been the second-largest recipient of private equity/venture capital funding over the past decade with payments being the leading sub-segment raising $4.2 billion followed by digital lenders raising $2.5 billion.

While digital payment in India has picked up pace during the time of the pandemic, FinTechs are seen expanding to other financial segments beyond their core/initial offerings to drive monetisation.

"While most FinTechs are operating in partnerships with incumbent banks and non-bank financial companies (NBFCs) across lending, liability and fee businesses through embedded offerings, the FinTech phenomenon is also transcending into other financial  segments including lending, insurance, and wealth management. Having acquired a substantial user base of over 150 million users, FinTech players have even started offering small-ticket personal loans or short-term credit to monetize their user base," Mishra added.

Digital lenders have grown to $10 billion with more than a 40 per cent share in new personal and consumer durable loans and are adding new loan products as confidence in their underwriting models increase.

FinTechs have also forged partnerships with banks to embed credit products as well as investment and protection products. While adding new channels of monetization and increasing user engagement, these partnerships also help incumbent banks to expand  reach and increase their share of digital business, the report said.