(By Nikhil Pahwa & Vikas SN)
We’ve been expecting this: Indian TV and E-commerce company HomeShop18 has filed for a $75 million IPO on NYSE*, via its venture NW18 HSN holding. The company proposes to trade on NYSE under the symbol HS. This becomes the fourth Indian Internet firm to list in the US, after Rediff, Sify and MakeMyTrip.
Some notes from the offer document:
– 8.9 million consumers have placed orders with Homeshop18 since launch
– As of September 30, 2013, the TV channel reached more than 66.5 million households across India, while the e-commerce business had 8.3 million unique visitors during that month (Google Analytics)
– A technology-enabled logistics network that allows our Sourcing Partners to deliver products to our customers’ doorstep in over 3,000 towns and cities across India.
Usage of Funds
HomeShop18 notes it will not receive any proceeds from the sale of ordinary shares by Network18 Holdings Limited and other selling shareholders. Instead, it will receive the rupee equivalent of $42.3 million of the proceeds which Network18 Holdings Limited expects to receive from its sale of ordinary shares in this offering. Following this, HomeShop18 will be using these funds to purchase the equity interest in its Indian subsidiary currently held by Network18 within 45 days of the completion of this offering.
HomeShop18 mentions that it may also use a portion of these proceeds for acquisitions or strategic investments in technologies, solutions or businesses which complements the company’s business, although it currently doesn’t have any such commitments.
Besides this, it plans to use a portion of these proceeds to repay all its outstanding borrowings under its credit facilities from The Ratnakar Bank Limited which was $4.3 million as of September 30, 2013. The company has a short-term secured borrowings of Rs 8.8 crore ($1.4 million) which has been used to meet its working capital requirements and pay operating expenses. It also has outstanding long-term borrowings of Rs 18.1 crore as of September 2013.
Cashflow: HomeShop18 currently has $626,698 of cash and cash equivalents as of March 31, 2013. This includes $4,392 cash in hand, $607,740 cash in current accounts and $14,556 cash in deposit accounts. In comparison, HomeShop18 had $1.45 million of cash and cash equivalents as of March 31, 2012. This included $1,106 cash in hand, $1.37 million cash in current accounts and $75,708 cash in deposit accounts.
– FY11: operating revenues of $19.2 million. GMV (net of returns) was $62.6 million. Loss after tax was $12.7 million. Adjusted EBITDA loss was $11.4 million
– FY12: operating revenues of $24.5 million. GMV (net of returns) was $108.5 million. Loss after tax was $22.5 million. Adjusted EBITDA loss was $20.9 million
– FY13: operating revenues of $40.7 million, 66.4% up. GMV (net of returns) was $166.5 million. Loss after tax was $25.8 million. Adjusted EBITDA loss was $19.2 million
– Six month period ending September 30th 2013: $25.6 million, 67.1% up. GMV (net of returns) was $94.6 million. Loss after tax was $10.6 million. Adjusted EBITDA loss was $7.6 million. TV business reported a segment profit of $0.3 million, “which was the first segment profit for either of our business segments since our inception.”
Repeat business rate: 34.9% in FY11, 39.9% in FY12, 46.7% in FY13, 45.4% in H1-FY14
1. Electronic Goods (mobile phones, cameras and camcorders): Gross transaction value from these products accounted for approximately 47.9% in FY11, 54.8% in FY12, 44.2% in FY13, and 40.6% in H1-FY14
2. Gross transaction value from Metro cities (Delhi NCR, Mumbai, Bengaluru (formerly Bangalore), Chennai and Kolkata): 32.6% in FY13 and 28.9% in H1-FY14.
In FY13, Delhi NCR was 17.0% and Mumbai 6.1%. For H1-FY13, Delhi NCR was 14.7% and Mumbai was 5.3%
This indicates that purchases from non-metros is increasing as a percentage of total purchases, at least in terms of gross transaction value.
– Revenues: $0.35M in FY11, $3.963M in FY12, $8.361M in FY13 and $4.08M for the 6 months ended September 30th 2013.
– Gross transaction value: $1.81M in FY11, $30.80M in FY12, $55.55M in FY13, $23.16M in H1-FY14.
– Average gross commission: 19.4% in FY11, 12.8% in FY12, 15.0% in FY13, 17.2% in H1-FY14.
– Average order value: $44.1 (Rs 2011) in FY11, $27 (Rs 1299) in FY12, $19.4 (Rs 1064) in FY13, $25.0 (Rs 1501) in H1-FY14.
– Contribution to total operational revenue: 1.8% in FY11, 16.2% in FY12, 20.5% in FY13 and 15.9% in H1-FY14.
– Contribution to gross transaction value: 2.9% in FY11, 28.4% in FY12, 33.4% in FY13 and 24.5% in H1-FY14.
Quarterly breakup of Internet results:
Q3-FY12: $1.05M revenues, $2.79M loss
Q4-FY12: $1.35M revenues, $2.57M loss
Q1-FY13: $1.387M revenues, $3.09M loss
Q2-FY13: $1.95M revenues, $3.99M loss
Q3-FY13: $2.69M revenues, $4.40M loss
Q4-FY13: $2.33M revenues, $3.77M loss
Q1-FY14:$2.12M revenues, $3.83M loss
Q2-FY14:$1.94M revenues, $2.32M loss
– Revenues: $18.84M in FY11, $20.49M in FY12, $32.32M in FY13, and $21.524M for the 6 months ended September 30th 2013.
– Gross transaction value $60.75M in FY11, $77.74M in FY12, $110.90M in FY13, $71.43 in H1-FY14.
– Average gross commission: 30.8% in FY11, 26.3% in FY12, 29.0% in FY13, 29.9% in H1-FY14.
– Average order value: $49.5 (Rs 2255) in FY11, $45.1 (Rs 2171) in FY12, $43.4 (Rs 2383) in FY13, $38.6 (Rs 2319) in H1-FY14.
– Contribution to total operational revenue: 98.2% in FY11, 83.8% in FY12, 79.5% in FY13 and 84.1% in H1-FY14.
– Contribution to gross transaction value: 97.1% in FY11, 71.6% in FY12, 66.6% in FY13 and 75.5% in H1-FY14.
– Internet has lower average order values than television, which led to a significant decline in average order value (in US dollar terms) between FY11 and FY12 and between FY12 and FY13.
Revenue from Vendors
– Commission on sale of products: $13.62 million in FY11, $18.57 million in FY12 and $32.65 million in FY13.
– Reimbursement of freight, collection and related expenses: $5.45 million in FY11, $5.84 million in FY12 and $7.81 million in FY13.
– Sponsorship income: $0.1 million in FY11, $0.04 million in FY12 and $0.22 million in FY13.
– Subscription income: $12,941 in FY11, $1,039 in FY12 and no revenue in FY13.
HomeShop18 mentions that revenue from third party advertising and other promotional activities on its platform are termed as Sponsorship and subscription income.
Product split of Gross Transaction Value
– Search Engine Marketing costs: $0.38M in FY11, $2.671M in FY12, $4.21M in FY13
– Redemption of Gift Coupons online: $56,199 in FY11, $1.42M in FY12, $4.8M in FY13
– Redemption of Gift Coupons on TV: $2.07M in FY11, $1.4M in FY12, $0.86M in FY13
– TV Carriage fees: $5.25 M (27.4% of revenue) in FY11, $6.19M (13.7% of revenue) in FY12, $5.57 (17.8% of revenue) in FY13 and $2.74 M (10.7% of revenue) for the 6 month period ending September 30th, 2013.
– Shipping costs (costs of returns, tax deducted at source, sales taxes, state entry charges and service charges): $6.6 million in FY11, $11.8 million in FY12, $19.5 million in FY13, $11.8 million in H1-FY14. Freight and collection expenses are increasing due to growth in transactions on its site and due to increase in global fuel prices which had led to higher courier charges.
– Advertisement and business promotion expenses (Advertising, SEM costs, gift coupon redemptions and other brand building exercises) : $3.854 million in FY11, $7.44 million in FY12, $11.957 million in FY13 and $4.529 million for the 6 month period ending September 30, 2013.
– Airtime expenses (fees paid to other television channels for airing HomeShop18 programs): $0.631 million in FY11, $0.265 million in FY12, $0.461 million in FY13 and $0.248 million for the 6 month period ending September 30, 2013.
Cash on Delivery
– Contribution of Cash On Delivery transaction to total transactions: 88.5% in FY11, 85.8% in FY12, 80.6% in FY13, and 85.4% in H1 2014.
– “The courier companies may also, in some instances, impose collection charges on us for COD transactions, which is usually the higher of 1.5% of the value of the shipment and a minimum payment that has recently averaged Rs. 32 (approximately $0.5)”
– Return Rate: 18.1% in FY13 and 18.7% in H1-FY14.
– Cash On Delivery Return Rate: 21.4% in FY13
– Non COD Return Rate: 2.8% in FY13
Pre IPO: in NW18 HSN Holdings Plc (Cyprus), which owns 99.999% in TV18 Home Shopping Network18 Limited (India),
– Network18 Holdings Ltd (Mauritius) owns 54.5%.
– SAIF II Mauritius co owns 25.2%
– GS Home Shopping owns 17.1%
– Orchard Centar Master Ltd and Makira SP5 Ltd own 6.4%
– Network18: has invested $53.8 million so far, of which $39.9 million were invested in December 2013.
– GS Home Shopping: has invested around $29.5 million so far. This includes $11 million in October 2013 and $18.5 million in November 2009.
– OCP Asia: had invested $15 million in April 2013.
The company had also reportedly raised Rs 100 crore from existing investors SAIF Partners, Network18 and GS Shopping in July 2011.
Management stake: The company’s directors and executives as a group own 55.1% stake in the company.
– Network18 founder Raghav Bahl who owns 54.5% stake through his control of Network18, while HomeShop18 CEO Sundeep Malhotra owns 1% stake.
– HomeShop18 m-Commerce COO Atrash Aman, E-Commerce COO Narasimha Jayakumar and Corporate Affairs director Raman Kumar Gulati own less than 1% stake each.
Headcount: HomeShop18 has 544 employees as of September 30, 2013. Of these, 403 are in Noida, 114 in Bangalore, 12 in Mumbai and 15 in Gurgaon. The “Website” division has 70 employees.
It also has 67 contractual employees (consultants), and 241 temporary employees. As of September 30, 2013 Magus had 1,341 call center operators dedicated for HomeShop18.
619,000 shares (worth $1.2 million) options granted in FY11, 45,000 in FY12 (worth $0.1 million), 375,000 shares (worth $0.4 million) options during H1-FY14
“In August 2012 our board of directors adopted a stock appreciation rights scheme. For fiscal year 2013 and in July 2013, we granted a total of 2,260,000 and 325,000 stock appreciation rights to certain executive officers and other employees under this scheme, respectively, and the fair value of these stock appreciation rights (measured as of grant date) amounted to $3.0 million and $0.3 million, respectively.”
Dependency on sourcing partners:
– Homeshop18 has 500 sourcing partners.
– Top 10 sourcing partners accounted for 65.8% in FY11, 77.4% in FY12, 69.5% in FY13, 66.6% in H1-FY14.
– Number of sourcing partners accounting for over 5% of gross transaction value: 5 in FY11, 2 in FY12, 3 in FY13, 4 in H1-FY14
– North India Top, a sourcing partner, accounted for 23.4% of GTV in FY11, 47.6% in FY12, 43.9% in FY13, 15.8% in H1-FY14. The decline was due to a warehouse fire in June 2013.
– Beginning in November 2012, HomeShop18 started eliminating or significantly reducing the reimbursement of freight and collection expenses component of its gross commission to simplify its commercial arrangements with sourcing partners. As a result, this component has declined to 4.5% for H1 2013 from 20.3% in H1 2012. However, its average gross commission rate increased to 26.8% in H1 2013 from 21.9% in H1 2012.
– In FY13 and H1-FY14, HomeShop18’s top five Sourcing Partners by contribution to total gross transaction value: North India Top, SMM, New Age Corporation, Ambika Saree Centre and Cart2India Online Retail Private Limited.
Relationship with Network18
– Loans from Network18: Network18 has also provided corporate guarantees in respect of certain credit facilities under which HomeShop18 had outstanding borrowings of Rs 26.98 crore ($4.3 million) as of September 30, 2013, although the company intend to fully repay all outstanding borrowings under these facilities with the proceeds from this offering.
– Reliance could get ownership of Network18 shares: Independent Media Trust whose sole beneficiary is Reliance Industries Limited has subscribed for zero coupon optionally convertible debentures in certain companies through which Raghav Bahl holds his interest in voting equity shares of Network18. These convertible debentures are currently exercisable at the option of IMT and expires on October 30, 2022. The conversion of all of these convertible debentures currently would result in IMT becoming the controlling shareholder of Network18 and a beneficial owner of the ordinary shares of our company that are currently held by Network18 Holdings Limited.
FDI in retail
“We have received an approval from the FIPB dated May 31, 2007 for uplinking a television channel in the non-news and current affairs category. This approval is subject to compliance with conditions specified by the Ministry of Broadcasting, or the MIB, for obtaining permission to uplink the channels and compliance to provisions of Cable Television Networks (Regulation) Act, 1995 and rules framed thereunder as amended from time to time.
FDI is restricted in retail trading, with 51% FDI permitted in multi-brand retail trading subject to prior approval from the Government of India and up to 49% FDI permitted in single brand retail trading under the automatic route while FDI over 49% and up to 100% in single brand retail trading is permitted, subject to prior approval from the Government of India and certain other conditions specified in the FDI policy. While the term “retail trading” has not been defined under the FDI policy, based on judicial guidance from the Indian courts, “retail trade” has generally been interpreted to mean “direct sales to the ultimate consumer.” We operate a digital commerce platform that provides our Sourcing Partners a multi-channel approach to demonstrate, market and sell their products. We do not directly sell products to any customers. Hence, we do not engage in retail trading, and our company is not subject to the terms of the FDI policy in relation to retail trading.”
– April 2008: HomeShop18 launched its television channel which claims to reach 0.7 million television households across India.
– October 2009: Claims to have shipped more than 1.3 million orders and served a cumulative one million customers.
– January 2011: Launched its online site HomeShop18.com
– September 2011: Claims to have shipped more than 5 million orders and served a cumulative three million customers.
– April 2012: Launched its mobile site m.HomeShop18.com.
– September 2012: Claims to have shipped more than 9.9 million orders and served a cumulative five million customers.
– February 2013: Launched its iOS and Android apps.
– August 2013: Launched its new television studio and updated its website for closer content and sale events integration between both channels. Claims to have registered more than 10 million unique visitors to its website.
– September 2013: The television channel claims to have reached more than 66.5 million households across India.
– October 2013: Claims to have shipped more than 17.3 million orders and served a cumulative 8.3 million customers. Also claims to have more than 1,200 call center agents for sales and order processing at its call center.
– December 2013: Claims to have registered a cumumlative downloads of 290,000 across its iOS and Android apps. Also claims to have generated over 18.9 million orders on its site along with the ability to deliver in more than 3,000 towns.
Corrigendum: an earlier version of this story incorrectly stated that HomeShop18 is listing on NASDAQ. Our apologies for the error. Thanks for pointing out Snigdha.