[Gsynch]

While the discussion seems to have veered more towards farming and maybe slightly OT but the impact of farming as a sector on our daily life is huge. It is also an emotive issue for many hence any radical suggestions invoke extreme emotions.

India's economy can't thrive on farming in its current state, but at the same time, food security and scarcity are a real threat and in near future, we need this sector to flourish to get food on our plate. More money and fewer grains is also not a good balance.

I own a piece of ancestral farmland that gives us enough to fulfill our yearly need for grains, pulses, etc. but family members don't feel half excited about this ownership as they would feel for a new car or new toy. That's the Irony.

[Emvi]

Originally Posted by Samurai

Being from traditionally agricultural family, most of my extended family including myself have inherited agricultural land, all below 5 acres after the dividing. However, not one of us are doing agriculture for a living. The economics simply doesn't make sense.

I agree with you to an extent. With relatively smaller holdings at disposal, agriculture may not be a viable option for many, especially if food/field crops are taken up for cultivation. Having said so, cultivating commercial crops instead can invariably fetch higher returns. 'How much is enough' depends entirely on the lifestyle people choose for themselves. One major issue among a few others that is plaguing agricultural sector big-time is labour issue. The incumbent and the erstwhile governments are the ones to be blamed for. As rightly mentioned by @maddy42, populist schemes of the elected governments have had tremendous impact on the issue. Indiscriminate government policies such as loan waivers and illogical allotment of BPL(Below Poverty Line) cards are the main culprits. My profession being agriculture(Dakshina Kannada district) and Udupi being your hometown, I am pretty sure you will easily comprehend what I am going to state further. In Udupi, Dakshina Kannada, Kasaragod and neighboring districts, "utter poverty" is pretty much non-existent. In a scenario such as this, BPL cards are issued to every Tom, Dick and Harry based on decades old eligibility criteria. When food grains(in multiple kilos) are delivered free of cost to your doorstep(yes! Thanks to lockdown restrictions) every month and loans are written off left, right and center, why would anyone want to work to earn a living!? Annual household income of 1.2 lakh rupees or lesser is the eligibility criteria for BPL cards in India, I stand to be corrected. Excluding the GENUINE beneficiaries, the "so-called poor" BPL card holders have always enough to splurge on TVs, BIG smartphones, 150cc+ bikes, scooters, cars and what not, but..but, food grains and loan repayment are the only things they can't afford. If this is not enough, I read somewhere that one of the states in North India is planning to increase the income limit for BPL card eligibility to 1.8 lakh rupees! Pandemic situation has only worsened matters. Most of us are aware how much the government has spent for this 'noble' cause last year and how much more is needed this year. To put it in numbers(approximately), INR 1.5 lakh crore was the damage last year and additional INR 1.1 lakh crore is needed this year. No citizen should sleep hungry, absolutely. But these rubbish schemes have not only benefitted the "poor", the local grocery shop owners and liquor shop owners too have reaped the "benefits" and are the happiest of the lot. Need I elaborate further? Now, the all important question- while the rules are clearly written in 'black and white', why are the elected governments not able to do anything about this mess? Well, my guess is as good as yours.

[maddy42]

Originally Posted by Samurai

However, not one of us are doing agriculture for a living. The economics simply doesn't make sense. So all those fertile land is lying vacant. Everyone is hoping for some big company to come and acquire the land for industrial use.

Let me guess, no one is willing to Lease it and cultivate it too? Similar scenario in our area where massive paddy fields are being either converted to coffee or areca plantations or the new buzz is in bamboo cultivation. But try to get a lessee, he will put a lot of conditions, before he agrees to cultivate your land.

Originally Posted by Emvi

I agree with you to an extent. With relatively smaller holdings at disposal, agriculture may not be a viable option for many, especially if food/field crops are taken up for cultivation. Having said so, cultivating commercial crops instead can invariably fetch higher returns. 'How much is enough' depends entirely on the lifestyle people choose for themselves. One major issue among a few others that is plaguing agricultural sector big-time is labour issue. The incumbent and the erstwhile governments are the ones to be blamed for. As rightly mentioned by @maddy42, populist schemes of the elected governments have had tremendous impact on the issue. Indiscriminate government policies such as loan waivers and illogical allotment of BPL(Below Poverty Line) cards are the main culprits. Now, the all important question- while the rules are clearly written in 'black and white', why are the elected governments not able to do anything about this mess? Well, my guess is as good as yours.

Not one politician will hold the govt guilty for splurging tax payer money on schemes.

You mentioned small holders in distress, but i want to provide an example where these schemes have put people with large land holdings in distress.

• In the coffee growing areas BBTC which is owned by Wadias have put up their 2900 acres on the block for Sale.
• A year back a coffee company put about 100 acres for sale which was picked up by a Indian scotch maker from Blr.
• Also the entire block from Cafe coffee day group is rumored to be on the market.

Main reason is the inability to manage this size with the current labor market.

Maddy

[Samurai]

Originally Posted by Samurai

Capital is important, but it is not everything. That is what I have learned.

Originally Posted by Samurai

You are assuming capital investment and entrepreneurship are strongly correlated. It is not true in every sector. It is somewhat correlated, but correlation doesn't always mean causation. Capital is great catalyst for entrepreneurship, but cheap access to capital also leads to crappy/fake entrepreneurship.

It feels strange when a billionaire stock trader agrees with you...

The capital is not so important but the business model

https://economictimes.indiatimes.com...w/84704577.cms

[SmartCat]

So I was reading up on Zomato valuations, watching interviews of a few private equity guys and I finally found a somewhat convincing argument (relatively speaking). I'm paraphrasing here:

People expect companies to make profits because they will not survive for long without that. However, if there is a company that has access to huge capital, there is simply no need or requirement for it to make profits.

As an analogy, if an 18 year old son of farmer/construction worker is not very bright in studies, it makes lot of sense for him to quit studies and get into his father's farming/construction profession. That way, the family's income goes up immediately. However, that is not the case with son of a well-to-do family. If the student is bright enough, it makes more sense for him to study till 30 years and do a MD/DM in a specialist medical field. The latter's father does not see it as a "loss" while his son's education is costing him crores of rupees for the incremental 12 years. That's because -

1) He has no need for his son to start earning at 18
2) He sees lot of potential for him to earn a lot of money many years down the line.

Ditto with unicorn startups. Not all startups get a blank cheque. Only when investors see big future potential, the founders are given a long rope. Anytime they see their company not performing (in terms of growth) up to their expectations, they will ask the founders to cut growth and chase profits. Most such startups can become profitable in a short period of time if they cut growth.

[Chetan_Rao]

Originally Posted by SmartCat

So I was reading up on Zomato valuations, watching interviews of a few private equity guys and I finally found a somewhat convincing argument (relatively speaking)... [/i]

Isn't that a lot of words to essentially say 'it's all musical chairs with someone else's money and I don't care as long as I'm not the one standing when the music stops'?

[Samurai]

Originally Posted by Chetan_Rao

Isn't that a lot of words to essentially say 'it's all musical chairs with someone else's money and I don't care as long as I'm not the one standing when the music stops'?

No, that is not what he said. What you are saying applies to VCs, not PEs.

[SmartCat]

Originally Posted by Chetan_Rao

Isn't that a lot of words to essentially say 'it's all musical chairs with someone else's money and I don't care as long as I'm not the one standing when the music stops'?

Actually no. In Zomato's case, its a fresh issue of shares. Original investors are still holding on to the shares. Looks like they actually believe in their version of "rich dad/poor dad" story.

Most of Zomato stock held by institutions: Zerodha CEO
https://economictimes.indiatimes.com...w/84681073.cms

[Chetan_Rao]

Originally Posted by Samurai

No, that is not what he said. What you are saying applies to VCs, not PEs.

Originally Posted by SmartCat

Actually no. In Zomato's case, its a fresh issue of shares. Original investors are still holding on to the shares...

Follow-up question: is there a documented example of a comparable business in that space that turned sustainably profitable?

[SmartCat]

Originally Posted by Chetan_Rao

Follow-up question: is there a documented example of a comparable business in that space that turned sustainably profitable?

There are zomato-like apps in US/Europe whose losses are going down every year, and revenues zooming. It is quite likely that they will become profitable over time.

I guess Zomato can be considered a logistics company like DHL or Fedex. End of the day, they are transporting goods from one place to another. Zomato specifically wants to 'revolutionize' agriculture sector by getting farm goods to restaurants (and eventually individuals).
https://www.hyperpure.com/
https://yourstory.com/2019/04/hyperp...fork-model/amp



Just like DHL/Fedex, they will eventually have warehouses all over the country. If they can make the process of sourcing farm goods more efficient, maybe something good will come out of this IPO for the country.

[carboy]

Originally Posted by SmartCat

Most such startups can become profitable in a short period of time if they cut growth.

This makes it sound as if it's very easy to make profits. 18/19 startups out of 20 fail in the real world.

Revenues & Customers are built using lossy discounts. If you remove the discounts & start chasing profits, a new startup will enter the market with VC funding & take away your customers & revenues by giving discounts.

Building Revenues & Customers using lossy discounts will work only if there is some stickiness in the product. For e.g. you sell Enterprise software at a loss & people are using it for many years. Now it's a sticky product. If you increase your licensing costs, they will have to think whether the disruption in their day to day business while switching to a different software is worth the trouble. They have export the data, import it to the new software, make sure everything works seamless etc etc. There is a huge switching cost because of this which makes the product sticky.

Or it may be a product like Facebook which is sticky. You won't switch unless all your friends switch.

OTOH, there is no switching cost to the user or to the restaurant owners to switch from Zomato to a new App Tomato if it's started with VC funding tomorrow.

In Bombay, I have seen that Swiggy has already started chasing profits. I notice that in Bombay, as of today, if you call the restaurant & order, it's a little cheaper than ordering through Swiggy. Most restaurants around my area, I order from, I have ordered from them even before Swiggy/Zomato - they all have their own delivery guys anyway. A couple of years back, Swiggy was giving lossy discounts, so it was cheaper ordering through Swiggy. Now it's cheaper order directly - there is no reason for me to order through Swiggy. Till, of course, there is a new startup which again starts with discounts to gain userbase & revenues over profit.

[DigitalOne]

Originally Posted by SmartCat

I guess Zomato can be considered a logistics company like DHL or Fedex. End of the day, they are transporting goods from one place to another.
.....
Just like DHL/Fedex, they will eventually have warehouses all over the country. If they can make the process of sourcing farm goods more efficient, maybe something good will come out of this IPO for the country.

I also thought that the Zomato kitchens (Cloud kitchens) was a good concept and will really kick-off but a Zomato kitchen in my neighborhood is not doing well. I hardly see 10% tenants in the building now.

Did they say anything specific about Zomato Kitchens during the IPO?

[SmartCat]

Originally Posted by carboy

OTOH, there is no switching cost to the user or to the restaurant owners to switch from Zomato to a new App Tomato if it's started with VC funding tomorrow.

Looks like entry of Tomato app will not affect Zomato. That's because the market is expanding at a rapid pace. Tomato's advertising will probably help Zomato/Swiggy in the long run, if the new entrant's service levels does not match Zomato/Swiggy. What competition does is, it gets users habituated to ordering food from home.

Evidence: Grubhub's stats
https://www.businessofapps.com/data/grubhub-statistics/

Marketshare has fallen from 66% to 18%:



But its gross sales have gone up 32% CAGR:



Disclosure: I'm NOT invested in Zomato and I don't intend to till it generates profits and pays out good dividends. I'm interested in Zomato purely from "academic" view. Just curious about how startups are valued and how they evolve with time.

Originally Posted by DigitalOne

I also thought that the Zomato kitchens (Cloud kitchens) was a good concept and will really kick-off but a Zomato kitchen in my neighborhood is not doing well. I hardly see 10% tenants in the building now. Did they say anything specific about Zomato Kitchens during the IPO?

Did not hear much about it (or I might have missed it). Probably because restaurants right now are probably putting expansion on the backburner? Just like how PayTm is evolving from a payment app, it is quite likely that Zomato too will expand/evolve over time.

[DigitalOne]

Originally Posted by carboy

In Bombay, I have seen that Swiggy has already started chasing profits. I notice that in Bombay, as of today, if you call the restaurant & order, it's a little cheaper than ordering through Swiggy. Most restaurants around my area, I order from, I have ordered from them even before Swiggy/Zomato - they all have their own delivery guys anyway. A couple of years back, Swiggy was giving lossy discounts, so it was cheaper ordering through Swiggy. Now it's cheaper order directly - there is no reason for me to order through Swiggy.

I have written about this earlier (A Guide: Eating out in Bangalore) in the Bangalore eating out thread.

Swiggy/Zomato have convinced a lot of people that it is cheaper to order via them. And that's going to benefit them for a long time to come .

ps - not a Zomato investor.

[carboy]

Originally Posted by DigitalOne

Swiggy/Zomato have convinced a lot of people that it is cheaper to order via them. And that's going to benefit them for a long time to come .

It will benefit them only till the time a new Startup comes into the market with deep, lossy discounts.

As of now, it benefits them because people only compare them with each other.

And I am pretty sure the Zomato IPO will inspire more startups in that space.

Originally Posted by SmartCat

That's because the market is expanding at a rapid pace.

COVID effect? It will eventually get over.