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SmartOwner and the art of hiding in plain sight


One side of its platform has its back to the wall, the other wants its pound of flesh. One side is desperate for money, the other greedy for returns. One side is ruing the death of an easy business model, the other yearning for a market-beating asset class.

All around is the murky swamp of real estate.

In the middle sits SmartOwner, run by smarts and shrouded in secrecy. And working backwards to retrofit a legal structure into a business model.

Analyzing the platform

No one can say with conviction what it really is. Is it a crowdfunding platform? Perhaps. Is it a fractional ownership platform? Maybe. Is it a real estate broker? You could say that. Is it an investment platform? Definitely.

A question is posed to Vikram Chari, SmartOwner’s co-founder and chairman, “Do you see yourself as a broker or a financier?”

A bit of both, he says.

After trying his hand at investing in real estate in the US, Chari moved to India after being nudged by some friends. And like most returnees, he started investing in early-stage real estate projects, called “pre-launch” in real estate parlance. In the realm of real estate speculators, buying and selling pre-launch properties before the developer sold the units to buyers. When the developer found an end buyer for the units, Chari made money for his customers by selling the stake in the company and the units that were blocked against the investment.

“It’s practically a real estate broker who’s setting up an AIF (Alternative Investment Fund) to get the best deals,” says Vivek Mimani, partner at law firm Khaitan & Co.

According to a progress report of the company reviewed by The Ken, out of the 18 projects SmartOwner has funded, the company has given a return of 20-31% return on investment per annum since 2012. This is closer to returns offered on equity share of some of the top public companies.

“It sounds like these guys have already done something and now they are trying to put together the legal route to do this,” says Roshan D’Silva founder and CEO of holiday home rental portal Tripvillas, when asked about the company’s move to set up its own private equity fund i.e. AIF.

Perhaps it’s time to understand what exactly it is that SmartOwner does.

Smelling opportunity

India’s real estate boom in the 2000s turned property into a commodity. Before the government reformed the sector with a new set of fairly stringent laws, residential property development was largely opaque and rested on the easy model of developers “launching” new projects, collecting money from buyers, then using some of it to start constructing what they promised, and diverting a lot to other projects.

But customers eventually wisened up. As a result, developers and prospective customers were often stuck in a game of chicken and egg, one waiting for the other side to book an apartment and pay some upfront money, the other waiting for prices to drop further.

It was into this downward spiral that SmartOwner launched in 2012.

By 2016, a new real estate omnibus law, the Real Estate Regulation and Development Act(RERA), put many conditions on how developers can use the money they get from home buyers. This made finding cheap capital even more difficult for real estate companies. Those who can still eke out some credit from banks will do so. Some can seek institutional investors such as Blackstone or GIC, but these investors usually look to invest in large developers with a diversified portfolio of commercial and residential real estate.

SmartOwner spotted this distress and packaged it as an opportunity. They tied up with real estate developers desperate for cash, but unwilling to drop prices in public, and started offering discounted rates in private to investors.

Their website lists numerous properties in which you can invest, but almost none have any identifiable locations, brands or details. The developers only want genuine buyers, says Chari. So only investors who have evinced strong interest get details of the projects personally.

In other words, secrecy is a filter for identifying genuine customers.

Through a network of related companies, it takes in money from investors and uses it to finance real estate projects. SmartOwner takes a 6% service fee on the amount invested.

Going forward, Miniso will have its work cut out


Miniso may have competition in India in chains like Market99 and Muji or category leaders, but the company is gaining a foothold in India on the back of pricing and its pace of expansion.

Plus, a similar retail format of a pan-India variety chain has been largely missing in India, “possibly because pricing, rentals and supply chain expenses are a tough equation to resolve in such low-cost formats,” said a retail analyst, asking not to be named in context of the brand. “That explains Miniso’s attempt to achieve scale quickly.”

And the company wants more. 800 stores by 2020, sized between 1,500 and 3,700 square feet, both owned and franchised. The plan is to “make Miniso a successful convenience store in India,” said Liu, adding that India has already become one of Miniso’s top five markets by earning Rs 700 crore in just one year. In fact, the company is also exploring bringing two other brands owned by the parent company—furniture brand Mini Home and another premium brand Nome—once Miniso is settled.


The Rs 700-crore number is a rather intriguing one.

In the last four months, the company has repeatedly made headlines for having met its target from 26 stores in August 2018. That amounts to almost Rs 27 crore ($3.8 million) per store, close to Muji’s overall revenue of Rs 29 crore ($4.1 million) in the year ending March 2018. However, Miniso’s original target when it launched in August 2017 was a supremely ambitious Rs 10,000 crore ($1.4 billion) in revenue in two years. This estimate, said Liu, was revised internally after the company introspected its standing, given the challenges in India.

According to the RoC filings of Miniso’s India entity, sourced from Tofler, the company made Rs 21 crore ($2.9 million) in revenue between 22 June 2017 (incorporation date) and 31 March 2018. Since Miniso opened its first store on 18 August 2017, the Rs 21-crore revenue is for a little over seven months ending 31 March 2018. Going by the company’s claim of Rs 700 crore, Miniso would have had to earn Rs 679 crore ( $96.2 million) in the five months till August 2018. That couldn’t have been easy.

The Ken learnt that at least two Miniso stores in Delhi make about Rs 50-60 lakh ($70,856-85,027) a month, on an average. That amounts to Rs 6-7 crore ($850,279-991,993) a year. The revenue numbers could be somewhat higher in high-end shopping areas. Even if we assume that Miniso had all 26 stores operational throughout, Rs 679 crore would have been a hard nut to crack. “It’s a pretty high number for a brand that is not that popular in India, to begin with. This kind of productivity is very unusual,” said an analyst at a consultancy, asking not to be named.

Miniso declined to comment on revenue and the breakdown of financial figures, citing company policy.

And so, the Rs 700 crore number remains uncertain, much like the origin of the company. Miniso identifies itself as a Japanese designer brand, with two co-founders—Japanese designer Miyake Junya and Chinese entrepreneur Ye Guofo.

An increasing number of stores

The company, however, has a lot more to do with China than Japan – a fact that has been highlighted by multiple foreign publications. Miniso has only four stores in Japan but more than 1,100 in China, as confirmed by Liu. While the company insists that it is based in Tokyo, operations are handled out of China; multiple news reports, including one on the official website of Miniso says that it is based in Guangzhou. The company sources from and manufactures a lot in China as well. “China is a global factory. Miniso is not the only one sourcing from China. If Miniso is Chinese, so are Apple and Samsung,” said Liu.

While it’s true that Apple’s iPhone is largely assembled in China and Samsung has a manufacturing plant in the country, both the companies have proper headquarters and substantial presence in their home countries as well. Apple is headquartered in the US, which remains its largest market, while Greater China is its third-largest market accounting for 18% of the total revenue in the last quarter. As for Samsung, the company accounted for more than one-third of the total operating profit of all listed entities in South Korea in the first quarter of 2018.

Now, the website of the Indian entity says that Miniso was formed as a middle ground between two extreme consumption patterns—of European luxury brands and counterfeit goods. And yet, the company has drawn flak for ‘unoriginality’ in its name, logo, and products. Miniso’s name sounds like the Japanese dollar chain Daiso, while its logo is similar to that of Japan’s fast-fashion brand Uniqlo. The product categories and their ‘minimalist’ designs take after Muji.

‘Been to Miniso?’: Lifting the pseudo-Japanese brand’s India spell


It’s the jam-packed parking lot that you notice first. Everyone is moving towards the same shop in the area. It’s a new one, with a little red shopping bag sign. You enter. There’s almost no room to walk without bumping into people in the aisles packed with anything and everything. Earphones and power banks. Stuffed toy dogs, pandas and cats. Household items, racks, cutlery, mats and scented candles. From personal items such as sunglasses, wallets and flip-flops to nifty items for your office; it’s a wide range.

Investments made

We’re standing inside a Miniso store, the pseudo-Japanese low-cost variety retail brand that’s mushrooming all over India. If you are in Delhi, chances are you’ve seen one of these; there are 25 stores in the capital alone. Perhaps you read about the company when it entered India, in August 2017, or when, in September 2018, the Chinese internet giant Tencent, along with the Asian investment firm Hillhouse Capital, invested 1 billion yuan ($147.3 million) in the company. But not all is well in la la land. In December 2018, the company moved a bankruptcy application against its own brand licensees in Canada alleging misuse of trademarks and later, reached an interim agreement to work out a long-term solution.

Miniso started in Tokyo in 2013 and at present, operates more than 2600 stores across 70 countries and regions, with a turnover of $1.5 billion as of 2016, according to the brand profile of the company on its website. The company has been in India since August 2017 and has already opened a total of 70 stores. That is a big number for a 16-month old foreign brand. In its two years in India, Japanese lifestyle brand Muji, which has a similar proposition as Miniso, somewhat wider though, has opened four stores, as of March 2018, according to data sourced from business research platform Tofler. A similar homegrown low-cost general merchandise chain Market99 has opened about 50 stores in 11 years. Even a foreign brand as big as Swedish fast-fashion retailer H&M has managed to open slightly over 35 stores since 2015 in India.

But that’s not it for Miniso in India. The company is claiming to have earned a rather significant amount in its short time—Rs 700 crore ($99.1 million) in revenue, between August 2017-18. Most foreign brands just about start adjusting to Indian laws and the fragmented market in that period. And a Rs 700-crore revenue is particularly hard to swallow for a new brand, one whose origins are dubious. Despite claiming to be a Japanese brand, it is an open secret that Miniso, in fact, is a Chinese company.

While consumers in India are least bothered about the foundations of the brand, there aren’t many retail executives and analysts that know and trust the brand. Regardless, the brand is gaining appeal in India. For now. Miniso products adhere to minimalism, solid colours and simple designs; and they’re not very distinctive.

Meanwhile, the year 2018 has seen at least two new foreign variety retail brands — Kioda and Beccos—launch in India. Once the novelty factor wears off, Miniso will have its work cut out—to keep the consumers engaged and its products unique, particularly when there is no dearth of copycats in India, in both the organised and unorganised sectors. Are the odds in Miniso’s favour?

Talk shop

Miniso is modelled on the concept of dollar stores, a market that has largely remained untapped in India. The company sells products across 10 categories in India—the top three being beauty and personal care, fashion and accessories, and toys. Most of these are priced between Rs 150 ($2.12) and Rs 450 ($6.37), according to the website of the India entity. Products like bags, wallets and some electronics are priced higher, closer to Rs 1,000 ($14.2). Still affordable though. In comparison, while Muji’s price range may start from Rs 150 for smaller health and beauty items, it goes on to touch Rs 45,000 ($637.3) in case of furniture and home appliances.

“We believe in affordable pricing and we plan to stick with this pricing. It’s a simple theory but it needs a lot of work to maintain the price and quality,” said Young Liu, chief business development officer at Miniso Life Style Pvt. Ltd, the India arm of Miniso.

Drums has the fuel, can Danone provide the spark?


In ancient Greece, Epigamia was the law that defined the rules of marriage between people from different cities or states. It also formalised relations between two countries. And just this past week, it was Epigamia, the Greek yoghurt brand produced by health food makers Drums Food, that cemented an unusual relationship in the world of Indian startups.

New York-based Danone Manifesto Ventures, the venture investment arm of food and beverages major Danone, made its first investment in Asia. After investing in over 10 startups in the US and Europe, it picked Drums for its latest investment. Participating in the Series C round, Danone Manifesto comes bearing more than just finance. It has brought with it the expertise Drums needs to scale rapidly.

A Path Of Progress

To be certain, it is an interesting development. After all, Danone itself exited the Indian dairy market just last year. The Ken reported in May 2018 that Parag Milk Foods acquired Danone’s only dairy facility in India—a facility on the outskirts of Delhi—which Drums, too, had bid for. The Parag deal signalled the French dairy major’s departure from Indian dairy market.

Danone’s exit came as the dairy major found itself under attack on two fronts. On one hand, it was challenged by large Indian dairies like Mother Dairy and Amul in basic products like dahi. On the other, it was competing with upstarts like Drums, which focused on value-added dairy products like Greek yoghurt, Drums second-ever offering. While Danone, which had global revenues of $28 billion in 2017, found India’s yoghurt market—projected to be worth $169 million by FY20—too crowded for its own liking, the investment by Danone Manifesto shows that it still sees potential in the Indian market.

Since Danone’s departure, the line between dairies and Indian and multinational corporations has blurred as far as value-added snacks are concerned. The likes of Parag and Amul have launched products such as chocolate cheese and camel milk, respectively. Both products have been positioned as healthy and nutritious. Corporations have followed suit. In May 2017, PepsiCo expanded its nutrition portfolio by launching a dairy beverage, even roping in cricketing legend Sachin Tendulkar as brand ambassador. More recently, ITC launched a line of milkshakes. All of these are positioned as protein-rich dairy snacks, making them challengers to what Drums’ forte—value-added protein-rich fresh and preservative-free snacks.

In the Greek yoghurt segment, which drives over 75% of Drums’ revenue, Drums really has only one competitor as of now. Global consumer food giant Nestle, which launched Greek yoghurt under the brand name Nestle a+ Grekyo in April 2016. Drums claims that it has captured a larger share of the Greek yoghurt segment than Nestle. Although, Nestle refused to share its sales data with The Ken and no independent market share data exists, a senior executive with Schreiber Dynamix—which manufactures Greek yoghurt for both Nestle and Drums—confirmed that Drums has higher production than Nestle.

However, while it is a market leader in Greek yoghurt, not to mention a trend-setter as the first Greek yoghurt maker in India, Drums has faced hurdles to its growth. For starters, the market for premium snacks in India is limited as only a small section of the country can afford these snacks. Further, Drums must expand its portfolio of products. To this end, it has plans to launch five more product lines to its current portfolio of curd, yoghurt and smoothies in the next 3-4 years. These may or may not be dairy. However, its competitors, across segments, will grow as well. Expanding in the Greek yoghurt sector as well is no easy task, with distribution being a major hurdle.

But Drums now has a vital arrow in its quiver—Danone’s expertise.

Marriage of a startup and a multinational

Since Drums launched Greek yoghurt in India in 2015, its production capacity has grown in fits and starts. From 500 to 2,000 to 10,000 to 20,000 to 50,000 to 80,000 to 140,000 cups a day. Its reach, too, has gradually grown to 10,000 stores across five Indian cities. Over the last four years, Drums has seen its revenue double year-on-year, posting its highest-ever revenues—Rs 52.5 crore ($7.4 million)—in FY18. Drums expects to cross Rs 100 crore ($14 million) in revenues for FY19.

Danone Manifesto’s entry, however, will be key in taking Drums to the next level.

Using Danone’s expertise via Danone Manifesto Ventures, Drums intends to expand from 100,000 cups sold daily via 10,000 stores to 1 million cups sold via 50,000 stores in India. Before its exit, Danone sold its products via 200,000 retail outlets across 20 Indian cities.


Death and taxes: TDS defaulters now in the crosshairs


Pranab Naik* was puzzled when the letter first arrived. It was a show-cause notice from the Income Tax (I-T) department. Naik, who runs an eight-year-old content company, had received the notice for a delay in payment of tax deducted at source (TDS).

Naik admits there was a five-month delay in paying TDS. “It happened around 2016-17, between the demonetisation and GST period,” Naik says. The delay was on account of the company lacking working capital during this time.

“We had no money as we haven’t raised fresh capital for a while, and the working capital failure was compounded by the fact that payments were getting delayed from our clients, and in some cases, clients had just stopped working because they were trying to recover from demonetisation,” he says. “This was specific to us because we are a consumer product company,” he adds.

Even so, the notice was something of a shock. Because though the TDS amount was large—around Rs 1 crore (~$140,500)—Naik had voluntarily deposited the amount along with the late fees incurred almost a year before the tax department put him on notice.

Some Stats

Naik is one of many business owners feeling the heat as the tax department gets increasingly litigious. Of late, there’s been a huge jump in the number of prosecution proceedings initiated by the I-T department. A January 2018 press release by the Ministry of Finance (MoF) states that for FY18, till the end of November 2017, the department filed prosecution complaints for various offences in 2,225 cases. This is a 184% increase from the corresponding period for FY17, where 784 prosecution complaints were filed.

These complaints have been filed on various counts—for offences where the I-T department feels there has been a wilful attempt to evade tax or payment of any tax, a wilful failure in filing returns of income, failure to deposit TDS or delay in doing so.

The crackdown on TDS payment though is a relatively new phenomenon, and one that has very serious implications on the business ecosystem in the country. “TDS was one subject, which until a few years was not really within this structure and notices were never sent this aggressively,” says Rohit Golecha, senior manager at accounting firm Banshi Jain & Associates in Mumbai.

In an October 2018 report by the English daily The Times of India, AA Shanker, principal chief commissioner of Income Tax for the Mumbai region, said that the tax department has been rigorously pursuing TDS default cases. “Since last year, we have filed more than 800 prosecution cases. We are also carrying out investigations, including surveys, to detect TDS default cases,” he said.

The taxman would have you believe that this is all in an attempt to crackdown on black money. However, things are not so cut and dried. “In a lot of cases, we are seeing that voluntary payments are done by taxpayers, but still they are receiving show-cause notices,” says Ashish Mehta, principal associate at law firm Khaitan & Co.

Actions Taken

It goes deeper though. While the Income-tax Act, 1961, requires officials to prosecute people like principal officers, directors, managers, etc. who are liable for the day-to-day affairs of the company, the I-T department has sent notices to all directors of a company—even independent and nominee directors—who generally do not fit this description. “Independent directors wouldn’t even know if a company has defaulted on TDS payments or not, because that’s not their role in the company,” Mehta explains. “We have recently been able to get relief for independent and nominee directors before appropriate fora in such prosecution cases,” he adds.

In the last few months, issues surrounding Angel Tax—where startups have been receiving tax notices for funding raised—have commanded the limelight. But the situation on the ground is murkier. Entrepreneurs and small business owners are dealing with several issues from the tax department. These aren’t just harmful to the free market, but could also hurt the Indian government’s ‘Make in India’ and ‘Startup India’ initiatives.

Interestingly enough, for moves that could hurt two of the government’s most vaunted schemes, they come in an attempt to meet targets set by the government itself.

When did Cibil Watch become Cibil Stalk?


“Dear Amit, we’re sad to know that you applied for a job with our competitor, Acme Online. But you’re a valued member of our team. So we’re increasing your salary by 25%. And throwing in an extra week of paid leave annually. Love, HR.”

Wait, what?

How did your company’s HR come to know about you having applied to a rival company? You didn’t tell a soul. Not your spouse, not your BFF, not your folks.

Were they monitoring your emails? Listening in on your phone calls? Checking your increased frequency of LinkedIn updates?

None of the above (though they could). Instead, the job site through which you applied did. Through its scarcely advertised product called Employee Watch. Which popped up the following alert on your HR manager’s screen:

“Dear HR, your employee Amit just applied for a job with Acme Online.”

Wait, WHAT?

We made that up. Job sites would never do that. But credit bureaus might.

Especially if those credit bureaus are named TransUnion CIBIL. With about 90% share of India’s credit bureau market, CIBIL has an interesting product called CIBIL Watch to help banks and lending institutions keep tabs on their customers.

CIBIL Watch is a real-time alert product that helps lender A know instantly if one of its customers is applying for a loan with lender B. CIBIL intimates lenders via a pop-up message if one of their borrowers is over-borrowing or is likely to turn into a defaulter. What started out as a nifty risk-mitigation tool, has, over two years, become something else in the hands of CIBIL and lenders like Bajaj Finance, HDFC Bank, Yes Bank, Kotak Mahindra Bank—a sales tool.

Risk mitigation to sales maximisation

One of the biggest users of CIBIL Watch is Bajaj Finance—among the country’s largest non-banking financial companies (NBFC). Its ability to sell multiple loans to each one of its borrowers is noteworthy. Interestingly, Bajaj has been looking for a senior manager, who will be in charge of CIBIL Watch, for a while now. It wants to use this channel as a “significant force multiplier to cross-sell products.”

Banks and NBFCs have five channels to reach customers. Through sales agents, telecallers, aggregators like BankBazaar and PaisaBazaar, and through their own branches and digital channels. On average, lenders spend as much as 2% of the loan amount to acquire a new borrower. But for channels like CIBIL Watch, it’s only about leveraging existing channels. It rides on the lender’s ability to act fast, have the flexibility to tailor-make products on the fly, and offer better pricing to lure borrowers.

“The volume of leads coming through CIBIL Watch is sizeable. For lenders like Bajaj, 15% of their monthly business comes from it,” said a senior lending executive.

Conversions of this magnitude are making other banks sit up. Yes Bank even built a channel around Watch called Yes Express in 2017. Neeraj Dhawan, chief risk officer – retail banking at Yes Bank, said that the conversion he sees through this is off the charts. “We initially put less than 5% of our customers on the Watch and are now increasing that number by 20% every month.”

The cost of acquisition, he shared, is on an average 25% that of any other digital channel while conversion is 400-500% higher. “We reach out to customers within an hour with pre-filled details of their application, and that’s a wow-factor for them,” said Dhawan.

Incumbents of the world, unite. Against disruption
For the last 15 years that credit bureaus have been around, banks and Non-Banking Financial Companies (NBFCs) were mandated by the Reserve Bank of India to supply the data on their borrowers to credit bureaus. As a result, credit bureaus have the financial gossip on everybody in town. Who skipped a credit card repayment, who has how many debts, who is a good borrower, a bad borrower.

So much so that bureaus like CIBIL know a lender’s customer better than the lender; the bureau has the borrowing record of a person, across all instruments and all financial institutions, in one place. So every financial institution takes its credit underwriting decision based on the bureau’s dirt on that user.

CIBIL is the largest of the bureaus, with about 90% market share, holding data on about 1 billion credit records of 555 million borrowers.

Harvest TV’s ambitions threaten to come a cropper


The weekend of 26 January saw Harvest TV—a new English news channel—go live on air in India. Its honeymoon period was short-lived. Just two days later, a few hours into the first business day after the channel’s launch, Harvest TV briefly disappeared from airwaves. It was blacked out on both the platforms it was available on—Airtel’s direct-to-home (DTH) service and cable platform Den Networks.

The channel reappeared a few minutes later, but on a different, downgraded frequency, said Deepak Choudhry, president of Veecon Media and Broadcasting, Harvest’s promoters. And ever since, things have been on a downward spiral.

Harvest TV’s launch was pegged as an important one in the world of television news media. A political news channel rumoured to be backed by some politicians from the Indian National Congress (INC), it launched just ahead of the upcoming general elections. It also marks the television comebacks of veteran journalists like Barkha Dutt and Karan Thapar. But after only a week of its existence, Harvest TV finds itself knee-deep in controversy. It has already received multiple legal notices and government complaints. There is a name issue, a logo problem, an unclear shareholding pattern, and an “alleged” association with Indian National Congress (INC) leader Kapil Sibal.

What Caused BlackOut?

As of 30 January, the company had been served with three notices from the information and broadcasting (I&B) ministry asking it to explain these issues, as well as another legal notice for unauthorised use of a trademark. According to Choudhry, the blackout was the result of the I&B ministry impressing on the channel’s teleport operator Planetcast Media to revert to Harvest TV’s original lower frequency since the channel did not have permission for the upgraded one. Planetcast did not respond to The Ken’s emailed query.

Harvest TV, or HTN News as it is called on digital media, comes from Delhi-based Veecon Media and Broadcasting Private Limited. Incorporated in 2009, Veecon had total revenue of Rs 3.8 crore (~$533,000) in FY18 and runs just one other television channel—a Hindu devotional channel called Kaatyayani TV. Odds are you haven’t heard of Veecon Media. They’ve barely been a blip on the Indian media radar. Harvest TV was meant to be their moment in the sun. But things haven’t panned out as planned.

Everything that Veecon Media has done so far seems rushed. The timing of its launch is hardly a surprise. Launching ahead of the 2019 general elections will give it traction and could serve to bolster the general election campaign of the political party it is rumoured to have ties to. There couldn’t be a better time to hit the ground running. But in their eagerness to launch, the channel and its promoters seem to have circumvented various regulatory norms. Shortcuts that could prove to be Harvest’s undoing.

Given Harvest’s alleged political affiliation, its promoters would surely have known that the channel would come under fire from authorities if anything was out of line. Despite this, they chose to game the system. This raises the question—is Harvest a genuine long-term media play or a short-term political one?

Permit Politics

Ask any executive in the business and they’ll tell you that the hardest part about launching a news channel in India is the long and tiresome permission process. You need permissions and clearances from at least five different departments and ministries, and to top it all, there is no legal timeframe that governs the process.

So, based on the whims and fancies of the departments involved (not to mention the political party in power), the process could take anywhere from weeks to years. Rajeev Chandrasekhar-backed Republic TV, for instance, managed to get all its permissions sorted within a few weeks. Bloomberg Quint, on the other hand, has been waiting for a licence since 2017.

Starting afresh isn’t the only struggle. Permissions are also required to change the name or logo of a channel or if there is a change in the shareholding or ownership pattern of a company. In all of 2018, the I&B gave 18 permissions, of which six were news permissions (four to Zee Media Corporation Ltd. and two to Bennett Coleman and Company Limited (BCCL)).

Bottom line: getting permission to run a satellite TV channel is hard. And it only gets harder when you have ties to the ruling government’s primary political rivals—the INC. Rumours of an INC-backed news channel have been around since at least early 2018, but it didn’t see the light of day, likely because permissions are controlled by the party in power. It should be noted that while Rajeev Chandrasekhar was an independent Member of Parliament at the time of Republic’s launch, he already had overt ties to the ruling BJP government and has subsequently become a member of the BJP.

Unsecured lending to SMEs has not yet seen the full cycle play out


Five Star goes after customers who are usually single-shop owners like kiranas or barbers or self-employed, like plumbers and electricians. Rangarajan says, even though the ticket size of Rs 3-4 lakhs seems small, that’s the size of loan their customer needs. They recover the loan over a 5 to 7-year period. Longer tenures typically help companies build a larger balance sheet, making operations more efficient, says Investec’s Jain.

However, servicing this segment is tricky. “The combination of small ticket size, long tenure, and collateral is a tricky one,” says Jain. He says that NBFCs in this space will need to assess borrowers rigorously, with the rejection rate going as high as 60-70%. Also, he says, it is operationally intensive as the bounce rate (people who skip repayments) is as high 20-30%. There’s also the matter of longer tenure loans being more risky, as businesses are likely to experience more ups and downs over a longer period of time.

Yet this is what Five Star has gone after.

The collateral safety net

Fintech lenders have disbursed close to Rs 10,000 crore in the last seven years, according to the estimates of industry insiders. But ask Lakshmipathy D, Five Star’s chairman and MD, about the trend of unsecured lending, and he shoots it down. Unsecured lending is anathema to the 45-year-old, and he just stops short of calling it what he really wants to—lazy. Opting for diplomacy, he says it is “less work to do.”

However, while it is less burdensome, it has a sizeable risk. China is a cautionary tale of what happens when borrowers have access to easy money. Chinese households now face a $7 trillion debt, 22% of which were loans given to small businesses. While India is no China, China—in its own extreme way—showed that easy deployment of money and algorithms that assess repayment do not a lending business make.

Five Star knows this too. Which is why it insists on collateral. This collateral is used more as psychological leverage though if Rangarajan is to be believed. “In all these years we have not repossessed a single property,” he says. But they could if it came to that. Once a property has been mortgaged, borrowers have no choice but to pay to repossess the documents of their property.

The importance of collateral is something that Five Star learnt over the course of its first 20 years of existence. “There is no difference in repayment rates between secured and unsecured lending when the times are good. But there is a stark difference in bad times,” says Rangarajan sagely.

Moreover, when a borrower defaults on an unsecured loan, the behaviour sticks and it’s difficult to get the defaulter back on track, adds Rangarajan. Which is why even today at Five Star, when a borrower has repaid his money in full and the company has his repayment history, it still demands collateral when comes to a subsequent loan.

This safety net means that Five Star is comfortable lending at interest rates of up to 25%, not far removed from what fintechs like Lendingkart and Capital Float charge. Rangarajan says that for the type of risk fintechs take, they should be charging higher interest rates. However, despite the added risk, fintechs keep interest rates in check so they don’t become too costly compared to other NBFCs. Moreover, the Reserve Bank of India—India’s banking regulator—does not like businesses charging higher interest rates, unlike in China, where there is no set cap.

While the collateral-based approach takes the risk of recovery to its lowest degree, executing this is nothing short of herculean.

Better borrowers

Five Star though has decades of experience in this space to count on. Even when it first started, originally to finance the purchases of two-wheelers and three-wheelers, they lent mostly to borrowers who were self-employed and ran small businesses. Despite the business changing in the intervening years, the profile of Five Star’s customer has remained constant, meaning they know their customer very well.

It is this knowledge that led them to hinge their business on collateral in the first place. Five Star prefers to lend to those who can mortgage their self-occupied property since property is a primary need for the segment they serve. “Three to four years into a business, they [Five Star’s customer base] all aspire to buy property because that is their go-to source of investment,” says Rangarajan. So, of the 50 million businesses at least one third will have collateral, he estimates.

Five Star Finance shows unsecured lending is overrated


Unconventionally traditional may seem like an oxymoron, but it fits Five Star Finance. There’s no better way to describe the Chennai-based non-banking financial company (NBFC). It has all the old-school trappings of a lender. From brick and mortar branches to 2,000 feet on the street that disburse Rs 3-4 lakh ($4,250 – $5,700) loans to small businesses. The unconventional part? Despite the relatively small loan sizes, Five Star still goes through the painstaking ordeal of taking property as collateral.

A collateral-based model for such small-sized loans flies in the face of fintech logic. New age lenders like Capital Float and Lendingkart give similar businesses loans—even up to Rs 50 lakh ($70,900)—without the need for collateral. This sort of convenience has helped them grow at 150% year-on-year. The belief is that fintechs—unfettered by branches, collateral, hordes of employees to determine creditworthiness, and by using algorithms to underwrite loans, can achieve far greater scale. Which is why investors have made a beeline for companies like Lendingkart and Capital Float.

The Journey Begins

Five Star once looked set to fall in the heap of also-rans—the majority of India’s 11,000-plus NBFCs with loan books of less than Rs 1 crore ($142,000), it has seen an astonishing rise over the last 15 years.

For the first twenty-odd years of its existence, it had a loan book of less than Rs 1 crore. This was cranked up to Rs 100 crore ($14.1 million) over the following eight years. And then, an explosion. In the next seven years, it grew 20X. Despite its cumbersome model.

Its success has also drawn in some serious investment. Morgan Stanley put in Rs 114 crore ($16.1 million) in 2016. Then, in July 2018, global alternative asset firm TPG led a $100 million investment round in Five Star. This was TPG’s first punt on a medium-sized NBFC, pumping in around Rs 425 crore ($60 million). Their earlier investments were in Shriram Group and Janalakshmi Financial Services, both of which had a loan book of over Rs 10,000 crore ($1.4 billion). All told, Five Star has raised a total of Rs 1,000 crore.

NBFCs as a sector have had a great run by taking credit where banks couldn’t go. The bigger NBFCs have grown at 25% for the last five years, with smaller ones growing as much as 30-40%. But the liquidity crisis brought on by the fall of infrastructure lender IL&FS has hurt microlending and brought uncertainty to the sector. “A lot of NBFCs will get consolidated or be marginalised as there is still some real danger of some large NBFCs going under,” says Nidesh Jain, an analyst at investment bank Investec. Five Star, armed with its funding war chest, won’t be one.

Instead, this PE money is set to be the match that lights Five Star’s rocket fuel. It is expecting to disburse a total of Rs 2,100 crore ($298 million) by the end of March 2019. It plans to nearly double that to Rs 4,000 crore ($567 million) by the end of 2020. This won’t be unprecedented either—Five Star has been doubling in size over the past three years. This trend, it expects, will carry on over the next two years as well. It has also managed profitability. All while spurning the rules most fintechs believe are critical to success. What gives?

The niche

Even though there is more demand for finance than companies can ever meet, for lenders it has long been about finding a niche. A niche nestled in the intersection of a creditworthy segment, a large enough population in that segment, and the costs needed to service them. Banks have occupied the space for loans above Rs 30 lakh ($42,500) with collateral. Microfinance institutions have picked the segment for loans of less than Rs 1 lakh (~$1,400) with no collateral. Top NBFCs have filled most of the space in between, targeting customers in need of loans between Rs 10-30 lakh.

This leaves the Rs 1-10 lakh segment, which Five Star calls home. Indeed, this segment has the most whitespace, and is also where most new age NBFCs and fintechs cut their teeth in their quest to avoid competition. Banks, typically, do not bother with this space, especially not with the added onus of collateral. “Banks’ thinking is why should they take so much effort to lend Rs 3 lakh ($4,250) when with that same effort they can give a Rs 30 lakh loan,” says Rangarajan K, Five Star’s CEO.


The Hindu, BloombergQuint, BCCL, Network18: Big Media is finally courting subscribers


At the World Association of Newspapers and News Publishers (WAN-IFRA) conference in Mumbai, late in February 2019, Rajiv Lochan, chief executive officer of The Hindu group, said the company has 100,000 subscribers for its e-paper. Subscribers from all over the world have paid anywhere between Rs 800-1,900 ($11.5-27) to access the electronic paper. Conservative math suggests that’s total digital revenue of at least Rs 8 crore ($1.1 million). Lochan added that The Hindu implemented this strategy silently, without attracting too much attention, and paying subscribers are proof of the media company’s forward-thinking, digital strategy.

The audience in attendance took note.

Opinions Everywhere

100,000 people paying to read news online is no small achievement. As things stand today, no English language media company in India can claim to have 100,000 paying, digital subscribers. This makes The Hindu top of the list and the first to get there, if the numbers are to be believed.

Lochan, of course, didn’t stop at that. Knowing the audience was enthralled with his presentation, he laid on the charm:

  • The Hindu has more than 5,000 subscribers who have opted for a five-year subscription to the e-paper, priced at Rs 4,000 ($57).
  • The Hindu has a million registered users.
  • Digital revenues now account for about 5% of the total revenue for FY18. (The total revenue of Kasturi & Sons, which publishes The Hindu and its sister publications, stood at Rs 1,173 crore ($167.5 million) in FY18, marginally lower than the previous year’s revenue of Rs 1,200 crore ($171 million). The company’s net profit also slid—going from Rs 50 crore ($7.1 million) in FY17 to just Rs 19 crore ($2.7 million) the following year.)
  • “These are incredible claims,” said an independent media consultant who has consulted with several media organisations, both print and broadcast. He requested not to be named. “I would be sceptical of some of the numbers. For instance, a million registered users sounds too fantastic, but I think this is a good start.” That it is, considering the fact that Indian media companies haven’t quite taken to digital unlike their peers in the West. In the United States, in particular, it has been clear for a while that circulation for daily papers has been on a declining trend. Same for revenue from print advertising. So they’ve had no recourse but to aggressively move to digital and look for other sources of revenue or risk going under. Many already have.

This sort of urgency doesn’t quite hold true for India just yet, says the consultant. “While advertising revenue has been under pressure, circulation of newspapers continues to grow. So in that sense, it is a good sign that publishers are looking at subscribers as an alternate source of revenue,” he adds.

But one swallow doesn’t a summer make.

In the last twelve months, several media companies have started courting subscribers. Early last year, Network18’s Moneycontrol launched an advertising-free in-app plan for users. Around the same time, Bennett Coleman & Company’s (BCCL) The Economic Times, India’s largest business newspaper by circulation, launched an online, subscriber-only offering called ET Prime*. In January 2019, media entrepreneur Raghav Bahl-promoted BloombergQuint, a joint venture between Bloomberg News and Quintillion Media, took its website behind a paywall.

More look set to follow suit. The industry is abuzz with rumours that sometime this year, HT Media Limited, publisher of the national daily Hindustan Times and business daily Mint, is also considering launching ad-free digital-only products aimed at subscribers.

Analyzing The Subscription?

It would be fair to say that subscription is the new black. Even with growing circulation, media businesses in India have been constrained by declining advertising revenue. To make up for that, in the last decade, almost every media company hedged with an outsized events business. That quick trick pony has run its course; networking events are good for parading sponsors, not for running a news operation. So, it is only fair that some are experimenting with the idea of readers paying for content.

While researching this piece, The Ken reached out to several media executives. Only a few spoke on the record, but many requested to remain unnamed because these are early days, and they’d rather not come across as too eager for something that is yet to be proven as a sustainable business model. This writer tried to dissuade their fears using the example of The New York Times, but this failed to elicit any on-the-record enthusiasm.

So, are readers in India paying?