Tata Digital, the e-commerce-focused arm of the Tata Group will see a new round of funding with Tata Sons infusing Rs 3,462 crore into the company. Tata Digital is increasing its authorised share capital from Rs 15,000 crore to Rs 20,000 crore.
The pace at which funds have been infused in Tata Digital has been quite fast, especially since large conglomerates are usually conservative about entering new lines of business.
In 2021, the authorised share capital of Tata Digital has raised from Rs 1,000 crore to Rs 11,000 crore. Less than a year later, in March 2022, the authorised share capital increased from Rs 11,000 crore to Rs 15,000 crore.
The current paid-up capital of the entity stands at around Rs 12,472 crore. Tata Sons’ decision to divert the dividends received from its legacy businesses into Tata Digital indicates the conglomerate’s interest in transitioning to the new economy.
Where Does Tata Digital Deploy its Cash?
In December 2021, Tata Sons’ Chairman N Chandrasekaran highlighted that digital, new energy, supply chain resilience, and health were the themes that the group’s strategy would be based on.
In order to grow on the digital side, Tata Digital has employed a growth strategy based on acquisitions of e-commerce businesses. It has acquired 1MG and BigBasket in 2021, while the ownership of Croma was transferred to Tata Digital in the same year.
Previously, the group had a relatively small presence in e-commerce, but with these new acquisitions under its belt, it has become a formidable player in the space.
Apart from outright acquisitions, it has invested in different companies like Grameen e-Store and Cultfit. The money raised from the parent company is used to finance the losses in the new acquisitions. These acquisitions have found a common space on Tata Digital’s flagship super-app, Tata Neu.
Super-apps have an ecosystem of mini-apps that allows users to pursue multiple activities such as payments, ordering food, ordering medicines, online purchases, and booking appointments among others.
Several large players are attempting to build their own super-apps in order to ride the digital wave. Reliance Industries already has the MyJio app that offers a variety of features within the same app while Adani Group has announced plans to launch its own super-app.
So far, Tata Neu has received more than 10 million downloads on Google Play Store. The Tata Group has also created NeuPass as a common rewards program across all consumer-facing businesses, with NeuCoins being equivalent to reward points.
Each NeuCoin is worth a rupee, and customers earn a 5 per cent cashback on spending done through the Tata Neu app. Taj Hotels, Tata Cliq, Croma, and Tata 1MG offer NeuCoins as rewards on eligible purchases. Taj Hotels’ loyalty program’s name has been changed from Taj InnerCircle to NeuPass.
Similarly, BigBasket has a section on the NeuPass that is under development. A common rewards program would incentivise customers to keep returning to the app to earn and spend NeuCoins that they earn – helping retain customers within the Neu ecosystem.
How are Tata 1MG and BigBasket Growing their Market Share?
Tata Digital’s underlying businesses are using aggressive strategies to gain market share from competitors. Tata 1MG has been a disruptor in the diagnostics space after it began offering routine tests at extremely low prices.
For example, a Vitamin D test that costs Rs 1,550 at an incumbent’s collection centre in Delhi, would cost only Rs 199 on the Tata 1MG app. In addition, the necessary samples would be collected from the patient’s home.
Several other routine tests that cost upwards of Rs 500 are offered at rates less than Rs 200 on Tata Digital’s app. Several other new players in the diagnostics sector have imbibed a similar deep discounting approach in order to gain market share.
Similarly, on the medicine delivery side, Tata 1MG offers rewards and discounts on the MRP, to attract buyers to buy from the platform. In 2021, Bank of America had estimated 1MG’s market share at 13 per cent of the domestic e-pharmacy sector.
The other business, BigBasket, was estimated to have more than 35 per cent of the online grocery market in 2019. While new players have arrived in the sector over the last few years, it still remains one of the largest online grocery players in India.
BigBasket too offers discounts and other incentives for customers in order to increase its market share. Unlike 1MG, one of the diagnostics sector's disruptors, BigBasket itself faces some risk of disruption from the new quick commerce grocery players.
In order to insulate itself from such risks, it has ramped up its quick commerce offerings with BBNow to retain its share in the quick grocery delivery segment. One of its primary competitors Grofers has completely pivoted to becoming a quick commerce player.
While there were rumours about Tata Digital acquiring Dunzo, there have been no developments in that area so far. The online grocery and food market is estimated to reach a total market size of around $800 billion by 2024, making it a hotly-contended category in India.
JioMart, Flipkart, Bigbasket, Blinkit, Zepto, Amazon and several other players are fighting it out in the online grocery segment.
The rapid pace of growth comes at a price – namely, heavy cash burn. Innovative Retail Concepts Private Limited, which owns BigBasket, reported revenues of Rs 7,119 crores in fiscal 2022 – an increase of 17 per cent over the previous year. However, losses quadrupled to more than Rs 800 crores during the same period.
According to Inc42, Tata1MG’s revenue doubled from Rs 309 crore to Rs 627 crore, while losses grew 67 per cent to Rs 526 crore. Similarly, Infiniti Retail, which runs electronics retailer Croma, saw revenue growth of 53 per cent to Rs 8,337 crore in fiscal 2022, while losses more than doubled to Rs 445 crore.
In order to grow and maintain its market share, Tata Digital has no option but to fund its subsidiaries in order to help them grow and retain their market share. However, huge opportunities in the Indian e-commerce space could outweigh the initial cash burnt in these new-age businesses.
Also Read: Explained: Why Is SEBI Concerned About India’s Start-Up Valuations?
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