Top companies in India's Direct to Consumer (D2C) market

In India, direct-to-consumer (D2C) brands are expanding far more quickly than traditional retail industries. The Indian D2C market was worth approximately US$ 12 bn in 2022.

The same is projected to surpass the mark of US$ 60 bn by 2027, growing at a CAGR of 40%.

This meteoric rise is fuelled by a combination of factors, including increased internet penetration, a burgeoning middle class, and a shift in consumer preferences toward online shopping

Consumers have multiple touch points across channels, providing them with numerous choices, thereby making the decision-making process more complex.

Consumers have shifted their preferences to having more customisation in the goods and services being offered.

Further, rising support from the Indian government in terms of funding, liberalisation, fuelling digital e-commerce and related policies have served as push for the augmentation of the market.

Hygiene and personal care, beauty and skin care, and healthy snacks and beverages are the top categories in the D2C market.

In this article, we will look at the top stocks that are present in the D2C market in India and can benefit from the strong sector tailwinds.

Read on...

#1 Zomato Ltd

Incorporated in 2010, Zomato Limited is one of the leading online food service platforms in terms of the value of food sold.

Its offerings include food delivery, dining-out services, loyalty programs, and others. Broadly, Zomato operates in four business segments: 1) Food delivery, 2) Dining out, 3) Hyper pure and 4) Blinkit.

As of FY24 end, the company derives 63% of its revenues from food delivery, 24% from quick commerce (Blinkit), 6% from dining out and balance 6% from the hyper pure business.

In the food delivery business, company has its footprint set across 800+ cities and has a network of 247,000 restaurant partners and 400,000 delivery partners.

Zomato's quick commerce business in Blinkit is also scaling up rapidly and is now available across 26 Indian cities. The company has added 149 net stores during the year and is aiming to add 475 more stores in FY25 to take the total store count to 1,000 stores.

Hyper pure is Zomato's farm-to-fork supplies offering for restaurants in India. Zomato sources fresh, hygienic, quality ingredients and supplies directly from farmers, mills, producers, and processors to supply to its restaurant partners. As of FY24 end, company billed 75,000+ unique outlets.

Coming to the financials, Zomato reported a 71% revenue growth in FY24 with operating profit coming in positive for the first time in the last 5 years.

Going forward, management guides for accelerating store additions as well as restaurant and delivery partners and is aspiring to maintain adjusted EBITDA at a steady state positivity.

The stock is up 180% in the last one year due to strong operational performance.

#2 FSN E-Commerce Ventures Ltd. (NYKAA)

FSN E-commerce Ventures Ltd. (NYKAA) popularly known as "Nykaa" is a digitally native consumer technology platform, delivering a content-led, lifestyle retail experience to consumers.

The company has a diverse portfolio of beauty, personal care, and fashion products, including owned brand products manufactured by it.

Nykaa is the largest specialty beauty and personal care platform in India in terms of value of products sold and one of the fastest growing fashion platforms in India.

The company the highest average order value (AOV) among leading online beauty and personal care platforms in India.

Nykaa offers 296,122 SKUs from 3,118 global and domestic brands primarily across make-up, skincare, haircare, bath and body, fragrance, grooming appliances, personal care, and health and wellness categories.

The company derives 90% of its revenues from the beauty and personal care segment and balance 10% revenues from apparel and accessories.

Coming to the financials, Nykaa reported a 24.1% growth in revenue and 34.6% growth in EBITDA for financial year 2024. EBITDA margins also improved to 5.4% during the year.

Going ahead, management has a focus on expanding into the GCC market (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) with significant growth opportunities. Nykaa says that it is optimistic about the growth potential in the premium fashion market.

The stock is up 25% in the last one year on the back of improved financial performance.

#3 Honasa Consumer Ltd

Honasa Consumer commonly known as Mamaearth was incorporated in 2016 and provides beauty and personal care products through its digital platform.

The company's product portfolio includes baby care, face care, body care, hair care, colour cosmetics, and fragrances.

Mamaearth is the company's flagship brand that focusses on developing toxin free beauty products made with natural ingredients.

After launching Mamaearth, Honasa has added 5 new brands to their portfolio namely The Derma Co., Aqualogica, Ayuga, BBlunt and Dr. Sheth's building a "House of Brands" architecture.

The company has 5.4% market share in the online beauty and personal care market and 1.5% share in the Indian beauty and personal care segment.

As of FY24 end, Honasa boasts a distribution network of more than 188,000 retail outlets in India which is 34% higher than previous year.

Coming to the financials, Honasa reported a robust 26.5% growth in its consolidated revenues and EBITDA jumped more than 200% for FY2024. EBITDA margins improved significantly to come in at 7.9%.

Going ahead, management guides for 20% revenue growth for the next 3 years. The management also further emphasises on improving EBITDA margins in FY25.

Shares of Honasa Consumer are up 43.3% since listing. Also, the stock is up by 12.1% in the past 1 month.

#4 Indiamart Intermesh Ltd

Indiamart, the first and largest B2B digital marketplace in the country, today stands out as a game-changer on the B2B landscape.

The company focuses on integrating the small and medium businesses (SMEs) into the new paradigm with speed and ease.

Indiamart commands nearly 60% market share of the online B2B classifieds space which makes it the largest player in the industry.

It has a portfolio of 7.9 m supplier storefronts, 214,000 paying subscription suppliers, 108 m live product listings, 24 m unique business enquiries & a total traffic of 252 m repeated users.

No single industry accounts for more than 8% of total paying suppliers. Construction & building raw material is the largest category in the marketplace and covers 8%.

The company has subscription-based revenue model and RFQ quota. Their top 10% subscribers generate 47% of the revenue with average revenue per user (ARPU) of Rs 261,000.

Coming to the financials, Indiamart reported 21.5% growth in consolidated revenues and 26.5% growth in EBITDA for financial year ended 31 March 2024. EBITDA margins came in slightly higher as compared to the previous year at 24.3%.

Share price of Indiamart Intermesh was flat in the last year. However, the stock was up 13.9% in the past one month.

Conclusion

In India, with roughly over 600 m internet users and 185 m online shoppers, the country has the third-largest digital shopping base after the United States and China.

India's D2C market is expected to grow at an exponential rate of 30-40% CAGR over the next few years.

The pandemic has surged the amalgamation of offline and online shopping. Brands are now integrating with online sales channels to ensure a seamless shopping experience for customers.

The expected growth in the market would be aided by macroeconomic factors like the growth in per capita earnings as well as trends like an explosion in the variety of brands and the increasing focus on personalisation.

The D2C market has attracted total investments of over US$ 4 bn across about 730 deals between 2020 and 2023.

D2C brands are also venturing beyond metro and tier 1 markets to find new users.

Investors can make use of the budget volatility and build a solid portfolio of fundamentally strong companies at lower prices.

Remember the challenges before diving headfirst. Investing in D2C companies can be risky as they trade at high valuations and operate at very thin margins.

Any downturn in the economic cycle can impact the profitability of these companies significantly.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...