Delivering value for Bharat- The journey of DealShare (Working Title)

Glancing through the day’s newspaper, Medda had a tingling sensation running
through him. Reading about DealShare joining the coveted club of unicorns gave rise
to mixed feelings- a sense of exhilaration coupled with anxiety and excitement over
how the future would unfold. DealShare, a social commerce start-up, became the
fourth unicorn for the year 2022.The company also became the 48th unicorn since
January 2021. The grocery focused start-up saw a surge in its revenues and scale.
The operating costs were keeping pace and the business saw a high cash burnout.
With presence in more than 135 cities (Exhibit 1) and an active customer base of
more than 20 million1, will the margins surge? If there is, indeed, a fortune at the
bottom of this pyramid, how long before competition arrives? Will the word-of-mouth
model succeed in creating networks that would accelerate customer acquisition?
Medda wished that he had more answers than questions, but the road ahead
seemed so uncertain and that made the journey even more exciting.
Background
E-commerce has been gaining acceptance as a mode of shopping and in India, e-
commerce segments are expected to witness high growth in lifestyle segments with
a CAGR of 26 percent. The value lifestyle e-commerce segment is expected to grow
from $4 billion in 2019 to $20 billion in 2026 and $40 billion in 2030. (Kearney,
2021).2 India currently has the third-largest shopper base globally, with 180–190
million online shoppers in 2021.3The growth of e-commerce is fuelled by
commensurate growth in mobile internet penetration and increased use of digital
settlement of transactions. E -commerce firms are expected to grow sales at a robust
rate and Tier 2 and beyond cities were all on equal level with metros and Tier 1 cities
in terms of net sales value contribution during the festival season sales by online
players, with around 50% participation 4. Younger population across cities consume
digital content and engage in online transactions, adding to the growing demand for
e commerce.
Growth in the digital payment space in volume terms was at an average rate of 50%
over the past 5 years (IMF, 2022). In the fiscal year 2022, India’s Unified Payments
Interface (UPI) processed 45 billion transactions worth INR 77.94 trillion. The
coronavirus outbreak hastened the adoption of online shopping in India, but essential
goods and consumer goods are expected to be ordered online even after the Covid-
19 scare abates because of the convenience of a hassle-free experience and the
cheaper prices on offer. With a rising young population, the online shopping is
expected to replace a large percentage of the physical shopping. Mom and pop
stores that cater to hyperlocal shopping preferences will need to expand their
presence online to cater to the wholesome shopping requirements of the population.
1
Business Standard, 15th September 2022, “DealShare customer base reaches 20 million with most from Tier 2
and 3 cities”
2
https://www.kearney.com/consumer-retail/article/-/insights/value-ecommerce-the-next-big-leap-in-india-
retail-market
3
https://www.bain.com/insights/how-india-shops-online-2022-report/
4
https://economictimes.indiatimes.com/industry/services/retail/small-cities-dominate-e-commerce-
platforms-festival-sales-industry-players/articleshow/94765581.cms?from=mdr
The Indian e retail segment offered almost no solutions for the low-income group
customers. However, post pandemic period was characterized by “massification and
high stickiness” resulting in greater penetration of online shopping across value
segments. The value conscious Indian consumer looked for good offers and
consistent quality. Brick-and-mortar modern retail cannot adequately bridge the gap
between what value consumers need and what they have access to. This is because
of the sheer complexity of rolling out stores in remote regions of the country and the
lack of enough high-quality retailers in this segment in India.
DealShare (owned and operated by Merabo Labs Pvt Ltd) was poised to benefit from
the growth in this segment. Exacerbated by the inadequacy of brick-and-mortar
stores, coupled with the growing aspirations of the value segment, a distinct target
segment that continued to be overlooked were being served by DealShare.
DealShare envisaged an uncontested advantage because of this unique requirement
that they are geared to fulfil. Loyalty to neighbourhood brands and the local shopping
experience is expected to set DealShare apart from its competitors.

The Business Model

“I work 12 hour shifts and have no time to do any household chores. I feel guilty that
I cannot help my aged mother, and share her workload. But I now place my grocery
orders through DealShare, get the delivery at my workplace and carry them with me
when I go home”- Ramlal, Security Guard at a Mall in Jaipur

Childhood friends Vineet Rao and Sourjyendu Medda met during a vacation at Jaipur
(Tier II city of India) their hometown, where they had spent their childhood. It was
2017 and during a casual chat, they veered into a discussion about the prospect of
online retail stores in tier 2 and 3 cities in India. Amazon, for instance, had decided to
foray into the low-income category in the US market. They wondered if there would
be any interest at all in the unreached segments in India-would an Amazon want to
ever cater to the Indian poor? Both Rao and Medda had working experience at the
retail (Metro Cash and Carry, and Britannia for Medda) and consumer (Microsoft for
Rao) companies. They went on to co found DealShare along with Sankar Bora in
2018 to cater to the underserved, value conscious customer segment of India. With
more than 23 years of experience in businesses like Myntra and Aeon Learning Bora
brought complementary skills to the newly set up retail business. Later, Rajat
Shikhar joined them in January, 2019. The organisation structure is presented in
Exhibit 2.

Since its inception in 2018, DealShare focussed on procuring products from local
manufacturers and offering them a platform to digitise their business and compete
with leading brands. With an unwavering focus on the value conscious customer,
DealShare built its systems to cater to mass market by building proprietary
technology and fulfilment mechanisms. What started as a small business venture
servicing a local community in Jaipur went on to cater to more than 20 million active
users propelled by what is called as “Dost” model (a Hindi word meaning friend).
Cost Effective Operations
The target customer segment of DealShare were cost sensitive and required good
quality but were not finnicky about brands. These customers trusted local brands and
discussed about the price benefits to their family, friends and neighbours. DealShare
wanted to provide affordable products and timely delivery to consumers. It also
wished to aggregate good local manufacturers and connect them to a large
consumer base. DealShare offered significant value to consumers on almost every
product on their platform by focussing on local brands with higher margins. Founders
experience conflicting situations because of sales volume versus the pricing of new
products of private local brands. On the one hand, a business needs maximum
customer traction, which can be achieved by pricing it lower; on the other hand, a
business needs profitability; hence products needed to be priced well.

DealShare also became a strategic sales and distribution partner to its brands (the
local manufacturers). E -commerce platforms are extensively used to buy
electronics, consumer durables, toys, gifts and many more items. However, it is yet
to evolve as the preferred mode for grocery shopping and the supply chain linkages
are almost absent in the grocery space. DealShare has taken the lead in this space
to build extensive linkages and, in the process, created strategic sales and
distribution partnerships with suppliers and manufacturers. For the manufacturers
without a presence in the e commerce space, DealShare has given them access to a
larger clientele. For DealShare, the consumption trends in the grocery space gives
them the opportunity to create private labels and increase the choice for the
customer.
While the first mover advantage helped DealShare acquire customers at a rapid
pace, the cost structure resulted in thin margins. For instance, the Cost of Goods
sold to sales ratio was 95.2%(2019), 100.5%(2020) and 98% (2021) and 101.9%
(2022). (Exhibit 3a). With wafer thin margins, DealShare had to look for ways to
shore up margins without compromising the customer base. Margins arose from the
category mix. Currently, most of the orders fell under the staples category. As
DealShare expanded to other categories, they had to find ways of incentivizing the
customers to transition to high margin categories. Their investment in operating
assets was increasing swiftly (Exhibit 3b) and cash flow from operations continued to
be funded from financing activities(Exhibit 3c).
Several developed nations have used credit to kickstart demand. The grocery which
is a predominantly touch and feel purchase needs to be shifted to the digital space
by creating brand assurance and quality assurance. The challenge for DealShare
was hence twofold- to alter the buying behaviour of the customer in a conventionally
touch and feel segment and to increase the scope and ticket size of the purchase,
given the segment of customer who was being targeted. The quest for higher volume
almost invariably led to increased operating costs. For instance, since the customer
is unable to give clarity in postal address, there are additional distribution legs set up
for the last mile. The segment is operation intensive and could create more such
expenses.
Consumers used the DealShare app for their monthly consumption requirements
(stock up). However, they did make use of the neighbourhood kirana stores for
unscheduled and urgent requirements (top up) While the app helps DealShare to
cater to the personalised requirements of consumers by giving them reminders and
nudging them to purchase the regular items, the problem of the lost opportunity due
to unplanned purchases remained. Their year-round promotional activities intended
to increase the engagement of customers and increase the individual customer
spend (Exhibit 4a and 4b).

Network
“New age digital businesses cater to the friendless urban citizen with acquaintances
but no friendships; neighbourhoods but no community; money but no time to
socialise. DealShare caters to the citizen who has not just friends and relatives and
community, but a vibrant social group to share shopping experiences and benefits
with”- Vineet Rao, Founder
Sourjyendu recalls how the e app was built in-house in two weeks’ time and was a
viral success amongst their customer base that was earlier buying on WhatsApp.
“Within 20 days of launch, we had more than 30,000 customers using the app with
zero marketing spend! The key reason for the rapid success was the relevance and
comfort it provided to Indian middle-income families”, he added.
Being a social e-commerce application, an element of fun and games ensured that
customers spent more time on the DealShare app. As against other e commerce
sites, DealShare managed customer engagement mostly through the app and
WhatsApp and did not rely on advertisements. The social e commerce business
model that DealShare followed necessitated the creation of a network of suppliers
who would provide affordable, and quality products in a timely fashion. The
organisation also had to create network of customers who, in turn, would bring more
customers through word of mouth and WhatsApp messaging. DealShare functioned
as the essential node which connected both suppliers and customers. It also created
opportunities for customers to become an essential node of the network. Customers
who connected other acquaintances to DealShare, were rewarded with discounts
and incentives. Customers came to know about DealShare and the discount it
offered on different products through their friends or acquaintances, on whom they
had more trust. DealShare business is based on the social networking model and
relies on users to bring other potential users through word of mouth and WhatsApp.
The reliance on networking for customer acquisition is what made the “Dost” model a
key factor for DealShare.
Dost model tapped into an ecosystem where community leaders with widespread
social networks and in-depth understanding of the locality lead offline distribution for
the brand. DealShare dost has a responsibility for a particular area. They were
microentrepreneurs, who benefitted by adding more consumer base from a locality.
They enrolled consumers from the same locality and acted as a nodal point for
DealShare and consumers. DealShare dost had intrinsic motivation to densify the
order from a locality (they knew the preference, buying pattern and consumers had
trust on them). DealShare dost formed their own community WhatsApp groups.”
The growth of network of customers was good news, but surge in demand also
brought with it a surge in customer complaints. Initiatives like bring back and
reactivation campaigns were started to maintain the customer growth and minimise
customer complaints. Medda wondered how he would address the challenges in
maintaining profitability and leveraging the network.

Exhibit 1 Map of DealShare presence in 8 states, 139 cities / towns

Exhibit 2: Organisation Structure

Exhibit 3a: Income statement of Merabo Labs Private Limited

Merabo Income Statement Summary (All values are in INR mn)

End Of Year 2019 2020 2021 2022
Filing Type Standalon Standalon Standalon Standalon
e e e e
Revenue 46.80 585.70 2,393.30 19,569.40
1-Yr Growth Rate - 1152.34% 308.65% 717.66%
EBITDA (35.90) (291.30) (640.10) (4,156.60)
EBITDA Percent -76.70% -49.74% -26.74% -21.24%
PAT (36.20) (299.60) (670.30) (4,311.30)
PAT Percent -77.33% -51.16% -28.01% -22.03%

Notes :
1 . All values are in INR mn
2 . EBITDA = PBT + Depreciation / Amortization + Interest (Financial expenses) from
filings (in case of non-finance companies)
3 . ROAE/ROACE are Returns on AVERAGE Equity and Capital Employed
4 . Wherever available, consolidated financials have been shown.
5 . ROAE is not calculated if PAT or Average Networth is negative.
6 . ROACE is not calculated if EBIT or Average Capital Employed is negative.

Mca Income Statement Detailed (All values are in INR mn)

End Of Year 2019 2020 2021 2022
Filing Type Standalon Standalon Standalon Standalon
e e e e
Domestic Sales from 46.70 574.20 2,360.20 19,258.90
trading
Domestic Sales from - - 7.40 69.20
Services
Total Domestic Sales 46.70 574.20 2,367.60 19,328.10
Total sales without other 46.70 574.20 2,367.60 19,328.10
income
Rev. Operations (non- - 574.20 2,367.60 19,328.10
finance companies)
Rev. from operations - 574.20 2,367.60 19,328.10
Other Income 0.10 11.50 25.70 241.30
Total Income 46.80 585.70 2,393.30 19,569.40
Growth (%) - 1152.34% 308.65% 717.66%
Stock Purchases 49.80 660.20 2,421.70 20,992.80
Inventory WIP Change (5.30) (83.10) (101.90) (1,294.80)
Cost of Goods Sold 44.50 577.10 2,319.80 19,698.00
Gross Profit 2.20 (2.90) 47.90 (369.90)
Gross Profit (%) 4.80% -0.50% 2.00% -1.90%
Employee Wages & 11.10 110.20 284.00 1,154.30
Benefits
Managerial remuneration - 9.60 11.70 29.20
Auditor Payments 0.20 - - -
Insurance Expense 0.00 0.10 - -
Other Expenses 26.90 180.00 417.90 2,844.60
Total Pre EBITDA 82.60 877.00 3,033.40 23,726.00
expenses
Operating EBITDA (35.90) (302.80) (665.80) (4,397.90)
Operating EBITDA (%) -76.90% -52.70% -28.10% -22.80%
Operating EBIT (36.10) (306.70) (674.00) (4,444.80)
Operating EBIT (%) -77.20% -53.40% -28.50% -23.00%
EBITDA (35.90) (291.30) (640.10) (4,156.60)
EBITDA % -76.70% -49.74% -26.74% -21.24%
Finance Cost 0.00 4.50 22.40 107.50
Depreciation & 0.20 3.90 8.30 46.90
Amortization
Profit Before Except & (36.10) (299.70) (670.70) (4,310.90)
Extra Items
Profit Before (36.10) (299.70) (670.70) (4,310.90)
Extraordinary Items
PBT from Continuing (36.10) (299.70) (670.70) (4,310.90)
Operations
PBT (36.10) (299.70) (670.70) (4,310.90)
PBT % -77.14% -51.17% -28.02% -22.03%
Deferred Tax from 0.10 (0.10) (0.40) 0.30
Continuing Operations
Total Tax from 0.10 (0.10) (0.40) 0.30
Continuing Operations
Taxes 0.10 (0.10) (0.40) 0.30
Profit from Continuing (36.20) (299.60) (670.30) (4,311.30)
Operations
PAT (36.20) (299.60) (670.30) (4,311.30)
PAT % -77.33% -51.16% -28.01% -22.03%
EPS (before (361.62) - - -
extraordinary items) -
Basic
EPS (before (361.62) - - -
extraordinary items) -
Diluted
EPS (after extraordinary (307.19) (2,996.08) (0.01) (0.04)
items) - Basic
EPS (after extraordinary (307.19) (2,996.08) (0.01) (0.04)
items) - Diluted

Notes :
1 . All values are in INR mn
2 . EBITDA = PBT + Depreciation / Amortization + Interest (Financial expenses) from
the filings
3 . Wherever available, consolidated financials have been shown.
4 . Adjustments to other expenses, employee wages & benefits have been made to
show data consistently
5 . Gross profit = Revenue From Operation - Cost of Goods Sold
6 . Gross Profit % = Gross Profit/ Revenue from Operation * 100
7 . Operating EBITDA = Revenue From Operation - Total Pre EBITDA expenses
8 . Operating EBITDA % = Operating EBITDA/ Revenue From Operation *100
9 . Operating EBIT % = Operating EBIT/ Revenue From Operation *100
10 . EBITDA % = EBITDA / Total Income *100
11 . CAGR = (End Value/Start Value)^(1/Years)-1
12 . Cost of Goods Sold = Raw Material Costs + Stock Purchases + Inventory WIP
Change
13 . Operating EBIT = Operating EBITDA - Depreciation& Amortization
14 . EBITDA = PBT + Depreciation / Amortization + Finance Cost
15 . PAT % = PAT/ Total Income *100
16 . ROAE = PAT/Average Equity *100
17 . ROACE = EBIT/ Average Capital Employed *100

Exhibit 3b Balance Sheet of Merabo Labs Pvt Ltd.

Merabo Balance Sheet Detailed (All values are in INR mn)

End Of Year 2019 2020 2021 2022
Filing Type Standalon Standalon Standalon Standalon
e e e e
Shareholders'        
funds
Equity Capital 141.80 1.00 1.90 4.00
Reserves And 3.70 443.30 1,189.00 18,832.30
Surplus
Total 145.50 444.30 1,190.80 18,836.3
shareholders' 0
funds
Non Current        
Liabilities
Long-term - 121.30 217.20 188.50
borrowings
Deferred tax 0.10 0.00 - -
liabilities
Other long-term - - - 1.80
liabilities
Long-term - - 62.20 17.20
provisions
Total non- 0.10 121.30 279.40 207.40
current liabilities
Total Sources 145.60 565.70 1,470.20 19,043.80
Fixed        
assets(Non-
current)
Total gross fixed 2.30 15.90 43.00 319.50
assets
Tangible assets 1.10 9.50 28.30 255.20
Net Block
Intangible Assets 1.20 2.30 2.40 2.80
Net Block
Intangible assets - - - 2.40
under
development
Total net fixed 2.30 11.90 30.70 260.40
assets
Current assets        
Current 0.70 416.50 1,157.60 15,422.20
investments
Inventories 5.30 88.50 190.40 1,485.20
Inventory Days - 30 22 16
Trade 4.00 18.70 84.80 931.70
receivables
Receivable - 7.00 8.00 10.00
Days
Cash - 19 20 9
Conversion
Cycle
Cash and bank 149.70 62.00 49.50 1,941.30
balances
Short-term loans 0.70 4.10 1.80 581.60
and advances
Other current 2.40 30.00 118.30 184.00
assets
Total current 162.90 619.80 1,602.40 20,546.0
assets 0
Current        
Liabilities
Short-term - - 25.00 384.00
borrowings
Trade payables 9.60 45.80 82.50 1,717.80
Payable Days - 18.00 10.00 17.00
Other current 1.90 7.10 17.50 187.00
liabilities
Short-term 8.00 13.20 39.30 1.90
provisions
Total current 19.60 66.00 164.30 2,290.70
liabilities
Current Assets 13.20 557.80 1,552.90 18,604.7
Ex Cash 0
Net Working (6.40) 491.80 1,388.60 16,314.0
Capital 0
Other assets        
Non-current - - 1.10 480.50
investments
Deferred tax - - 0.30 -
assets
Other non- - - - 47.70
current assets
Total Other - - 1.40 528.20
Assets
Total 145.60 565.70 1,470.20 19,043.80
Applications
Total Assets 165.20 631.70 1,634.50 21,334.50
Total Liabilities 165.20 631.70 1,634.50 21,334.50

Notes :
1 . All values are in INR mn
2 . Net Working Capital is on an ex-cash basis
3 . Equity Capital includes Share Warrants and Share Application Money
4 . Current Liabilities includes Payables. Where available, Payables are
also shown as a separate line item just for reference
5 . Payable Days = Avg Payables/Cost of Goods Sold * 365
6 . Receivable Days = Avg Receivables / Revenue From Operation * 365
7 . Inventory Days = Average Inventory / Cost of Goods Sold * 365
8 . Cash Conversion Cycle = Inventory Days + Receivable Days - Payable
Days

Exhibit 3c Cash flow of Merabo Labs Pvt Ltd.

Mca Cash Flow Detailed (All values are in INR mn)

End Of Year 2020 2021 2022
Filing Type Standalon Standalon Standalon
e e e
Operating Activities      
Profit before extraordinary (299.70) (670.70) (4,310.90)
items and tax
Adjustments for finance 4.50 22.40 107.10
costs from operating
activities
Adjustments for 3.90 8.30 46.90
depreciation and
amortisation expense
Other adjustments to (11.50) 43.30 (3.40)
reconcile profit
Other adjustments for - - 27.10
non-cash items
Adjustments for decrease (83.10) (101.90) (1,294.80)
(increase) in inventories
Adjustments for decrease (14.70) (66.10) (874.00)
(increase) in trade
receivables
Adjustments for decrease (31.00) (86.00) (587.50)
(increase) in other current
assets
Adjustments for increase 36.20 36.70 1,635.30
(decrease) in trade
payables
Adjustments for increase 10.30 36.50 43.70
(decrease) in other
current liabilities
Total adjustments for (85.50) (106.80) (899.70)
reconcile profit (loss)
Net cash flows from (used (385.20) (777.60) (5,210.60)
in) operations
Income taxes paid - - 21.00
(refund)
Net cash flows from (used (385.20) (777.60) (5,231.60)
in) operating activities
Investing Activities      
Interest received 11.50 18.90 154.50
Purchase of tangible 11.60 27.10 238.40
assets
Other inflows (outflows) of (415.80) (742.20) (16,489.2
cash 0)
Other Adjustments to (1.80) - -
Cash flow from Investing
activities
Net cash flows from (used (417.70) (750.40) (16,573.0
in) investing activities 0)
Financing Activities      
 Proceeds from issuing 740.10 1,416.80 21,727.00
shares
Proceeds from borrowings 121.30 95.90 700.00
Repayments of - (25.00) 369.70
borrowings
Interest paid - 22.40 107.10
Other inflows (outflows) of (146.20) - -
cash
Net cash flows from (used 715.30 1,515.40 21,950.20
in) financing activities
Net increase (decrease) (87.70) (12.60) 145.60
in cash and cash
equivalents before effect
of exchange rate changes
Net increase (decrease) (87.70) (12.60) 145.60
in cash and cash
equivalents
Cash and cash 62.00 49.50 195.00
equivalents cash flow
statement at end of
period
Other bank balance - - 1,746.30
Cash and bank balance 62.00 49.50 1,941.30

Notes :
1 . All values are in INR mn
2 . Net Income corresponds to Profit Before Extraordinary Items
3 . Wherever available, consolidated financials have been shown.

Exhibit 4 a
Illustrative List of promotional offers by DealShare
4 b Personalised promotion schemes targetting individual customers