Namaste, Sat Sri Akaal, and Salaam. 🫡

Happy Monday folks. Hope you had a great weekend.

Today we’re diving into -
- Google’s market launch of made-in-India Pixels,
- OYO’s plans to ditch the IPO,
- and Netflix’s scary situation in India.

Our read time today is 4 minutes and 52 seconds - faster than Mothers Day roses flew off Zepto’s shelves…

Let's dive in. 👇

Market Vibe Check

Google hits market with ‘Made-In-India’ Pixel phones. 📱

TLDR -
- Google will be producing Pixel phones in India.
- Lots of big tech firms are opting to use India for it’s cheap subsidies, soaring local demand, and viability as an export base.
- India breaks even on their investments if companies drive over $350bn+ in revenue and hire 4.1 million locals.

Habibi, come to Tilak Nagar…

From 2024 onwards, Google will be selling it’s India-produced Pixel phones - another big boost to the manufacturing sector and a vote of confidence in India as an export base.

There are 3 big reasons why -

1/A need to move away from China

This is pretty self-explanatory - not many Western firms are happy with their Chinese production backbones of late.

They’re subject to the whims and fancies of a (rather volatile) government while also getting full scrutiny from their own regulators.

The mental cost + trust loss + shipping ends up outweighing the cheap production.

2/Hefty subsidies in India

Once again, pretty self-explanatory.

The Indian government has been pushing very, very hard on local manufacturing.

They’re handing out subsidies which get as crazy as 300-350% of cost.

So if you’re a producer of “large scale electronics” and invest $10 million into a factory, you get $35 million back in cash.

3/A large + quickly growing domestic market

Indian mass incomes are still 3rd world by any means, but they are growing very fast.

There is a very large chunk of “aspirational” middle class who is happy to spend decent amounts on big ticket purchases.

Plus, mean incomes are growing at the fastest rate out of all developing economies.

There’s also a growing local ecosystem - nine years back, there was no smartphone production. Today, almost $44 billion of mobiles are produced every year with $11 billion of that going to export markets.

Cheap production + killer domestic demand + tons of subsidies = a proposition that few sensible industrialists could ignore.

OYO considers ditching IPO plans for private financing. 💸

TLDR -
- OYO will be raising $250m from private investors to stock up on a few months of runway + lots of growth capital.
- Valuation is gonna be anywhere from $5.5-6bn, which is a pretty hefty markdown.
- Most of this money will be sunk into interest payments, which total $80m+ a year!

In September 2021, OYO filed to go public on the markets. 2 years later, nothing has happened since.

OYO has been holding off IPO plans because of how harsh public investors have been on loss-making, hyper-growth businesses - but someone will need to to subsidize all their cash burn.

The OYO rocketship needs some fuel quick, so they’re hunting for $500mn of investment with three things in mind.

1/ Most of this money will be used to pay debt.

In 2021, when interest rates were close to 0, lots of companies took out very cheap loans. OYO was one of them.

They borrowed over $660 million and then some more.

But rates have been drifting upward since then, which means that OYO’s interest payments are now higher. They owe ~$80m/year as interest alone!

Bottom line - interest payments this high will basically WIPE OUT any profits/free cash flow that OYO generates ($2mn last quarter). And in all honesty, it’s probably nothing to worry about, since they’re very sensibly leveraged.

2/ OYO has had a bit of a “rebound” season.

As far as comeback stories go, OYO’s is currently working on it’s own. In 2020, they earned over 13,100 Cr ($1.6bn+) of revenue.

That same number last year was a relatively puny 5,400 Cr ($650m).

But over the same time period, they’ve brought losses down from 13,400 Cr → to just under 1,300 Cr. A 90% cut in costs is encouraging, and they’re slowly running a tighter ship, which always makes investors happy.

3/ Valuation specifics are “baad ki baat!” 😮‍💨

OYO is NOT pushing for a higher valuation in this market, which is interesting given how deal flow is slowly picking back up again.

They’re instead hunting for solely growth capital at a (relatively) decent valuation of $5.5 billion. This is much lower than the $10bn they once warranted.

Either Aggarwal saab can’t find any takers at a higher price, or he’s super intent on getting this deal done quickly.

Solid…

Trouble starts brewing between Netflix and Reliance… 😅

TLDR -
- Netflix is now giving away subscriptions along with prepaid Jio plans.
- Pretty unorthodox, since Netflix makes ¼th the money from an Indian user vs. a North American user.
- Gives Netflix instant distribution to Jio’s 450mn-strong user base.

Late last year, Netflix and Reliance got into a partnership to ‘bundle’ their products and cross-sell them.

But Reliance also just bought out Disney India - a direct competitor to Netflix - and this sets the perfect ground for a slowly souring relationship.

1/Netflix makes a LOT less money from India

As a streaming platform, one metric is KEY. It’s the ARPU - average revenue per user.

A North American user gives Netflix $16.6 per month. An Indian user gives Netflix $6.5 per month.

In other words, a North American user is “worth” 2.5X more than an Indian one to Netflix.

2/Jio is giving them effortless distribution.

With the flick of a switch, Netflix gets access to Jio’s entire user-base of 450 million subscribers.

Even if Netflix takes a loss on these bundled customers, they make up for it with the free marketing & interest from users that subscribe after their Jio plan ends.

But the catch now is that after the Reliance-Disney deal (which Reliance has a greater stake in the success of) they’ll be likely to put Disney+ on the SAME distribution network, killing off Netflix’s competitive advantage.

In other news… ☕

Aramco hands a $100bn+ dividend out with $5bn going to PIF (BBG)

China’s overlevered provinces beg for debt relief (FT)

Techstars and JP Morgan brew a $80mn fight (TC)

The Body Shop shuts down all US operations and hundreds of Canadian stores (CNN)

BMW starts scoring some tap-ins in the EV scene (NYT)

And that’s the tea the chai for today.

Thanks for reading, and we hope you enjoyed it.

Lots of ❤️,

Team CC