What are The Top 10 Most Profitable Businesses in India?

What are the top 10 most profitable businesses in India?

Before we jump into the top 10 profitable businesses, we have to know which sectors are evergreen. First, we will learn which sectors can always thrive despite the limitations.

They are:

Real estate

Food

Cloth

These sectors thrive on human needs. And precisely because of that, these sectors will never die. These sectors are the profit formula. Many people have made huge profits in these, irrespective of the market. Simply by employing technology as an accelerator, they accumulated wealth in these sectors.

You can start your business in any of these sectors. You can either start from scratch as most do or buy a profitable franchise as smart do. But to know which is a profitable franchise, we need to know what makes a business profitable. We also need to recognize the type, model, and scalability of the business.

To begin with, there are 2 types of a business models that one needs to understand.

Asset-heavy business and Asset-light business model.

These are highly profitable businesses in India. For this, I had to do some intense research. I had to analyze the depths of both business models. And study the companies implementing them. For asset-light, I set 100s of parameters and took several interviews. I worked with a research team to compare, analyze, deduct and conclude. Here's my brief analysis:

Asset-heavy business model

In this model, companies own a large percentage of their fixed assets. They use them to generate revenue. Asset-heavy businesses are often tightly regulated. This means they own the entire manufacturing process from raw materials to finished goods.

It requires large capital expenditures to begin. This implies that you will need deep enough pockets to get started and succeed.

Advantages:

1) Monopolistic conditions occur. This is because of the high entry barrier and the limited number of players. During the early years, you compete to keep your skin in the game, and later on, you earn a lot.

2) Greater control over the product

3) Very high margin

4) Extremely high entry barriers

Disadvantages:

1) Inflexible. This makes it unsuitable for industries that change quickly. Tech is the first example that comes to mind.

2) Low asset return. Despite higher gross margins, producing a return on the massive upfront costs- needed to acquire the assets- remains difficult.

3) Monthly recurring costs. Every month, infrastructure and maintenance, as well as numerous fixed costs, must be covered.

4) Payback periods are very long. Sometimes 1 - 8 years. Due to the largely negative initial cash flow in your ROI calculations, it may take years to break even.

5) If a project, a plant, or a new venture fails, you will suffer a significant loss. Since much of the initial capital is borrowed or funded by third parties, you might find yourself in serious debt.

6) High returns, but highly risky.

I have also mentioned asset-heavy franchise examples in my book. Here, we'll see how Subway, Zara, and other profitable businesses follow this model. We'll see how they profit through this and what their drawbacks are.

As we know, asset-heavy, like its name suggests, is heavy on cost but very profitable. It needs enormous capital and infrastructure with additional expenses per month for healthy profits.

Subway

Founded in 1965, Subway comes under the three evergreen sectors - Food. This American fast-food chain has over 41,000 franchises around the globe. To buy a franchise from the world's biggest food chain, you will at least need an investment of INR 1-2 Cr. Also, be ready to pay monthly expenses of approx. 10 -15 lakh.

Zara

Clothes are also human needs, and Inditex takes the lead as the world's largest fashion retailer with Zara and seven other brands under its wings. With a brand value of $13b, Zara is undoubtedly the proud brand of Inditex. It is also in the top 10 leading fashion brands in the world. Zara makes 840 million garments a year and has around 6,500 stores in 88 countries.

The number keeps changing as Inditex is known to open more than one store a day, or about 500 stores a year.

There are certain things you should know before becoming a Zara franchisee.

The first is the franchise fee. Because of its global presence, the cost of the franchise fee varies according to the location. But the average is around 1Cr.

Second, other notable fees. Equipment, furniture, and fixtures would sum up to 35 lakh. Employee salary, rental and miscellaneous also adds to monthly expenses.

Asset light business model

Companies go asset-light by owning fewer capital assets compared to their operational assets. By reducing the number of capital assets such as land, building, plant, machinery, cars, and computers, companies stand to gain a significant advantage. Capital assets could potentially weigh down a company. But investing in technology and talent allows entities to scale up faster.

Therefore, the asset-light business model is dominant.

Technology is a game-changer in the asset-light business. New tech is the major factor in the transformation of industries now.

Advantages:

1) You don't own the product /Asset. You don't need to buy anything to sell.

2) Your fixed cost is less. Because you don't own any infrastructure, Asset, or maintenance charge.

3) High margin

Disadvantages:

1) Huge technology cost

2) Huge customer acquisition cost

3) High-quality human resources

Now, let's see which companies use asset-light models and how they align with profit.

Airbnb

Airbnb changed the hotel industry. Since its inception in 2008, the company has experienced phenomenal growth. It now has more rooms than either InterContinental Hotels or Hilton Worldwide. As of this writing, Airbnb represents 19.5% of the hotel room supply in New York. It operates in 192 countries, in which it accounts for 5.4% of room supply (up from 3.6% in 2015).

Airbnb's founders recognized that the tech platform enabled them to create an entirely new business model. They realized this would challenge the hotel industry's traditional economics. Airbnb, unlike traditional hotel chains, does not own or maintain the property. Instead, it allows customers to rent any livable space (from a sofa to a mansion) all online. It connects people looking for lodging with people wanting to share a room or a building.

Airbnb manages the platform and takes a percentage of the rent.

I have mentioned a business in my book which is offering asset-light franchises.

They are raising a lot of money for their partners. I've done thorough research.

I also held a personal interview with the agency. All the parameters were also double-checked.

They are a highly successful company with equally profitable franchises. The detailed company case study is in the book, but I would like to mention one most the TOP asset-light franchises out of 10 here as well. Their remarkable growth using the asset-light model in franchising is making partners, investors, and customers, all happy. The Company's name is Regrob.

Regrob

Regrob is the biggest tech-enabled real estate brokerage company in India.

They offer an asset-light franchise. They innovated and transformed the real estate business using technology.

Key successes of the asset-light business model or asset-light franchisee model of Regrob:

1) Do not own the product. The cost of assets to manufacture or buy is zero for the company and franchise.

2) Recurring monthly costs are very low. In comparison, in asset-heavy businesses fixed costs are very high.

3) Per unit economic level is very high. Per transaction earning is very high minus expenses.

4) Post-paid money. Postpaid earnings are always higher compared to prepaid money.

5) Multiple revenue models. Here you generate multiple revenues from the same customer. So, in this case, you earn money through real estate transactions, home loans, and interior designing.

6) Robust technology. They are using digital platforms for customer acquisition. For example, their YouTube has approx. 4k videos which attract 3.5 lakh customers per month. This is the highest in the world in the real estate category. They use technologies like IVR, CRM, etc.

7) High entry barrier. They have created a high barrier for the new players to enter this market. They administer over 50+ successful franchises in India.

Generally, asset-light businesses have better returns on assets in most industries than asset-heavy companies.