WOTS #10

As the year draws to a close, many applications send a "year in review" highlighting some of our behaviour trends. Zomato sent me this for 2023 -

It blew me away that in 2023, on my Zomato app alone, I had ordered 250 times. Assuming INR 300 AOV, that itself was INR 75k. Add my Swiggy orders and orders from my wife's app, it will not be unreasonable to assume that as an household, we would have spent INR 100k in food delivery!

As I reflect on my behaviour -

• Food delivery has become a dramatic part of our household budget, perhaps exceeding even fuel!
• The behaviour change seems permanent (difficult to imagine life without this now!)
• I need to eat more home food !!!

Perhaps the biggest takeaway for me was to consider the role of Target Addressable Market (TAM) in investing....especially in the Indian context of a fast-growing economy, TAM is very easily mis-estimated - many times over and many times under. Here are some incredible surprises I keep encountering on both sides of the coin

Over-estimations of TAM, where market size is turning out to be smaller than my guess:

• VIP Industries which includes Caprese ladies handbags is just c.2200cr/$270m of revenue for a market leader in a country where travel behaviour is exploding
• Zandu Balm - c. 300 cr of revenue/ $35m for a "balm with 3 kaam" and a brand-name that is probably known to every Indian! Same for the Amrutanjan brand with revenue of just ~c.375cr/ $45m inspite of being so well-known
• Number of Income tax filers - ~6.8 cr for FY22-23, out of ~70 cr PAN Holders and ~140 cr population! This includes people paying 0 taxes as well - so anyone who has received any sort of formal payment - for salary or services has experienced witholding of taxes and would need to file a return. For fin-tech, insure-tech, prop-tech et al, this is probably the best-case true TAM today

On the hand, industries where TAM has probably been consistently under-estimated and growth continues to come through:

• Food delivery - new category creation has led to expansion of both, the revenue base for existing restaurants and new supply. in Q2'FY24, Zomato's food delivery order value alone was INR 8k crore -> annualised + adding Swiggy that is a market size of INR 60k crore or almost 15x the largest organised restaurant player Dominos (revenue 4k crore)
• Financial Services esp. Credit - In the quarter ended Sep 2023, ICICI Bank's advances were reported at INR 11 Lakh crore / $135b growing at 20%! Multiple other financial lenders - private banks such as HDFCB with $270b advances and public sector banks such as SBI with $340b continue to grow in the teens as well!

Entrepreneurs create and discover TAMs as their businesses grow. Investors face the same journey - threading between the inherent contradiction of the (relatively) small size of Zandu Balm with the tremendous size and continued growth of the large banks.

As markets are inherently forward-looking, presence of a large TAM helps investors underwrite growth momentum into the future thereby supporting a strong earnings multiple.