Multiple silver linings for Indian IT startups amid dark clouds of coronavirus
Anushruti Singh April 26, 2020
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Like any other industry, the coronavirus pandemic has dealt a huge blow to Indian IT and services industry. The IT/ITeS industry, that posted a solid year in FY 2020, is expected to see a significant slowdown in growth during FY 2021.
According to NASSCOM, the Indian IT-BPM (business process management) sector grew by 7.7 per cent y-o-y, garnering a total revenue of US$ 191 billion in FY 2020.
Whereas, the IT services sector garnered the highest revenue of US$ 97 billion (growth of 6.7 per cent), followed by e-commerce which stood at US$ 54 billion (growth 25.6 per cent). The sector generated exports of over US$ 147 billion in revenues in FY 2020, growing at 8.1 per cent from the previous year, the software body stated.
As the economy is grappling with the Covid-19 outbreak, the Indian IT services industry will be adversely impacted with the sector clocking a lower growth of 3-5 per cent in the current financial year, according to ICRA Ratings. The sector is expected to observe negative margins before a likely recovery in FY 2022.
“The global spread of the coronavirus is resulting in simultaneously supply and demand shocks. We expect these shocks to materially slow economic activity,” Gaurav Jain, vice president, ICRA explained.
“The US and the Euro zone which generates more than 80 per cent of IT services export revenues will see their GDP growth fall from 2.3 per cent and 1.2 per cent in CY 2019 to 1.5 per cent and 0.7 per cent respectively in CY 2020,” he added.
Startups are badly hit
This is just the overall estimates for the industry, but startups and small businesses are seeing the worst scenario.
According to a survey by the community platform LocalCircles, 48 per cent Indian startups and SMEs are facing supply disruption/increase in costs, while 71% are facing lower demand for their products/services due to coronavirus. The survey, that was conducted amongst 35,000 startups and SMEs, received 18,000 responses.
Majority of them agree on cutting costs with some putting a brake on their marketing and advertising and infrastructure costs.
In order to survive, firms are considering lowering employee costs, discretionary expenses and exiting non-essential supplier projects, the survey revealed.
Startups in the travel and tourism, events and hospitality are the worst hit, and there seems no signs of these sectors coming back on track anytime soon.
On the other hand, fund raising activities, which typically drives future investments, has also gone “cold” too.
According to consulting firm EY (Ernst & Young), private equity (PE) and venture capital (VC) investments in India may decline up to 60 per cent in 2020 due to the pandemic. In the month of March, PE and VC funds have raised only US$ 85 million.
Overall, EY estimates PE and VC investments at US$19-26 billion in 2020, which is a 45-60 per cent decline over the 2019 figures.
The silver lining
Having said that, the pandemic is also offering an opportunity for some startups.
Though businesses across sectors are still calculating losses caused by the deadly virus, followed by the lockdown; but many believes that the impact will be much higher than what the businesses and economy witnessed during demonetization.
However, demonetization helped some startups become household names in India, for instance Paytm, Mobikwik, Ola and Uber and more. They gained immense popularity among consumers. In addition, a number of services startups gained from the crisis as well.
This pandemic has done the same to many companies, and the video conferencing app Zoom is the best example.
California-based Zoom is the success story of the Covid-19 era. Amid the coronavirus lockdown and deserted offices, the remote working world has been living off in cyberspace, and Zoom is faring well with their needs.
The app allows users to connect with 99 people at the same time.
Dethroning the popular social media apps such as WhatsApp, TikTok and Instagram, Zoom became the top-most downloaded app on Google Play Store in India, amid the lockdown.
The company - that reported $622.7 million in total revenues for full fiscal year, ended January 31, 2020 - saw the boom in its share price, turning its founder and CEO Eric Yuan into one of the world’s richest people. During the crisis, Yuan has added $4.7 billion to his net-worth this year with his wealth totalling at $8.26 billion.
Similarly, video conferencing and video sharing tech companies; gaming apps such as Ludo King, Carrom Pool; mobile wallets like Google Pay; healthcare and online education firms are doing well in the times of crisis.
Tech startups having a moment
Amid of the industry hiccups, some startups are having their moment as the Covid-19 crisis has opened windows to showcase solutions relevant currently.
Even the Ministry of Commerce and Industry has also directed the Department for Promotion of Industry and Internal Trade (DPIIT) to expedite the proposals for startup ideas dealing with various aspects of the pandemic - proposing SIDBI to use funds from ‘Funds of Funds’ to support the startups.
Healthcare and telemedicine startups are in the limelight.
#Healthcare on a roll
Healthcare technologies like big data, cloud computing, supercomputers, artificial intelligence (AI), robotics, telemedicine, and instant screening instruments are effectively used to ensure increased hygiene, point of care delivery and continuous monitoring during self-quarantine.
Lately, the demand for health-tech companies to develop data analytics and profiling-based early disease detection solutions to help reduce the load on doctors and hospitals is increasing.
In the wake of this situation, startups across the globe are already pivoting to help fight the spread of this virus.
Companies like CliniVantage Healthcare Technologies have launched Caremate Health ATM. The solution provides pre-screening using the health ATM.
Commenting on the present scenario for healthcare startups, CliniVantage co-founder and MD Nilesh Jain said, “There is also a surge in the demand for care management solution to keep diagnosed patients engaged at home, in quarantine facilities and hospitals and also cater to post-diagnosis activities such as health checks, diets, follow-up tests, etc.”
“Amid the coronavirus outbreak, telemedicine startups are helping to cater the need for remote care. Virtual care can also reduce the strain for the healthcare system and help track the spread of diseases across geographies,” he added.
MetroMedi, an omnichannel pharmacy, is witnessing increased traffic on its website. “The organic demand has increased two-fold with majority of the demand coming for FMCG products, hand sanitizers, masks, and essential supplements,” Maruthi Medisetti, co-founder and CEO, tells SME Futures.com.
The firm is also experiencing a change in the consumer behaviour. For instance, consumers who have chronic ailments are stocking their regular medication for three months instead of one month. “We also see consumers stocking generic medicines like paracetamol, pain relief sprays and other generic drugs for emergency purposes,” he adds.
Despite the supply chain constraints and the present stock-in-hand of the active pharmaceutical ingredients (APIs), telemedicine sector is looking at opportunities.
“As a startup there is larger scope for growth in telemedicine at this time. We are also seeing scope in using our delivery fleet to enable commerce for any brick and mortar pharmacy store to fulfill the medicine orders,” informs Medisetti.
Additionally, online doctor consultation platforms are seeing surge in numbers. One such platform is DocsApp. Founder and
CEO Satish Kannan says that DocsApp is offering free coronavirus related consultations from doctors for everyone.
Talking about increase in business opportunities, he states the platform is seeing an average of 53 per cent increase in online doctor consultations across various departments.
“We have also witnessed a 178 per cent growth in consultations for common cough and cold, as these are the most common symptoms associated with the coronavirus.”Satish Kannan, CEO, DocsApp
For raising awareness and availability of trusted medical advice, DocsApp has partnered with various accredited labs to provide Covid-19 lab test for residents in Delhi, Mumbai, Pune, Karnataka, Haryana, Gujarat and Tamil Nadu.
Additionally, the startup has launched a Coronavirus Risk Assessment Tool to help individuals assess the level of possibility of them being affected. “This innovative tool, based on simple inter-active questions, generates a risk score based on an individual’s symptoms,” tells Kannan.
Sensing the opportunity, Quikr has forayed into the healthcare sector by launching a portal, called www.helphospitals.in. This platform connects medical communities with relevant suppliers to source equipment and materials needed for treatment of Covid-19 patients and safety of medical staff.
The platform is seeing an increased traction on daily basis with an increased demand of about 2.72 lakh health care units across India.
The lockdown has driven surge in download of various apps, including gaming apps. A report by Google KPMG estimated that online gaming segment will grow by US$ 1.1 billion by 2021. And India is under top 5 mobile gaming markets with approximately 300 million gamers in FY2019.
With the crisis, sector is seeing an unending growth.
WinZO, a Kalaari-funded vernacular social gaming platform, has seen a 10X increase in the age-old board games, including Ludo and Carrom, during the lockdown period.
The startup has observed a surge of 5X in the private play modes (vs-mode and tournaments), which indicates that people are preferring to play with their friends and family, separated by the Covid, rather than with strangers online – which was the trend earlier.
“We have opened every game on the platform for free to help our users to stay connected during this unprecedented time of complete social isolation,”says Paavan Nanda, Co-founder, WinZO Games.
A fantasy gaming startup Roanuz has also launched ‘virtual world IPL matches’ to engage users. Anto Binish Kaspar, founder and CEO of Roanuz, claims that to retain users is the need of the hour.
“The launch of virtual IPL matches lend hands to the fantasy gaming companies to retain the fans and attract new users during an uncertain situation. Such virtual games can keep engaging the fans,” Kaspar adds.
The company is targeting a 350 per cent increase in the current financial year.
On the other hand, Adda52, a poker game site, is organizing online poker series to raise donation funds – where players are getting handsome rewards of up to Rs 50 lakh.
#Online education goes viral
“Online learning is not new in India. However, the lockdown period can prove to be a turning point for many players in this space,” Swaroop Pandit, CEO and founder of Catalyst Group, an online learning platform, feels.
As schools and colleges are shut, a gap in the education routine has disrupted the system. Thus, digital education players are seeing it as an opportunity. According to Pandit, Catalyst has recorded a 50 per cent surge in admissions, since the inception of lockdown.
The platform has also seen an uptick in the daily watch minutes of students by over 80 per cent as more and more students switch to online classes every day.
The top cities that witnessed the highest admissions across India are Lucknow, Delhi and Patna. Amongst all the courses that students have been opting for, UPSC and SSC have become the most trending ones, according to Pandit.
On the other hand, Bangalore based ed-tech startup KopyKitab is also seeing a drastic increase in its traffic. “Our traffic and engagement have drastically shot up, with a 200 per cent increase in revenue,” informs Co-founder and CEO Sumeet Verma.
There is already a noticeable change in education content consumption pattern, he believes. Universities such as Harvard, Stanford and Indian Universities have gone online with a stop-gap solution for now, but with the change in consumer behavior, it might become permanent going forward.
“Unlike others, our aim is to stay focused on engagement and staying relevant for the time to come, then putting in efforts only on the monetization side,” Verma adds.
Despite the never-seen-before surge, the outcome of how the sector is going to shape up can’t be predicted. Still the ed-tech companies have a silver lining - right from tutors to learners, all are receptive to adopt the new tech aspects and are accepting online education by a large margin.
“With this change in behaviour, it is up to the businesses to understand the new market, which product offering would get more traction, can you tweak some of your products to suit the current market needs as that will be key for the future,” Verma suggests.
Another startup ELSA Corp, which provides pronunciation coaching, informs that their app downloads and sign-ups have doubled since lockdown. Recently, the company also announced a subscription grant worth of Rs 56 crores for students in India, for the next three months.
According to ELSA country head Manit Parikh, this is not a temporary growth. Post Covid-19, the biggest change is going to be the adoption of a virtual classroom-based learning and virtual app-based learning.
“Online education will be recognized as core to every school’s plan for institutional resilience and academic continuity,” he believes.
The demand calls for collaboration and partnerships. All stakeholders in the ecosystem, from edtech companies, consultants & educators, institutions to students, investors fraternity and even investment bankers are exploring various opportunities.
#Work from home – a boost for many startups
Work from Home (WFH), which has become a Covid-19 lingo, was initially difficult to implement, but startups are working on it to make lives easier for others.
For cyber security startups such as Mumbai-based Sequretek, Covid-19 has brought long hours of work. Eventually, after the outbreak, the whole world is working remotely and, thus have made cyberspace more vulnerable for attacks and other crimes.
The company’s co-founder and CEO Pankit Desai notes that cyber security by nature is required to be deployed at certain points in order to make sure that the confidential information exchanged over a variety of digital networks and gadgets is not compromised.
In pre-Covid 19 world, the template was complicated as it is as definition of end points changed, access governance rights were being defined for employees; but with the pandemic, enterprises have been forced to innovate on the fly.
“With literally no notice, companies had to take their entire operations remote. This means that employees who are working from home are now using unsecured gadgets and exchanging information on network which is not secured under the standard cyber security policy of the enterprise. This has presented challenges in implementing a tight security protocol,” Desai reveals.
He further adds that his firm was already prepared for the lockdown and did trial runs before the announcement, so they can also provide security even if his firm is working from home.
“In WFH, the number of attacks that are taking place has increased multifold, in some cases 4X to 6X increase in the overall no of attacks. Most customers had never estimated a scenario like this where 100 per cent of the workforce would be shifted to WFH unprepared,” says Desai.
This gave us the opportunity to put into place a few measures to ensure business continuity at the same time making sure that most security challenges could be mitigated for our customers, he informs.
The company claims that it is seeing a huge interest in its services and product offerings.
Similarly, Pesto Tech, an ed-tech startup for engineers, is using this crisis to impart knowledge on WFH efficiently. The firm has launched an education content, called Remoteli, where startups can get registered and learn about how to manage remote work.
Co-founder Ayush Jaiswal informs that his company has received more than 150 registrations. “We are getting our existing graduates, who have been working remotely, to offer sessions to Indian startups and share their experience of working from home.”
Another roadblock at this time is disruption across all industries globally by Covid-19, and the way many of us interact with our customers overnight has stopped, changed or morphed. Among those, most vulnerable are the smaller businesses without an online presence that depend on their customers to walk through their doors.
An AI (artificial intelligence) solution provider, Builder.ai is helping small businesses to build their digital presence by introducing, Studio Store app – through which firms can design their own e-commerce app and scale up their operations.
“There is a lot of uncertainty right now, SMBs are presented with an opportunity to rethink how they do business. Our aim is to help SMBs with e-commerce or delivery needs.”Sachin Dev Duggal, CEO and co-founder , Builder.ai
Builder.ai said through its Studio Store app, it will provide the first three months of live service for free. It also plans to expand the offerings within the Studio Store soon to cater to the wider challenges that businesses face across all industries.
Is it a short-term growth?
Industry stakeholders and experts are yet to have a clear opinion on whether the growth is long-term.
Desai of Sequretek says, “Considering the current scenario looks like WFH will most likely continue for the next few months. Once WFH settles in and becomes the new normal, there will be new opportunities that will arise in the market space.”
While other gives service disarray as a reason for degrowth.
Medisetti of MetroMedi says, “The Just-in-time (JIT) inventory system is breaking across all the e-commerce industries. During this crisis, it is not working anymore. Businesses that are JIT inventory system based are now forced to stock larger quantities of SKUs. This means the businesses will soon be facing challenges with capital.”
With the increase in demand, delivery timelines are stretched. Add the current curfew by multiple state governments to curtail the spread of the virus to the mix of things, fulfilling the deliveries is getting challenging, he adds.
Having said that, understanding the prospective opportunities and challenges, startups are anticipating a special package or relief measures targeted at the SMEs and mid-size startups, addressing various roadblocks such as working capital issues.