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In today’s newsletter:
- How Delhivery, FirstCry, Mamaearth fared in Q2
- Why Narayana Murthy thinks building an LLM in India doesn’t make sense
- Slice has an NPA headache
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How Delhivery, Firstcry, Mamaearth fared in Q2
The second quarter of FY25 saw a mixed bag of results for key players in the Indian consumer and e-commerce space.
Delhivery delivers strong Q2 performance
Delhivery turned the corner, reporting a profit of Rs 10.2 crore, a significant improvement from the Rs 103 crore loss in the same period last year.
- The company's revenue rose 13% year-on-year (YoY) to Rs 2,189.7 crore, fuelled by the strong festive e-commerce season
FirstCry narrows losses
Brainbees Solutions, the parent company of FirstCry, saw a 26.4% YoY increase in revenue to Rs 1,904.9 crore in Q2 FY25.
- While the company continues to operate in the red, its net loss has narrowed to Rs 62.85 crore, compared with a loss of Rs 119.4 crore in the same period last year
Mamaearth faces headwinds
Honasa Consumer Limited, the parent company of Mamaearth, reported a loss of Rs 18.5 crore, a stark contrast to the profit of Rs 40 crore in the previous quarter and Rs 29.4 crore a year ago.
- The shift to a direct-to-consumer model under Project 'Neev' has impacted margins, with an EBITDA margin decline to -6.6%
- The company also said its key brand – Mamaearth – is growing slower than expected and it is taking steps to revive growth over the coming few quarters
Picture credit: Kalaido.ai
Why Narayana Murthy thinks building an LLM in India doesn’t make sense
In a bold statement, Infosys founder Narayana Murthy has argued that India should steer clear of attempting to build its own Large Language Model (LLM).
Driving the news
The Infosys founder told us that Indians lack the mindset that is required for problem definition and problem-solving.
- He said we have not been able to build large databases, and without that, “AI has no value”.
Further saying that an “LLM doesn't make any sense”.
What then?
He joined the chorus of many others in the industry, who argue that India should focus on building solutions atop existing LLMs.
- Murthy’s fellow founder and Aadhaar architect Nandan Nilekani, venture capital firm Accel, and many others have backed the idea, too.
This particular idea has found backers even in the power corridors, with Ministry of Electronics and Information Technology (MeitY) secretary S Krishnan saying that building an LLM from scratch may not be worth the effort.
Services mindset?
When asked if Indian’s have developed a services mindset after the success of information technology industry, Murthy said:
“Which area has (India) invented? Why blame services? At least the services people have shown smartness in building large complex applications.”
He praised the IT services industry, as it succeeded in building complex applications, creating millions of jobs, and foreign exchange.
"We should all be grateful to the IT services industry; we should all salute them," he said.
Dig deeper
Slice has an NPA headache
Fintech unicorn Slice snagged a rare prize with its October 27 merger with North East Small Finance Bank (NESFB)—a coveted banking license and the established perks that come along. But there’s a big catch.
Tell me more
While Slice gears up to blend its digital-first approach with NESFB’s traditional banking infrastructure, it also inherits NESFB’s hefty baggage of bad loans.
- As of June 2024, the merged entity’s dues have ballooned to Rs 192 crore, with over half stemming from NESFB’s troubled portfolio
- Loan quality is under pressure too, with overdue loans climbing from 5.8% last quarter to 7.3%, according to a Crisil report
The root cause? NESFB’s history of lending to high-risk microfinance borrowers in the northeast, where economic disruptions have repeatedly hampered collections.
Plan of action
Sources say Slice has a few strategies lined up to clear the NPA fog. The firm is planning to sell off certain NPA segments to accelerate balance sheet clean-up.
- Collections are being bolstered through partnerships and agencies, with an ambitious target to cut NPAs from 35% to below 10%, sources told us
On the bright side, Slice’s cash infusion has raised the merged entity’s net worth to Rs 925 crore, with a fresh Rs 300 crore investment, pushing the capital adequacy ratio from a shaky 8.7% to a healthy 23%.
- The buffer enables both NPA management and growth
Profitability challenges
Both Slice and NESFB have been in the red.
- NESFB’s net interest margins have plummeted from 8.6% to 5.2%, while Slice logged a Rs 237 crore loss for FY24.
- Combined, the merged entity is eyeing a projected FY24 loss of Rs 330 crore.
Slice is betting big on its digital lending model and a new Loan Origination System (LOS) to overhaul NESFB’s risk evaluation and loan restructuring processes—moves essential to navigate the northeast’s challenging credit landscape.
Dig deeper
MC Special: Aadhaar enabled payments hit a stumbling block
Aadhaar Enabled Payment System (AePS) is a key financial inclusion tool for a large segment of migrant workers to send cash to their dependents.
- However, the product has been stagnant for the last three years as several public sector banks (PSBs) disallow their customers to go to third-party business correspondent agents
Why? The PSBs are reluctant to pay the interchange to other lenders that appoint these agents
More on that here
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