Start-ups like OLA, Ather, .. Revolt Motors have moved the cheese!
Bajaj Auto, TVS Motors, Eicher, Hero Motors, Tata Motors, Maruti, .. have become sitting ducks.
Traditional business:
Cost + Margins(Profits) = Sales
Borrowings help earn higher rate of returns on equity by leveraging equity. However, one must always earn higher returns on their borrowings to service their borrowings, maintain healthy liquidity ratio and have a good handle on business cycles.
Higher rate of returns on investments makes reinvestment of cash-flow into the existing business attractive and is appreciated by the stock market. Personality, we prefer companies that offer significant dividends and we don't appreciate companies like D'mart that only offer capital appreciation.
Getting back to our subject(Startups).
Eventually, it became impossible for any start-up to break the glass ceiling on account of impregnable moats built by the incumbents.
Fortunately, start-ups somehow managed to tweak the rules of the game by riding on the wave of digital start-ups like Amazon, Google, .. .
Now, start-ups are able to break the glass ceiling through funding from private equity(PE) investors.
It's definitely no free lunch.
The stock market appreciates fast growing companies.
So, eventually the start-ups have to offer spectacular growth on key metrics(appear promising) that concern the stock market.
Private equity investors are betting on a profitable exit opportunity on their investments through listing gains, .. subsequent offloading opportunities, .. down the line.
Now, the incumbents obviously are unable to offer of such soaring metrics and gain themselves, from the appreciation in their stock.
They're too deeply rooted in their business to develop great agility of a start-up.
Or, perhaps they could by going the Tata Motors' way, promising the moon and delivering atrocious performance(pittance), back-to-back(pun intended).
Unfortunately, the start-ups are taking away the marketshare of incumbents lock, stock and barrel.
Hence, the incumbents can't afford to see the reality as a passing phase(bad joke) and more panic stricken reactions are the order of the day. 🤣😂
Kindly peruse our business interests here.