Introduction

The Open Network for Digital Commerce (ONDC) is an initiative by the Indian government to democratize digital commerce. It aims to create an open, interoperable network that connects buyers, sellers, and logistics providers across diverse platforms. ONDC seeks to break e-commerce monopolies, empower small businesses, and foster innovation in India's digital marketplace.

Overview of the ONDC Space

• Monthly transaction volumes reached 10 million in June 2024, marking significant adoption.
• Non-mobility transactions experienced a remarkable 70% QoQ growth, from 36 Lacs in March 2024 to 61 Lacs in June 2024.
• The network has expanded its operations to 236 cities and onboarded over 36,000 merchants as of May 2023.

These figures demonstrate ONDC's growing influence in India's e-commerce sector, projected to reach INR 24,60,000 Cr. by 2030.

ONDC Market Segments and Integration

Retail Segments

• Food and beverages accounted for 33% of non-mobility orders in FY24.
• Fashion represented 15% of non-mobility orders in FY24.
• Groceries constituted 10% of non-mobility orders in FY24.

This diversification aligns with broader e-commerce trends, such as the online grocery market's projected growth to INR 2,20,749 Cr. by 2027.

Financial Services Integration

• Pilots conducted for credit disbursals.
• Plans to introduce insurance and investment products.
• Development of B2B credit services with loans ranging from INR 1-1.5 Cr.

This expansion could tap into India's B2B online marketplace, expected to be a INR 16,40,000 Cr. opportunity by 2030.

ONDC Monetization Strategy

As ONDC matures, it is transitioning towards a sustainable business model:

• Plans to introduce user charges on each transaction in FY25.
• Phasing out of financial incentives for network participants, with reductions of up to 75%

ONDC's Impact on E-commerce Ecosystem

• Potentially accelerating e-commerce penetration in Tier-2 and Tier-3 cities, which saw market share growth from 34.2% in 2021 to 41.5% in 2022.
• 8.95 Cr. internet connections as of June 2023, with 55% in urban areas.
• Projected smartphone base of 10 Cr. by 2025.
• Rising 5G adoption, with 5G smartphone shipments registering 555% year-on-year growth in 2021.

ONDC's Role in Addressing E-commerce Challenges

Last-Mile Delivery

By integrating various logistics providers, ONDC could improve last-mile delivery in remote areas, a crucial factor as third-party logistics providers are expected to manage ~1,33,400 Cr. shipments within the next seven years.

Trust and Security

ONDC's open protocol could enhance transparency and build trust among consumers, particularly important in Tier-2 and Tier-3 cities where e-commerce adoption is growing.

Future Outlook for ONDC

• Given the current growth trajectory, ONDC could potentially handle a significant portion of India's e-commerce transactions, which are expected to reach a Gross Merchandise Value (GMV) of INR 28,70,000 Cr. by 2030.
• Beyond retail and financial services, ONDC could expand into other sectors, potentially tapping into the growing quick commerce market, projected to reach INR 1,56,532.58 Cr.

Listed Player in the ONDC space

Protean eGov Technologies

Protean eGov Technologies Limited, previously NSDL e-Governance Infrastructure Limited, is a leading provider of digital public infrastructure and e-governance solutions in India. The company reported a revenue of INR 882 Cr. in FY24, marking a 19% increase from FY23, with majority contributions from tax services (INR 487 Cr.) and pension services (INR 253 Cr.)

Protean operates an asset-light, prepaid transactional business model that drives its revenue through various e-governance platforms and services. The company is a leading player in the issuance of digital tax identity (PAN cards) in India, holding a 63% market share. It also plays a critical role in managing India's Tax Information Network and has issued ~48 Cr.+ PAN cards to date.

Protean has been actively involved in the Open Network for Digital Commerce (ONDC) initiative. This initiative addresses the limited penetration of digital commerce in India, where only 7% of the total retail market and 6% of MSMEs are actively engaged in e-commerce. Protean's contribution to ONDC includes building foundational APIs and digital public infrastructure that support various aspects of digital commerce, such as catalogue as a service, grievance management, and rating and scoring systems.

‍

Disclaimer:

Mool Capital Limited is a SEBI Registered Research Analyst having registration no. INH000012449. This report has been prepared by Mool Capital Pvt. Ltd. and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with Mool Capital. Mool Capital and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.