8 October 2020

Equities
HSBC Clicks-n-Bricks Retail

Expanding TAMs: September 2020 Emerging Markets

 Alibaba’s foray in manufacturing and the auto repair industry Ravi Jain
Senior Analyst, EM Consumer & Retail
highlights the growing TAM way beyond traditional retail HSBC Securities (USA) Inc.
ravijain@us.hsbc.com
 Food retail updates include Walmart’s redesign, Whole Foods +1 212 525 3442

dark store and launch of Amazon One palm recognition Felipe Cassimiro*
Analyst, LatAm Retail
HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo
 Key highlights within LatAm include Raia’s marketplace launch Financiero HSBC
felipe.cassimiro@hsbc.com.mx
and continued M&A by Magalu and Locaweb +52 55 5721 2422

Our monthly highlight of key retail and e-commerce trends across the globe focusing on
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is
read-across for Emerging Markets. not registered/ qualified pursuant to FINRA regulations

Read-across for the month

 Expanding TAMs: It is getting increasingly challenging to forecast real TAMs (total
addressable market) for big tech and e-commerce companies.1) Alibaba unveiled its
foray into manufacturing with a digital factory model that focuses on AI to prevent
errors, use consumer insights and real-time market trends to lower lead times (by 75%
for apparel) and lower costs while also working on greener solutions such as reducing
water consumption by 50% for some factories. 2) Amazon launched a personal
shopping service for men priced at USD4.99/month where a stylist recommends items
based on consumers’ preferences. 3) Alibaba and Tencent’s affiliates continue to
expand in the auto repair industry to disrupt the 600k mom-and-pop garages in China
and address the ageing fleet that has quadrupled in the last decade to 260m. The idea
is to enable consumers to start their journey on smartphones to buy parts, book
maintenance and pick up/drop off services. 4) JD Health’s upcoming IPO sheds light on
the solid growth in e-pharma: more than 10m SKUs, telemedicine services, 30-minute
delivery in 200 cities and more than 150m users having purchased on the platform up
to 30 June 2020.
 Stores redesign: Walmart launched a store redesign initiative to enable a digital /
omnichannel experience. The company plans to use bold signage inspired by airport
wayfinding systems and contactless checkout options. Amazon is planning to launch
its palm recognition system ‘Amazon One’ in Amazon Go stores and build Whole
Foods dark stores for online grocery deliveries.

Other news this month:

 Walmart in talks to invest USD25bn in Indian conglomerate TATA’s super app
 BYJU India’s leading ed-Tech reaches valuation of USD11bn
 Raia Drogasil launches drug store and healthcare services marketplace

Key EM consumer reports this month:

Asia: China e-commerce – Feeding China online, 25 September 2020

EEMEA: CEEMEA and LatAm food retail – ESG perspective, 24 September 2020

LatAm: LatAm e-commerce – Flying wheel reimagined, 21 September 2020

Disclosures & Disclaimer Issuer of report: HSBC Securities (USA) Inc

This report must be read with the disclosures and the analyst certifications in
View HSBC Global Research at:
the Disclosure appendix, and with the Disclaimer, which forms part of it. https://www.research.hsbc.com
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LatAm and EEMEA e-commerce, retail and restaurants coverage

_____ HSBC _______ __ Amounts in USD____ __ Local currency performance ___ ____ USD performance _____
Ticker Analyst name Ccy Rating Target price Last price Mkt cap EV 1 wk 1 mth 1 yr 1 wk 1 mth 1 yr
Food retail
Walmex WALMEX.MX Ravi Jain MXN Buy 66.00 52.31 42,052 43,413 -1.4% 0.5% -6.0% 0.3% 0.0% -15.0%
Carrefour Brasil CRFB3.SA Ravi Jain BRL Buy 24.00 20.64 7,326 9,128 0.7% 0.1% 9.0% 1.1% -5.1% -20.2%
Soriana SORIANAB.MX Ravi Jain MXN Hold 20.50 15.82 1,311 2,820 6.0% 3.5% -41.3% 7.8% 3.0% -46.9%
Chedraui CHDRAUIB.MX Ravi Jain MXN Buy 33.00 23.83 1,046 2,731 -1.5% -3.6% -20.2% 0.2% -4.0% -27.9%
Savola 2050.SE Raj Sinha* SAR Hold 48.00 50.00 7,118 10,195 4.2% 4.0% 73.0% 4.2% 3.9% 73.0%
Abdullah AL Othaim Market 4001.SE Raj Sinha* SAR Hold 110.00 133.00 3,191 3,366 2.6% 7.1% 71.6% 2.6% 7.1% 71.6%
Pick n Pay PIKJ.J Nick Webster* ZAc Hold 48.00 4,594.00 1,368 2,381 -2.2% 6.9% -25.8% -2.1% 6.9% -32.2%
Shoprite SHPJ.J Nick Webster* ZAc Buy 155.00 13,291.00 4,743 6,072 -2.7% 14.2% 6.4% -2.7% 14.2% -2.8%
Spar Group Limited SPPJ.J Nick Webster* ZAc Hold 190.00 18,561.00 2,157 3,584 -2.1% 14.5% -4.3% -2.1% 14.6% -12.6%
Dino Polska SA DNP.WA Bulent Yurdagul* PLN Hold 235.00 226.80 5,832 6,098 -0.4% 3.4% 53.8% 0.6% 1.4% 58.6%
Eurocash EUR.WA Bulent Yurdagul* PLN Hold 18.00 14.66 535 1,238 1.8% -6.9% -24.6% 2.9% -8.6% -22.3%
Migros MGROS.IS Bulent Yurdagul* TRY Buy 48.00 42.22 985 1,536 2.5% 10.2% 106.8% 1.5% 5.4% 54.5%
Sok Marketler Ticaret A.S SOKM.IS Bulent Yurdagul* TRY Buy 15.00 12.33 972 1,131 2.5% -0.2% 15.0% 1.5% -4.5% -14.0%
X5 Retail PJPq.L Bulent Yurdagul* USD Buy 44.00 36.90 10,021 19,411 -0.3% 6.0% 15.3% -0.3% 6.0% 15.3%
Magnit MGNTq.L Bulent Yurdagul* USD Buy 17.50 14.74 6,345 13,243 -1.2% 2.6% 26.0% -1.2% 2.6% 26.0%
BIM BIMAS.IS Bulent Yurdagul* TRY Buy 80.00 69.45 5,434 5,618 -0.2% 2.6% 49.6% -1.2% -1.9% 11.8%
Bizim Toptan BIZIM.IS Bulent Yurdagul* TRY Reduce 15.00 16.25 126 93 2.6% 2.3% 74.0% 1.6% -2.2% 30.1%
Saudi Marketing Co 4006.SE Ankur Agarwal*, CFA SAR Hold 28.00 31.30 376 679 4.3% 11.8% 108.9% 4.3% 11.8% 108.9%
E-commerce / Specialty retail
MercadoLibre MELI.O Ravi Jain USD Buy 1350.00 1,091.39 54,253 52,260 0.8% 0.7% 107.6% 0.8% 0.7% 107.6%
Naspers NPNJn.J Ravi Jain ZAc Buy 4600.00 3018.50 79,333 82,972 2.0% 4.1% 33.6% 2.0% 4.2% 22.1%
Prosus PRX.AS Ravi Jain EUR Buy 97.00 79.28 151,743 147,690 0.7% -1.7% NA 0.9% -2.4% NA
MagazineLuiza MGLU3.SA Ravi Jain BRL Buy 108.00 89.30 25,941 26,134 0.1% 0.6% 135.4% 0.4% -4.7% 72.3%
Renner LREN3.SA Felipe Cassimiro* BRL Hold 44.00 40.20 5,719 6,214 1.4% -13.0% -16.3% 1.7% -17.5% -38.8%
Liverpool LIVEPOLC1.MX Ravi Jain MXN Hold 61.00 59.99 3,866 6,012 -4.6% 7.2% -43.7% -2.9% 6.7% -49.1%
Lojas Americanas LAME4.SA Ravi Jain BRL Buy 40.50 28.54 9,045 10,805 0.5% -7.5% 49.9% 0.9% -12.3% 9.7%
B2W BTOW3.SA Ravi Jain BRL Buy 115.00 89.13 8,918 9,004 -0.9% -12.9% 87.6% -0.6% -17.4% 37.3%
Guararapes GUAR3.SA Felipe Cassimiro* BRL Reduce 15.00 14.00 1,250 1,727 0.4% -22.0% -24.0% 0.8% -26.0% -44.4%
Via Varejo VVAR3.SA Ravi Jain BRL Hold 19.50 18.17 5,188 6,642 4.7% -3.9% 135.4% 5.1% -8.9% 72.3%
Hering HGTX3.SA Felipe Cassimiro* BRL Hold 17.00 17.52 509 464 4.7% -11.4% -47.6% 5.1% -16.0% -61.6%
Arezzo ARZZ3.SA Felipe Cassimiro* BRL Buy 63.00 55.37 900 944 1.9% -5.9% 0.7% 2.2% -10.8% -26.3%
C&A CEAB3.SA Felipe Cassimiro* BRL Hold 12.00 12.04 664 959 4.5% -5.1% NA 4.9% -10.1% NA
Marisa AMAR3.SA Felipe Cassimiro* BRL Buy 10.00 7.24 339 527 4.2% -14.1% -26.0% 4.5% -18.6% -45.9%
Extra 4003.SE Ankur Agarwal*, CFA SAR Hold 75.00 71.90 1,150 1,215 3.2% 3.5% 17.5% 3.2% 3.4% 17.5%
Saudi Company Hardware 4008.SE Ankur Agarwal*, CFA SAR Hold 49.00 51.50 494 684 0.2% 3.4% -18.9% 0.2% 3.4% -18.9%
Fawaz Abdulaziz Alhokair 4240.SE Raj Sinha* SAR Reduce 17.00 22.14 1,240 2,951 -4.5% -7.3% -12.1% -4.5% -7.3% -12.1%
Jarir Marketing Co 4190.SE Raj Sinha* SAR Buy 201.00 185.00 5,919 5,993 -1.3% 10.9% 17.1% -1.3% 10.9% 17.1%
Foschini TFGJ.J Nick Webster* ZAc Buy 71.00 8,780.00 1,754 2,752 7.1% 13.5% -38.6% 7.1% 13.5% -43.9%
Truworths TRUJ.J Nick Webster* ZAc Buy 41.00 3,205.00 857 1,092 2.8% 3.1% -39.7% 2.9% 3.1% -44.9%
Mr Price MRPJ.J Nick Webster* ZAc Hold 132.00 12,970.00 2,007 2,007 -1.7% 10.6% -18.0% -1.7% 10.7% -25.1%
Woolworths WHLJ.J Nick Webster* ZAc Buy 42.00 3,633.00 2,302 4,706 3.1% 18.2% -33.5% 3.1% 18.3% -39.2%
LPP S.A. LPPP.WA Bulent Yurdagul* PLN Hold 7250.00 7,005.00 3,403 4,110 6.6% -3.0% -11.6% 7.7% -4.9% -8.8%
Mavi MAVI.IS Bulent Yurdagul* TRY Buy 52.00 38.90 249 320 1.1% 2.9% -13.6% 0.1% -1.6% -35.4%
CCC S.A. CCCP.WA Bulent Yurdagul* PLN Hold 64.00 52.70 758 1,561 11.7% -3.9% -58.8% 12.8% -5.7% -57.5%

Equities ● Retail
Restaurants

8 October 2020
Alsea ALSEA.MX Ravi Jain MXN Buy 31.00 21.27 816 3,354 0.9% -1.7% -55.7% 2.7% -2.2% -60.0%
Arcos Dorados ARCO.N Ravi Jain USD Buy 5.92 4.25 874 1,534 3.7% -3.6% -33.2% 3.7% -3.6% -33.2%
Burger King Brasil BKBR3.SA Ravi Jain BRL Buy 15.50 10.50 428 619 -2.0% -7.5% -48.3% -1.6% -12.3% -62.2%
Herfy Food Services 6002.SE Raj Sinha* SAR Hold 45.00 53.50 923 1,114 -0.6% 0.9% 3.5% -0.6% 0.9% 3.5%
DO & CO DOCO.IS Bulent Yurdagul* TRY Hold 350.00 319.30 402 865 0.9% -2.6% -38.2% -0.1% -6.9% -53.8%
Source: Refinitiv Eikon and HSBC estimates (priced on close of 6 October 2020) * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations


 Equities ● Retail
8 October 2020

Relevant global news items for September 2020

Alibaba’s Xunxi brings digital solutions to manufacturing

As a part of Alibaba’s long-term vision of building a digital economy and within the “Five New”
strategy, the company unveiled its Xunxi Digital Factory. The overall goal is to build a user-centric
approach by using digital solutions including cloud computing, IoT (Internet of Things)
technologies and AI (Artificial Intelligence) algorithms. The factory is designed to “made-for-sell”
unlike “made-to-stock” by taking consumer insights and real-time market trends into account. The
company has chosen to apply the technologies in production of apparel, where consumers
demand personalized designs that mass production is unable to deliver and preferences continue
to change rapidly. Traditionally, it takes apparel brands roughly 30 weeks from designs into actual
production but the Xunxi factory prototype has been able to cut that lead time down by 75%. In
addition, the flexible infrastructure will allow minimum order sizes as low as 100 pieces. The model
has also been able to lower overheads by 43% and inventory needs by 30%. The company uses
AI vision technologies in laser cutting machines to prevent errors and AI algorithms in washing
machines to reduce water consumption by 50%.

Source: Alizila and SCMP (18 September 2020)

Amazon launched men’s personal shopping service

Amazon is introducing a men’s personal shopping service to Prime members. The service is an
expansion to the Prime Wardrobe program and priced at USD4.99 per month. In the program, an
Amazon stylist will select an assortment of items that suits the customer’s style and fit preferences.
The selected items will be shipped to customers on a monthly basis and customers can choose to
keep what they want while returning the balance merchandise. The service will initially include
brands like Scotch & Soda, Original Penguin, Adidas, Lacoste, Carhartt, Levi’s and Amazon
Essentials. The ‘Personal Shopper’ subscription will be currently available in the US only.

Source: Techcrunch and Reuters (29 September 2020)

Alibaba and Tencent expanding into auto repairs

Alibaba and Tencent are looking to capture a share in the auto maintenance industry as China’s
car fleet begins to age. The two firms plan to compete with mom-and-pop repair shops that are
becoming less relevant without technology. Alibaba has Tmall-branded garages and Tencent has
two affiliates that are building new garages and joining the existing stores to give end-point for
online auto part sales. The companies target providing services from buying a car to maintenance
and replacement of damaged parts. Unlike traditional mom-and-pop repair shops, the companies
plan to begin the consumer’s journey on smartphones where they can check the service slot
availability, pick up/drop off among other services. In addition, the companies expect to cross-sell
products like auto insurance, auto parts and recommendations on products. China’s car fleet has
grown 4x in the last decade to 260m cars with the average age approaching six years where the
need for repairs and maintenance climbs up significantly. JD.com planning to grow to 4k garages
within three years up from 1k currently.

Source: WSJ and SCMP (19 September 2020)

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8 October 2020

Alibaba investor day 2020

Alibaba’s investor day had several interesting data points as a read-across for e-commerce
businesses globally. HSBC analyst Binnie Wong published reports on the back on the investor
presentations, Incremental info and surprises from Investor Day 1 (29 September 2020) and
Incremental info and surprises from Investor (30 September 2020). A few interesting data points
include: 1) Taobao GMV growth recovered to 20% that is higher than pre-COVID-19 levels; 2)
Loyalty programs 88VIP (launched in 2018) and Taobao Pass (2019) now have 30m paying
members within two years; 3) first-year customer annual ARPU now at RMB3,000 vs RMB2,500
five years ago; 4) Freshippo: AAC reached 25m+ in Jun-20, +25% from Aug-19, 65% GMV from
online accelerated by COVID-19 and Freshippo B2C has 20K SKUs in supermarket category (vs
JD’s 1.23m); 5) Local services: AAC is at c60% of Meituan’s level with revenue at c25% of
Meituan, active merchant base at 2.5m, 40% of Meituan’s 6.3m and monthly active drivers at 850k
vs Meituan that surpassed 1m on daily basis.

Source: Alibaba, HSBC (28 and 29 September 2020)

Amazon introduced Amazon One, a contactless payment

Amazon launched Amazon One, a contactless payment that uses the customer’s palm at Amazon
Go stores. The system will have a biometric device placed at the entry point of the store where a
shopper hovers his/her palm to associate palm signature that is connected to the payment
mechanism. The stores will still have other payment and entry points including Amazon Go app,
Amazon app or with associates who will handle payments in cash. The company also stated that
such a device can be used at non-retail stores like stadiums and office buildings.

Source: Techcrunch and Livemint (29 September 2020)

Amazon dark store concept and Whole Foods to offer pickup from
all stores
Amazon opened “permanent online-only” Whole Foods store in New York as a fulfillment center
for grocery deliveries. The move helps for faster and efficient delivery of grocery items. According
to CRBE, 14m sqft retail space had converted to 15.5m industrial space since 2017 in the US.
Amazon has also recently been reported to be in discussion with Simon Properties Malls about
converting JCPenny and Sears stores into distribution hubs. Whole Foods plans to offer pickup
from all of it stores by 2020 from 80 stores in December 2019. The company also offers 2-hour
grocery delivery in more than 2k cities and towns.

Source: Retaildive (8 September 2020), Techcrunch (4 September 2020)

Walmart’s new store layout caters to smart shoppers

Walmart is planning to redesign its stores for a digitally enabled shopping experience. Walmart
signage in the stores will reflect the Walmart app icon. Sections will have a bold, dimensional
typeface that direct customers to the exact section that is inspired by the airport wayfinding
systems. Product layout is also optimized for improved visibility to key items and dedicated in-store
sections for electronics, toys and baby products. The store directory encourages consumers to
download and use the Walmart app as they shop. Finally, the stores will include self-checkouts
and contactless payment solutions including Walmart Pay with select locations using the ‘Scan &
Go’ feature. The company plans to implement the redesign in 200 Supercenters by the end of the
current fiscal year reaching 1k stores by the next fiscal year.

Source: Walmart, USA Today and Independent (30 September 2020)

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8 October 2020

Freshippo, Alibaba’s grocery arm, opens membership-only store

Freshippo, Alibaba’s grocery retail chain, likely to open membership-only store in Shanghai.
Freshippo, also known as “Hema”, launched Hema MAX, a private brand which sells a range of
items including rice, cooking oil, yogurt and nuts. The stores will have over 40% of products
exclusive to the store, with 100% from overseas factories. Products bought in the store will be
delivered within half a day to the customers, who live within 20KM radius of the store. For the
customers who live within 3KM radius, delivery time can be 30min. Freshippo first launched its
brick-and-mortar store in 2016 and membership plan in 2018 with an annual fee of USD38.
Freshippo has around 214 Freshippo stores across China with close to 500k members.

Source: SCMP and Nikkei (29 September 2020)

JD’s health care business files for IPO

JD Health, health care subsidiary of JD.com, filed for an IPO in Hong Kong Stock Exchange to raise
USD1.8-2.8bn within a year. The proceedings will be used for research and development. JD Health
operates the largest pharmaceutical retail website in China. JD Health revenue up by 76% y-o-y in
1H20 to USD1.2bn and more than 150m users purchased on the platform up to 30 June 2020.
JD.com has 81% stake in JD Health. Health care retail arm of JD.com was valued at USD12bn in
August by investors. As of 30 June 2020, JD Healthcare had more than 10m products on its online
retail platform, with more than 9k third-party shops, offers telemedicine services, 11 drug warehouses
and a delivery service that provides 30-minute home delivery covering over 200 cities in China.

Source: Nikkei (28 September 2020), SCMP (18 September 2020), GBI Health (28 September 2020)

Walmart looks to invest USD25bn in TATA’s super app

Walmart is in talks to invest up to USD25bn in Indian conglomerate TATA’s super app that is
expected to launch in the period December 2020 – January 2021. The super app may include
Walmart’s Flipkart offerings and entire TATA’s retail franchise products on one platform. TATA’s
products range from healthcare, food & grocery, insurance and financial services, fashion, lifestyle,
electronics, OTT and education among others. Valuation of the joint venture could be in the range
of USD50-60bn.

Source: Business Standard and Livemint (29 September 2020)

Survey supports online grocery in a post COVID-19 world

Mercatus USA Inc, a grocery e-commerce platform released a report projecting online grocery
sales of USD250bn or 21.5% penetration by 2025 based on a study of 60k shoppers. A pre-
COVID-19 projection by Incisiv and Winsight Grocery Business had pegged penetration at 13.5%
by the year 2025. As per the survey, 43% of respondents had shopped online for groceries vs
24% in 2018. Adoption was the highest among consumers age between 25-44 at 50% followed by
the age group of 45-54 at 39% and above 65 at 36%. As to fulfillment, a majority (52%) mentioned
that curbside pickup was their preferred method while 38% chose home delivery and 10% in-store
pickup. For curbside pickup users, product availability was the top concern (82% of respondents)
with same-day or next-day pickup as a scope of improvement (62%). For home delivery
customers, out-of-stock (44%) and delivery fees (41%) were top concerns. As per the survey, 90%
of shoppers expect to continue to shop online and 87% intend to remain loyal to their preferred
brick-and-mortar even as they experiment with other options online.

Source: Digitalcommerce360 and Mercatus (22 September 2020)

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8 October 2020

Delivery Hero expansion

Delivery Hero has launched food delivery and q-commerce (or quick-commerce) in six cities in Japan
initially through its regional brand, Foodpanda. Delivery Hero’s launch will challenge the existing
dominant players, Uber Eats and Yume No Machi. Moreover, Delivery Hero has also acquired Spain-
based on-demand delivery app, Glovo’s LatAm operations (including eight markets) for USD272m,
marking another consolidation in the region after iFood acquired Colombia’s Domicilios in April 2020.
The eight markets included are Argentina, Peru, Ecuador, Panama, Costa Rica, Honduras,
Guatemala and the Dominican Republic. Glovo has been offloading its business in the region and
also exited Middle East recently to focus on Southern and Eastern Europe. The move adds five new
markets to Delivery Hero’s LatAm footprint while removing competition from another three markets.
Delivery Hero’s expansion spree continued as the food delivery service provider also bought
InstaShop, an online grocery marketplace in MENA for USD360m. This reemphasises the
company’s focus on grocery delivery and q-commerce.

Source: TechCrunch (16 September 2020), EU Start-ups (27 August 2020)

Zomato provides COVID-19 update; raises another USD100m

Zomato recently provided a COVID-19 update. It stated that the Indian food delivery industry is
recovering steadily, reaching 75-80% of pre-COVID-19 GMV by mid-August and to 85% of the
pre-COVID-19 GMV level by late September. Another insight was that average order value is
20% higher than pre-COVID-19 levels as family meals have recovered faster and are already
above pre-COVID-19 levels. On the other hand, single consumer meals (that represented c60%
of GMV) are still 30-50% below pre-pandemic levels. Zomato also raised another USD100m
from Tiger Global, weeks after raising USD62m in funding from Singapore’s state investment
arm, Temasek, at a valuation of USD3.25bn. The valuation has remained the same as in March,
when Zomato raised USD5m from Pacific Horizon Investment Trust, managed by UK-based
Baillie Gifford & Co. Ltd.

Source: TechCrunch (10 September 2020), Zomato (19 August 2020 & 23 September 2020)

Deliveroo may be eyeing an IPO

Deliveroo is reportedly in talks with potential investors regarding a possible IPO next year,
according to Bloomberg. Deliveroo has not confirmed about a possible IPO. Deliveroo last
disclosed its valuation in a 2017 funding round at USD2bn, however, its updated valuation post
a funding round in May 2019 is not known. Amazon’s USD575m capital injection into Deliveroo
got approval recently after a prolonged probe. Deliveroo struggled when the pandemic hit
towards the end of Q1, however, as customers preferred online food and groceries delivery to
avoid visiting physical stores. We see some noteworthy consolidation in the food delivery space
during the last one year including, JustEat-Takeaway and Grubhub merger, iFood and
Domicilios acquisition, Delivery Hero buying Glovo’s LatAm’s operations, Zomato buying Uber
Eats India, and Delivery Hero’s pending acquisition of Woowa in Korea.

Source: Bloomberg (24 September 2020)

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8 October 2020

Prosus-backed BYJU valuation climbs to USD11.1bn

Prosus-backed ed-tech start-up in India, BYJU has garnered three new investors, Blackrock, Sands
Capital and Alkeon Capital as part of its ongoing USD500m Series F funding round announced last
month. Post-money, General Atlantic will own a 7.3% stake in the ed-tech platform, while the
holdings of the promoters will decline from 33.1% in August to 29.5%. BYJU has raised USD1bn in
funding this year due to accelerated demand for online education driven by the ongoing pandemic.
The current investment reportedly values the start-up little above USD11bn, a strong 37.5% increase
since January 2020 when it was valued at USD8bn (Financial Express, 10 January 2020). Since the
end-March lockdown, BYJU claims to have added over 25m new students, and has over 70m
registered students with 4.5m annual paid subscription.

Source: Entrackr (23 September 2020)

Klarna, a Fintech startup, raised USD650m

Klarna, a Fintech startup in Europe, raised USD650m in its latest funding round at a valuation of
USD10.65bn. Silver Lake is leading the funding round along with GIC, BlackRock and HMI Capital
participating in the funding round. Klarna is an alternative payment method on e-commerce and it
offers a “Buy Now and Pay Later” option with options for three or four installments with zero
interest rate. It also allows the user to generate a virtual card to pay via Klarna on unsupported
stores. Recently, it has expanded to the US and has close to 9m customers. The app has 12m
monthly active customers and 55k daily downloads. The company is working with 200k retailers
now and reported revenue of USD466m and USD59.8m loss in 1H20.

Source: Techcrunch and PYMTS (14 September 2020)

Amazon adding air cargo fleet and infused cUSD160m in Indian arm

Amazon continues to build its air cargo fleet, adding 9 planes to its fleet between May and July
2020. Amazon Air has around 70 planes and the fleet is expected to grow to 80 by 2021.
However, Amazon air fleet is still smaller than its competitors including FedEx, UPS and DHL.
Amazon’s USD1.5bn investment in air hub in Kentucky will have 100 Amazon branded planes and
handle an estimated 200 flights per day. In light of the holiday season ahead, Amazon infused
cUSD160m in Amazon Seller Services, Amazon had already infused cUSD330m two months
back. The latest funding could help up the ante against Walmart’s Flipkart and Reliance’s JioMart.
India’s e-commerce sales are expected to double during this year’s festive season, as per
RedSeer consulting. Amazon announced global Prime Day during 13-14 October.

Source: ET, Livemint and Reuters (28 & 29 September 2020), CNBC (15 September 2020)

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8 October 2020

BigBasket, an online grocery firm, plans to raise USD350m

BigBasket, an online grocery retailer in India, likely to raise USD-350-USD400m in its latest
funding round. The latest round also includes USD100-US150m secondary sale of shares by early
investors. The company’s valuation is expected to reach to USD2bn, up by 33% from last round
valuation, as per Economic Times.

Source: Economic Times and Inc42 (29 September 2020)

Fun fact: Competition among drivers implies smartphones hung on

trees near Amazon fulfillment centers to grab delivery orders

Smartphones and devices were hung on trees near Amazon delivery stations and Whole Foods
stores, where deliveries for Amazon originates, apparently by contract delivery drivers for Amazon
in order to get orders earlier than competition. It gives an advantage of the device’s proximity to
the station to get a split-second jump on rivals. The reason for the high level of competition could
be increased unemployment levels due to the pandemic and payments based on route. Further,
Amazon Flex, which allows drivers to deliver packages using their own vehicles, has been
increasing the competition among drivers. But at Whole Foods stores, drivers are competing for
fast-delivery Instant Offers. Instant Offers are dispatched to nearby drivers through an automated
system and the drivers have only few minutes to accept it.

Source: Bloomberg and Reuters (1 September 2020)

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8 October 2020

Relevant LatAm news items in September 2020

Magalu announces two additional acquisitions in logistics

Magazine Luiza announced on 2 October the acquisition of GFL Logística and SincLog. GFL
Logística has a strong presence in the countryside of the state of Sao Paulo and the south
region of the state of Minas Gerais, with a reach of 600 cities, with 13 cross-docking facilities
and 850 independent truck driver partners. The company offers services such as first mile pick-
up, last mile delivery and reverse logistics. According to Magalu, the company makes 85% of its
deliveries in D+1 and 100% in D+2, and it currently has 500k deliveries per month. GFL will
increase Logbee’s delivery capacity by 50%. The second acquisition was SincLog, a transport
management platform that enables management of cargo, emission of shipping documents,
control of freight tables and compensation of drives, all in real time.

Source: Magazine Luiza filings 2 October 2020

Brazilian SaaS company VTEX raises USD225m and reaches

USD1.7bn valuation

VTEX is a software-as-a-service e-commerce platform, the leading company in the segment in

Latin America. According to Brazil Journal, the company made a series C round of USD225m led
by Tiger Global and Lone Pine Capital that valued the company at USD1.7bon valuation post
money. Softbank, Constellation, Endeavor Catalyst and Gávea are other investors in the
company. Moreover, the article mentioned that VTEX will reach USD100m in net revenues for
2020 and in the last six years the company grew the top line at 46% per year. The use of proceeds
includes hiring 160 new developers, increase omnichannel and marketplace functionalities and
invest in service level across LatAm, US, Europe and Asia-Pacific. Among the 3k clients across 48
different countries, VTEX serves AB Inbev, Coca-Cola, Samsung, Motorola, Black&Decker,
Whirlpool that use the company's services on their D2C operations.

Source: TechCrunch, Brazil Journal and Valor Econômico on 28 September 2020

RD launches drug store and healthcare services marketplace

On its investor day, the leader in the drug retail market announced the launch of its own
marketplace in October alongside with the healthcare services platform to be launched next year
(1Q21). The company intends to expand the health products assortment in its website. Currently
the company offers 12-13k SKUs with their stores. RD marketplace plans to reach 100k SKUs.
Initially, the company will only work with drop shipping option for 3P sellers, while the plan is to
expand the logistics capacity and offer more support to sellers with cross-docking and fulfilment.
RD has 11 distribution centers and 2,162 stores across the country. According to the Brazil
Journal, the drug retailer has 40m annual physical customers, out of which 4m are e-commerce
(website and app) frequent users. On the services platform, the company will plug nutritionists,
physical educators, psychologists to allow remote consults to customers.

Source: Company, Brazil Journal and Estadão on 30 September 2020

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Locaweb acquires two startups to enhance its services platform

In the last 15 days, Locaweb, one of the leading e-commerce software companies in Brazil, has
made two acquisitions in the tech space. The first acquisition, announced on 23 September, was
of Social Miner, a startup that offers software as a service (SaaS) to e-commerce and retailers.
Social Miner has AI and big data tech to help companies improve online sales. Locaweb spent
BRL22m (USD3.9m) in the acquisition. The second acquisition was a startup called Etus, focused
on digital marketing and management in social media. Locaweb acquired Etus on 29 September
for BRL19m (USD3.4m). Etus is focused on the SMEs segment, although it has exposure to large
companies such as Arezzo&Co and Boticário.

Source: Reuters and Valor Econômico on 23 September 2020, Exame on 29 September 2020

Acesso Digital raised USD100m

Acesso Digital raised BRL580m (cUSD105m). Acesso Digital offers a facial biometrical recognition
service to the main banks, fintechs, retailers and e-commerce in Brazil. The company also offers a
HR service that allows clients to make the hiring process 100% online. Among the main clients are
Magazine Luiza, Casas Pernambucanas and PicPay. According to the Brazil Journal, the
company has access to over 60% of the economically active population in Brazil, one the most
robust database in the country. Moreover, the article mentioned that in August, the company
reached BRL120m annual recurring revenue, and expects to reach BRL150m by end of 2020,
from BRL70m in December last year. Acesso Digital intends to use the proceeds to make M&A
focused on human capital acquisition.

Source: Brazil Journal on 21 September 2020

Mercado Pago raises BRL400m debt with Goldman Sachs

On 24 September, Goldman Sachs has agreed to lend BRL400m (USD72m) to Mercado Pago to
support working capital lending to SMEs and microentrepreneurs in Brazil. The debt will support
Pago on the growth in the credit segment in Brazil. Previously, Goldman Sachs loaned USD125m
to Mexico credit expansion.

Source: Bloomberg on 24 September

Rappi includes classifieds business in the Brazil app

Rappi Brasil has made an agreement with auto classifieds company Karvi to add the services to
the Brazilian app. Rappi app users will have access to 50k cars posted by over 1k dealers.
Moreover, Rappi will offer BRL500 cash back for customers that acquire cars via the app in the
next three months.

Source: Meio e Mensagem and Computer World on 29 September 2020

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8 October 2020

DHL builds hub in the largest airport in Brazil

According to O Globo, DHL announced the creation of a logistics hub inside Guarulhos airport, the
largest in Brazil and located in the metropolitan region of São Paulo. The hub will allow DHL to
reduce delivery times by 12h, as the standardization process of products was made previously in
another location in the metropolitan region. The main focus of the hub are tech and medicines that
are shipped to the North, Center-West and Northeast regions of the country.

Source: O Globo on 25 September 2020

Amazon Brasil: Prime Day launch in the country

Amazon announced that Brazil will be included in the global Prime Day event in October 13 and
14. According to Amazon Prime head in Brazil, the event is expected to be bigger than Black
Friday to Amazon Brazil. The company will have 15k promotions in 30 different categories with
free shipping to over 300 cities in Brazil.

Source: E-commerce Brasil on 28 September 2020.

Will Bank, BZ fintech focused in the Northeast, to offer digital

account, asset management and credit card

Will Bank is a digital bank (previously named pag!) credit card issuer focused in the Northeast
region of Brazil. The fintech is focused on mid- to low-income consumers with limited access to
financial products. The company will start operations as a digital bank in November by offering
digital account with automatic investments and credit cards. The fintech has 1m clients, 60%
located in the Northeast and 55% in small cities. According to Valor Econômico, 40% of pag! card
users do not have bank account and 25% only have accounts in Banco do Brasil or Caixa. The
head of Will Bank mentioned that the credit card volume in the company has grown sevenfold in
the last two years, and expects to grow by 60-70% in 2020 given a more restrictive credit policy.
The company had a portfolio of BRL2bn in 1H20. The company monetizes its business model by
charging 1.5% interchange fee. The average monthly spending with the card is around BRL700.

Source: Valor Econômico on 30 September 2020

BZ e-commerce fell 9% m-o-m in August

According to Compre & Confie and Brazilian E-commerce Chamber study, online sales have
dropped 9.15% in August versus July. However, the number is still substantially lower than the
jump of 29.1% growth in May over April the same index has showed in Brazil.

Source: Poder360 on 27 September 2020

Natura&Co announced USD1.1bn follow-on offering

Natura & Co has announced on 1 October that it has started the follow-on process to raise
BRL6.2bn (USD1.1bn). The company intends to use the proceeds for the Avon integration and
turnaround, digitization of the business with social selling, lever up its geographic opportunities
and reinforce its carbon net zero program by 2030.

Source: Natura material fact document on 1 October 2020

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8 October 2020

Argentine fintech launches operations in Mexico

Ualá is an Argentina-based fintech founded in early 2017 and has just started operations in Mexico.
The company raised recently USD150m with Tencent and Softbank which will help the company to
boost operations in new countries. In Argentina, Ualá has 2m users and sees great potential in the
Mexican market on services payments, contactless payments and a large network of 14k cash-in
and cash-out points across the territory. The company will launch the app and the card in Mexico.

Source: Forbes Mexico on 29 September 2020

New agreement on payments between Oxxo and Amazon Mexico

Previously, customers could pay their Amazon orders in any of the 19k Oxxo stores via Amazon
Cash pre-paid card. Now, the companies reached an agreement where Amazon Mexico
customers will generate a bar code that can be paid in the PoS of Oxxo stores. The bar code will
be valid for 48 hours and will not generate additional fees to the customers.

Source: Forbes Mexico on 14 September 2020

Paypal launches initiative to boost local and micro SMEs in

Mexico; Google also boosting local businesses

PayPal Mexico has launched in mid-September an initiative called #CompraLocal (#Buy Locally in
Spanish) to identify and provide technical and financial subsidies to SMEs in the country. Paypal
has launched similar projects in Brazil, Japan, Singapore and India. The company has launched a
dedicated website to show to customers the stories of the most interesting companies in the local
market. Moreover, after launching a tool to connect local restaurants directly to customers in Brazil
in August, Google has launched an additional function in Mexico. Google Shopping is connecting
micro and small local business with catalogues of products available. Google will offer filters of
closest locations registered in Google My Business tool.

Source: Marketing4Ecommerce on 18 and 21 September 2020

Other covered companies mentioned in this report

HSBC
Company Ticker Analyst name Ccy rating Target price 6 Oct price
Alibaba BABA.N Binnie Wong* USD Buy 321.00 292.39
JD.com JD.OQ Binnie Wong* USD Buy 100.00 76.69
Delivery Hero DHER GR Andrew Porteous* EUR Buy 106.00 99.00
Raia Dograsil RADL3 BZ Augusto Ensiki BRL Reduce 19.00 24.64
Tencent 0700.HK Binnie Wong* HKD Buy 655.00 527.50
Source: Refinitiv Eikon, HSBC estimates (priced at close of 6 October 2020).
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations

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LatAm retail recent and

relevant reports

Deep dives/thematics

Spotlight: LatAm e-commerce: Flying wheel reimagined, 21 Sep 2020

LatAm restaurants: Prefer a buffet to a la carte, 27 Feb 2020

LatAm retail: Piecing together the TechFin vs FinTech puzzle, 09 Sep 2019

LatAm E-commerce: Last ones standing, 13 Apr 2018

LatAm food retail: Protecting groceries from being clicked away, 13 Mar 2019

Brazil apparel and footwear retail: Wearing a new growth look, 22 Nov 2019

LatAm food retail: Time for Brazil to step up, 19 Sep 2019

Brazil consumer survey, 13 Apr 2018

Mexico consumer survey, 26 Nov 2018

Sector notes

Brazil apparel retail: 2Q20 wrap: Shopping after clearance season, 2 Sep 2020

Brazil apparel retail: Everybody wants to rule the… online apparel game, 6 Aug 2020

LatAm Restaurants: Patience is bitter but the meal could be delicious, 27 Jul 2020

LatAm e-commerce: Defensive at the moment, but life is not a straight line, 14 Jul 2020

Brazil apparel and footwear retail: Taking a step back to regroup after sector rally, 22 Jun 2020

Naspers and Prosus: growth reloaded, 16 June 2020

LatAm e-commerce: Solid setup for Q2, What’s next?, 8 June 2020

LatAm e-commerce: The light’s brighter at the end of COVID-19, 22 Apr 2020

Brazil e-commerce: Key themes and debates for 2020 and beyond, 26 Feb 2020

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8 October 2020

Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering
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views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect
their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Ravi Jain and Felipe Cassimiro

Brazilian Securities Exchange Commission (CVM) Regulation No. 598

Pursuant to CVM Ruling No. 598 (May 2018), HSBC has obtained from the analyst(s) listed above under "Analyst Certification"
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Additionally, for purposes of Article 20, the principal analyst responsible for compliance of the mentioned regulation is the first
name in the list under "Analyst Certification" that has local certification, where applicable.

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For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate,
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points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.

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 Equities ● Retail
8 October 2020

*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months
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volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities

As of 07 October 2020, the distribution of all independent ratings published by HSBC is as follows:
Buy 56% ( 32% of these provided with Investment Banking Services )
Hold 35% ( 32% of these provided with Investment Banking Services )
Sell 9% ( 26% of these provided with Investment Banking Services )
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current
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Additional disclosures
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8 October 2020

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