Revved up by $110 mn in funding, CarDekho accelerates shift towards used cars

Fattened with $110 million in funding last week, Jaipur-based Girnar Software Pvt. Ltd, which owns auto portal CarDekho.com, is busy advancing its pivot to the rapidly-growing used-car segment.

"We have been focusing on three categories: New cars, used vehicles and the insurance & finance sector. These funds will be used to strengthen the finance and insurance sector, alongside the used-car business," said Amit Jain, chief executive and co-founder, CarDekho, in an interaction with TechCircle

In a previous TechCircle report, CarDekho had said 80% of its revenue comes from the new-car segment and the remaining from used vehicles. With the current funding, and the firm’s plan to pivot to used-cars business, the revenue mix might see significant change.

With more than 73 million visitors in monthly traffic, 39 million monthly unique visitors, 1.9 million YouTube subscribers and more than five million mobile app downloads, the GirnarSoft group now aims to become the largest consumer-facing auto-tech company in the country.

Having said that, the used-car segment, which the firm is keen on, has already attracted considerable investor interest. “My sense is that over half a billion of capital has come into this space in the last three years, all driven by large addressable market opportunities,” said Ashish Sharma, managing director and chief executive officer at InnoVen Capital India Pvt. Ltd, which had invested in CarWale, acquired by CarTrade.

But, what’s driving this investor sentiment?

Sharma said, “The addressable market opportunity is quite large. Valuation is just a reflection of potential this segment has. The market has the potential to grow in the next three to four years. Cross-financing is something which is on the table of these companies. Investors feel there’s a viable path to profitability.”

Since monetisation is still a concern in the used-cars business or classifieds model, companies typically pursue others streams of revenues, for example, providing finance to dealers.

With the recent fund-raise, CarDekho, too, plans to enhance focus on insurance (InsuranceDekho.com) and financing businesses, besides the used-car segment.

“The opportunity is large in terms of gross merchandise value and cross-sell options. In addition to buying and selling of vehicles, most companies are trying to provide financing: Either they would own 100% non-banking financial company or they would tie up with third-party financial services providers or they would commission income on insurance. They also fund dealers. Supply comes from customers but a lot of sale happens to dealers who sell the vehicles further to other customers,” Sharma added.

According to experts, in a classifieds or used-car business, money cannot be made from commission alone. An expert said, asking not to be named, “On an average, a used car is sold for Rs 2.5 lakh on which commission is just 10-20%, which is little. With all the cost, which includes costs incurred on marketing and infrastructure, etc., one needs to have cross-selling income to justify the costs.”

To be sure, even Gurugram-based online portal Cars24, which buys automobiles from individuals and sells them to businesses, offers instant payment and transfer of documents, including free-of-cost transfer of the car’s registration certificate once the vehicle is sold.

People looking to sell their car can get their vehicle evaluated online and then visit the nearest Cars24 branch. On completion of physical verification, the company instantly transfers the sum into the bank account of the seller.

In July last year, Cars24 had raised $50 million from Sequoia Capital and existing investors.

Interestingly, Sequoia is also an investor in CarDekho, which is launching various workarounds for difficulties faced by clients.

"Earlier, a customer had to face wait times as long as 15 days for finance, which we have bought down to six hours and in terms of insurance we are looking at offering it under three minutes. This was especially challenging for used cars but we are working around the difficulties to provide customers a better experience," said Amit Jain.

In terms of growth, the new-car segment has been growing steadily for the company while the used-car category has seen enough traction over the past few years.

“While the country’s ratio (and not the company’s ratio) of new cars versus old cars stands at 1:1.25, developed nations such as the US have 1:3. We had over 0.7 billion visits to our sites/app this year, with 270 million unique visitors -- a jump of 44% from 2017. While 70% of these visits came from the top 30 cities, the rest came from Tier-II and Tier-III towns,” said Jain.

CarDekho, however, is hopeful of having enough traction from Tier-II and Tier-III cities, especially in the bike category for which it has already started gearing its approach and working towards launching sites in local languages.

“The Hindi language version site and app is live. We will soon follow with Tamil, Telegu, Kannada and others,” Jain added.

Rising competition

To be sure, CarDekho is not the only well-funded player in this segment. Also, its recent $110 million Series C funding round is not the largest deal in this space.

Automobile classifieds portal CarTrade.com, in February 2017, raised Rs 370 crore ($55 million then) in a funding round led by existing investor Temasek Holdings (of Singapore state) and a US family office.

Before this, in January 2016, CarTrade had secured Rs 950 crore ($145 million then) from Temasek Holdings, US-based March Capital and existing investor Warburg Pincus.

Apart from being an online marketplace, CarTrade also provides reviews, on-road prices, car comparisons and latest auto news.

In 2015, CarTrade had acquired rival CarWale from German media conglomerate Axel Springer, showing signs of consolidation in this space.

Other significant players in this space include Truebil and Droom, besides horizontal people-to-people (P2P) platforms such as OLX and Quikr.

Last year in May, Droom, an online marketplace for new and used cars, had raised $30 million (Rs 204 crore) in a Series D round led by Toyota Tsusho Corporation and existing investor Digital Garage (of Japan).

Droom aims to develop the artificial intelligence and machine learning capabilities of its marketplace platform such as vehicle markups, selling intelligence, creating better credit risk engines and operational expertise in running promotional campaigns. Markup is an increase in the price of something based on the difference between the cost of producing it and the price it is sold at.

Financials and future ahead

CarDekho parent Girnar Software recorded 40% growth in revenue and narrowed loss for the financial year ended March 2018. The company’s consolidated net sales grew to Rs 160 crore for 2017-18, up from Rs 114 crore a year before. Its net loss shrank to Rs 70 crore from Rs 136 crore during the period. Girnar had said it was recording a cash burn of Rs 3.5 crore a month.

According to the experts, margins are not stable in such businesses as all of them are currently focusing on scale and market share.

The sector has started getting organised and therefore time will reveal the fate of such business models.

Sharma said, “It will take three to five years to start thinking about exits. The used-car market was always larger than the new-car market, not in value but in terms of number of cars and was very fragmented and unorganised. As these new players are coming, the market is moving from unorganised to organised. So the potential to grow is large. Secondly, it has not gone to a stage where only two large players are standing. Right now, for the next two to three years, there will be a lot of market-share fight. I don’t think anybody would be looking for exits in the next three to five years.”

He feels that a good amount of capital has come in this space over the last three years. “My sense is that over half a billion of capital has come into this space in the last three years, all driven by large addressable market opportunities.”

“The jury is out to judge as to which model will succeed, while it’s not a winner takes all market; unlike horizontal e-commerce, there are still five six players, hence, it’s still early to declare the winner,” Sharma added.