- Indian auto market heating up as car marketplaces chase transactions
- Both CarTrade and Droom planning for upcoming IPOs
- Spinny, Cars24 and CarDekho with large funding rounds over past year
The Indian online automotive market has historically been slow to mature, with local marketplaces struggling to turn a profit in a country where offline remains the major component in used-car sales. However, 2020 was clearly a watershed moment, with the pandemic effect driving funding toward the country’s leading automotive marketplaces — sending the market and the opportunities on an upward trajectory.
Almost all of the significant car marketplaces in India have seen a sizable jump in financing over the past year, with two announcing imminent IPOs. The funds are primarily earmarked for product expansion, a larger offline presence and boosting transactional mechanisms in either b-to-c or c-to-b. Investors are eagerly jumping aboard — they include Tiger Global, Sequoia, and many others.
The logic behind the investor interest is simple: the market is there to be won. No single player dominates and there is huge room for growth in a market set to become the world’s most populous over the coming years.
Pandemic finally kickstarts the online market
As in many countries worldwide, quarantines and lockdowns due to Covid-19 forced many Indian consumers to reshape their retailing and mobility preferences. Demand for private vehicles increased as consumers avoided crowded public transport. The used-car market rapidly outpaced the new-car market to become 1.5x larger from 1.2x the previous year (see chart on next page). This ratio is expected to hit 2.2x by 2025, closer to the levels found in mature markets.
“With the pandemic, there has been a shift from shared mobility to personal mobility, with many wanting to safeguard themselves through their own commute space and cars. The used-cars industry has seen a fast recovery. Prices of used cars firmed up because the demand recovery was faster than the supply recovery and that trend has largely held,” Amit Kumar, CEO of OLX Autos India, told the AIM Group.
Digital share of OEM automotive marketing in India at 14% is much lower than in the U.S. and rest of the world at 31% and 42%, respectively, indicating a strong growth headroom for automotive marketplaces even in new cars. Of an estimated addressable market of $14.4 billion U.S. for auto marketplaces in India, transactions are the biggest opportunity, accounting for 45% of the total revenue pool, followed by after sales, according to India-based management consultancy RedSeer.
Yet this is all in a landscape still dominated by thousands of small offline dealers. Significant, organized used-car retailers account for only around 10% of the market share. As this share continues to grow on the back of urbanization and consolidation, particularly as more people turn to online offerings, the opportunity is lucrative. And both investors and car marketplaces feel the tide turning.
Over the past 10 years, the Indian used-car market has welcomed in a number of new car offerings. The first organized entrants in the Indian market were First Choice and True Value, physical pre-owned car dealership networks run by OEMs Mahindra and Maruti, respectively. Since then, from around 2008 onwards, several digital-led companies have driven the online revolution in car sales, operating one of three models:
- C-to-b: Buys cars from consumers and resells to dealers only, usually by auction.
- B-to-c: Retails cars online but does not buy from consumers to resell. — for example, only sells cars sourced from dealers or b-to-b channels.
- C-to-b-to-c: Buys cars from consumers to resell online.
Classifieds-led: CarDekho and CarTrade
CarDekho: CarDekho is the No. 1 car classifieds offering in terms of monthly visits in India, and No. 2 in terms of revenue. It runs CarDekho.com and sister site ZigWheels.com. Founded in 2008 by brothers Amit Jain and Anurag Jain, CarDekho has strong market presence in tier-1 cities across India. The company is now aggressively expanding into tier-2 cities. India-based digital giant Girnar Software has a majority shareholding in the company.
In June, Indian media reported CarDekho was in talks to raise at least $150 million U.S. from investors to fund expansion in India and Asia, potentially valuing the company at $1 billion. The firm raised $70 million in a Series D funding round in late 2019, at a valuation of $725 million. That round was led by Ping An’s Global Voyager Fund, accompanied by Sunley House Capital Management, Sequoia, and Hillhouse Capital.
CarDekho is also aiming to compete on the c-to-b front, which in India almost always means opening up offline stores, with instant auctioning of inspected cars from consumers to a dealer network. It launched its Gaadi stores in 2020, with plans to reach 50 offline points across India.
CarTrade: The No. 1 car classifieds business by revenue, CarTrade may become the the first automotive marketplace in India to IPO. Mumbai-based CarTrade has engaged investment bank Axis Capital to prepare for the listing, and is hoping to raise $250 million. No date has yet been set for the IPO. CarTrade claims to be the only automotive vertical in India that is currently profitable, achieving a 9% net margin on $44 million U.S. of revenue in the last fiscal year. In April, the company raised $25 million U.S., taking its valuation to $967 million U.S. Company founder Vinay Sanghi has a 5.29% stake in the company, while leading investors Warburg Pincus, Temasek and JP Morgan have 32.16%, 24.73% and 11.14%, respectively.
In addition to its used-car classifieds site CarTrade.com, CarTrade also operates CarWale.com, which it acquired from Germany-based media giant Axel Springer in 2015 for $80 million U.S. CarWale focuses on new cars and car valuations. The company also runs motorcycle-focused classified site BikeWale.
Like every ambitious auto vertical in India, CarTrade is deeply embedded in the transactions ecosystem. It runs online auction service CarTrade Exchange, an online auction platform. It is used by consumers, business sellers, dealers and fleet owners to sell vehicles to automotive dealers and fleet owners. Automotive dealers also use CarTrade Exchange to manage their processes for procurement, inventory management and CRM. It has a back-office management app for dealers called AutoApp.
Hybrid classifieds / b-to-c: Droom
This week, Droom secured $200 million in new funding and announced plans to IPO by 2022 on either the Nasdaq or locally in India.
Droom has a unique business model in that it continues to be an asset-light classified, but is evolving its classifieds approach to include a transactions dimension. It appears Droom is lining up to be the partner of dealers in transactions while other services are generally focused on approaches where they acquire and own the cars they resell and / or operate on a franchise basis.
The company has managed to rake in $30 million+ in revenues by charging a success-based fee for individual sellers and a listing fee plus a success fee for dealers. The fee is usually 2.5% of the transaction value. To lock-in transactions on the platform, Droom asks buyers to pay a 2.5% fully refundable deposit / commitment fee, which is retained by Droom if the sale goes through. The deal is then negotiated online but completed offline. This is a unique model that is one step closer to transactions compared to classifieds.
The company also offers a ‘Droom Suggest’ service, which helps provide best matches of vehicles for buyers based on user preferences. To access more detail on the top matches, buyers must pay an ‘unlock fee,’ (Rs999 for cars and Rs499 for motorcycles) which gives access to four matches.
Founded in 2014, Droom boasts over 20,000 dealers and presence in 1,091 cities. The company has expanded to Singapore, Malaysia and Thailand, and receives patronage from marquee investors like Digital Garage and Toyota Tsusho Corporation.
In Q1 2021, the Gurugram-based company crossed $136 million in monthly GMV for the first time. “We have spent the last seven years and hundreds of millions of dollars in building not only the world’s first pure-play online marketplace for automobiles but also the entire ecosystem of the first mile, mid-mile, and last-mile services, to enable the shift of automobile buying and selling online. We also plan to continue our expansion in Southeast Asia, Middle East, and Africa once the ongoing second wave of the pandemic subsides,” Sandeep Aggarwal, founder and CEO of Droom, said in June.
C-to-b-to-c: Cars24 and Spinny
C-to-b-to-c car marketplace Cars24 is a standout performer in the Indian car market. Founded in 2015, it operates in over 130 cities in India. The company has the largest revenue of any auto vertical in India, although the total of $416 million U.S. in FY2020 includes the full price of cars sold. It is also the best funded, with $400 million raised since inception (with its last funding round of $200 million occurring in November 2020), taking its post-money valuation to more than $1 billion.
Cars24 was the first to bring the online c-to-b model to India, focusing on transactions and solving supply-side problems for dealers. For individual sellers, it mitigated the issues of trust, safety and an unwieldy documentation process. A critical component of trust building was a massive physical footprint established by Cars24, which stands at 160+ outlets across India currently, a mix of owned and franchised “retail showrooms.” At the back-end, the company runs an auction platform for dealers. This enables them to quote the right price to the seller with a clear commitment from a dealer to buy the car from Cars24 at that price. However, rapid expansion has required significant upfront investment. Losses have been substantial but are narrowing — loss after tax stood at $39 million U.S. The company is led by CEO and co-founder Vikram Chopra, with lead investors including Exor Seeds, Moore Strategic Ventures, and Unbound.
“Apart from developing the concept of closing the deal in two hours, our unique after-sale services of instant payment and hassle-free transfer of documentation have been some standpoints that differentiates us from other players,” Chopra recently told Indian media.
Spinny, which launched in 2015, runs a dealership network of its own (called Car Hubs), procuring and selling used cars. It was the first major c-to-b-to-c player on the market. Founded in 2015 by Niraj Singh, Mohit Gupta and Ramanshu Mahaur, Spinny was initially a c-to-c marketplace, before it pivoted to transactions in 2017.
Spinny has been emblematic of the financing rush in Indian autos. The company raised $44 million in March 2020, followed by $65 million in an April 2021 Series C funding round led by VC firm General Catalyst, and is now rumoured to be raising a further $100 million from Tiger Global Management, which would push the company’s valuation to $800 million.
“The used car market in India is huge and ripe for reinvention. We believe Spinny is uniquely positioned to tap this opportunity, given their compelling leadership and their real market momentum,” General Catalyst’s partner Adam Valkin told press in the April funding round.
In August 2020, Spinny acquired rival auto marketplace Truebil in a combination of cash and equity, with the totals undisclosed.
Spinny is deploying the funds to improve customer experience, expand into new markets, strengthen product and technology, and recruit new talent. The company has thus far raised $231 million, sells around 1,500 used cars per month, and has over 900 employees working out of nine Indian cities.
C-to-b: OLX Autos
The Prosus-owned horizontal OLX.in was one of the first to offer car classifieds in India. However, due to cars being just one category in its multi-vertical offering, OLX was unable to establish an early leadership position in the market. Instead, its car offering has morphed largely into OLX Autos, the c-to-b car-buying business that was originally developed from a JV between OLX and Frontier Car Group. OLX.in remains one of the top destinations in India for car listings (around 3 million currently listed on the site), but OLX Autos is the primary revenue driver. OLX Autos has opened 150 offline stores across India to accelerate adoption of its services.
“As a platform, we have been positioned both from demand and supply side to solve consumer pain points. The car seller is a convenience-seeking consumer who wants to sell their used car, get money instantly, and wants to be sure of the kind of car they are buying — the price, the inspection and the longevity of the car. That thought process helped us stich an opportunity from helping a consumer sell his car to aiding a consumer to buy a car. That’s the genesis of omni-channel at OLX Autos as a platform,” the company’s CEO, Amit Kumar, told the AIM Group.
We expect OLX Autos, as it has in other markets, to evolve into a c-to-b-to-c service. It’s not clear whether it will take a more dealer-friendly approach in India than elsewhere given its classifieds operations. It already operates a franchise model that allows independent dealers to sell as well as buy cars under the OLX Autos brand.
OLX Autos India will require significant financing if it is to close the gap with Cars24 and even the likes of Spinny and Droom — all of which have much bigger war chests for marketing and product expansion. Parent Prosus will need to either provide the funds or possibly look into combining forces with another major player to challenge for market leadership.
The current capital arms race launched by the newfound growth in the used-cars segment will deliver significant changes on the Indian market in the coming years, particularly in transactions. The assumption is that profit per vehicle sold from a transactions approach will dwarf equivalent profits from classifieds. The potential of the segment is even attracting other mobility brands, with OLA, India’s leading taxi aggregator, on the verge of launching a used-car retailing business in Bengaluru.
While the unit economics of the model aren’t proven — Cars24’s losses in FY20 were $38 million, a net margin of around -10%. CarDekho losses mounted to $12 million, a whopping -37% net margin, — there’s no doubting the growth potential. Investors believe the industry will be strongly profitable longer term, as ecommerce in India now is, after its own long gestation period.
All players have a clear focus on building the perfect c-to-b-to-c business: hybrid digital and offline, high-tech, nationally branded, capturing the larger transaction margin. What’s not clear yet is to what extent dealers will be disintermediated: Will the evolving services support only owned and franchised retail outlets or will some of them also work with independent dealers to help them compete in their own right on a networked model?
There’s also a clear focus on adjacent revenue streams, namely loans and insurance. With only 15% of used-car transactions being financed by banks, there is a significant gap in the market.
While classifieds have traditionally monetized this through lead-sharing with banks and insurance companies, Cars24 is taking a big bet on lending, having acquired a non-banking financial corporation (NBFC) license to underwrite loans in-house. CarDekho reached a monthly run-rate of $13 million+ in used-car loans in December 2019 but its application for an NBFC license was rejected due to it being registered in Mauritius. Droom acquired an NBFC called Xeraphin Finvest to strengthen its consumer lending arm, Droom Credit, in November 2019.
Technology will continue to assume greater importance as critical elements like pricing, lending risk calculations, and the ability to maximize digital data capture (historical car ownership records, insurance records, car condition profiling) will be the key determinants of success.
Cars24 is currently in the lead position in the market, with the biggest financial war chest and momentum, and with the willingness and capability to shift to the to-b-to-c model and financing next. In some ways, it is Cars24’s market to lose from here on. Spinny, although much smaller in footprint, has a headstart in the c-to-b-to-c model.
However, these are still early days and all competitors have a fair shot at the transactions model. While this is probably not a winner-takes-all market, it is still most likely a winner-takes-most market with the virtuous cycle of scale driving word of mouth, wider distribution footprint, and economies of scale. Over the next few years, the sector will likely witness consolidation and a decisively increasing share of “organized retail” in used-car sales.