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Auto: Rush Hour Continues
Online selling and buying of cars has attracted millions in funding in the last few years, while more is in the pipeline. What’s working?
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If you are looking to sell/buy your car online, a simple search on Google will throw up eight to nine online automobile classifieds portals. The top search results that figure on the list as ‘ads’ are cars24.com, truebil.com, olx.in, and gaadi.com. Websites such as cardekho.com, cartrade.com, droom.in, zigwheels.com and mahindrafirstchoice.com are displayed organically. Searching cars to sell or buy online is a growing phenomenon across the globe. According to a recent survey by eBay in the US, every three minutes, a car or truck is sold on eBay via a mobile device, and more auto buyers are likely to buy online in 2017. “Internet is increasing in prominence for every part of the car-buying process,” it says.
In India, two things are fuelling the growth of dedicated car-sell-and-buy websites. First: more used cars are sold every year compared to new. Between 1 April, 2015 and 31 March, 2016, 3.3 million used cars were sold as against 2.8 million new cars, says vehicle pricing guide IndianBlueBook. Second: only around 15 per cent of used cars sold are refinanced. Between these two data points, growing Internet penetration and rising aspiration to own a car, the business of dedicated auto portals is thriving.
In fact, the business has attracted overseas investors as well as big names from the private equity (PE) space. Over half-a-dozen auto portals have managed to raise in excess of Rs 2,500 crore or more in past three years from a clutch of investors, including Temasek, March Capital, Warburg Pincus, JP Morgan, Tiger Global, Canaan Partners, Epiphany Ventures, Beenext, Google Capital, HDFC, Sequoia Capital, Hillhouse Capital Group and several others. Vikram Gupta, founder and managing partner of IvyCap Ventures, says, “Auto portals are in early growth phase; investors are investing to scale up the businesses that they will leverage later.”
Investors & Investees
So why are investors putting millions of dollars in the business of online sale and purchase of cars? “Investors look at business models that work. We have over 15 million unique visitors, and get over 32 million visits per month, which results in leads, and eventually, in on-ground sales. We have the largest share of auto consumers and auto dealers. We are a large marketplace. That is what investors like,” says a proud Vinay Sanghi, founder and CEO of CarTrade who said he has managed to raise over $220 million in investments, the largest among close competitors such as CarDekho, Droom and OLX. “We are the only platform to have 44 per cent of all our cars certified. We can connect consumers to banks for loans in flat 30-seconds,” adds Sanghi.
Clearly, Sanghi is sitting pretty on an impressive pool of funds, which brings us to the question, what is left of the company with him? “I cannot share those numbers,” he retorts. According to industry insiders, his stake in the company may be in single digits now. But that doesn’t concern him much, nor does competition. “I see competition, if at all, from two players that are relatively new in the business,” says Sanghi, hinting at OLX’s used-car business and CarDekho’s new car business.
According to OLX India CEO Amarjit Singh Batra, the platform is India’s number one marketplace for used goods, including cars, motorcycles, and household items. Apparently, it commands 80 per cent market share of the consumer-to-consumer (C2C) trade. “Auto is the largest category by traffic on OLX, generating 45 per cent traffic and resulting in 1.3 billion page-views per month (as of August 2016),” says Batra.
The other renowned player among the auto portals is CarDekho. Promoted by Jaipur-based Girnar Software India and founded by Amit Jain and Anurag Jain, the business was valued at $300 million a year ago. Till date, it has raised around $75 million from investors such as HDFC, Sequoia, Google Capital, and Times Internet among others. “My brother and I own our company (around 50-55 per cent). We must have sold over half-a-million cars via cardekho.com last year. The traffic on our website is organic, we have better tech products and better customer experience,” says Amit Jain, co-founder and CEO of CarDekho.
But how is it different from the rest? “Most of us are doing similar things; offering leads to potential car buyers and expanding dealer networks. Where we differ is, we provide a more enhanced customer experience to people researching for their next car. I am a tech person and that is what I do,” says Jain, an alumnus of IIT Delhi. But what about its funding requirements? Is it enough? “We will be raising more funds this year. We should be able to raise another $50-75 million without diluting much holding,” says Jain. “By 2020-21 we may consider going public, but that is still a bit far,” he says while talking about the company’s future.
Kumar Kandaswami, partner, Deloitte Touche Tohmatsu India, says, “Online auto portals have a good revenue model, and there are a couple of areas they are likely to do well in. What attracts investors is the volume of trade that takes place through these portals. From buying and selling of vehicles, finding leads, giving reviews, to a whole lot of lifestyle activity attached with the auto industry; auto portals are engaged in everything and grab maximum eyeballs.”
Who is making most money among the auto portals? Since players such as CARS24 and Truebil are fairly new with businesses aged a year or so, they can’t be compared to veterans like CarTrade, CarDekho and Droom. In 2015-16, CarTrade along with Carwale (which was acquired by CarTrade in 2015) reportedly generated a combined revenue of around Rs 68 crore.
Sanghi says he is confident that revenues will be significantly higher this year (FY17), as he will also be looking at acquisitions in this space. Of course, he can. His company is flushed with cash today. Besides, he is also planning on getting listed in future. “In the next two or three years, we should be IPO ready,” he says. Going public will help some of his investors exit with healthy returns, says an industry analyst who tracks auto.
Compared to Sanghi, Jain of CarDekho is more candid about his facts and figures. Jain says CarDekho ended FY16 with a revenue of around Rs 83 crore. In FY17, he is aiming for Rs 110-120 crore.
Says Sandeep Aggarwal of Droom.com, which claims to be the first platform for buying and selling new and pre-owned cars, bicycles, bikes, scooters and vintage cars: “During FY16, Droom reported a net loss of Rs 3.7 crore with a gross merchandise value (GMV) of Rs 1,600 crore. Keeping that as base, the company aims to be fully profitable between November 2017 and February 2018, with Rs 3,500 - 4,000 crore as GMV, a reduced customer acquisition cost and higher revenues from allied revenue streams such as after-sales servicing and repair.”
“We Are Different”
The new crop of auto portals such as CARS24 or Truebil claim to be different from the rest. Shubh Bansal, co-founder and chief of marketing of Truebil, says the company works on a different model. “We are not into classified or media business. We have a full-stack model; we help buyers and sellers connect and make transactions. We have classified our business in two parts: Truebil Marketplace and Truebil Direct,” he says. Under Truebil Marketplace, the company charges a fee of Rs 499 each from the buyer and the seller once a deal is closed. Truebil Direct is operationally profitable, says Bansal. “We buy a car. Refurbish it and sell it to a buyer for a 7-10 per cent commission. We also provide paper transfer, loan and insurance services,” he says, adding that profitability will come in at a later stage. “Our current focus is to earn revenue. A chunk of our funding goes into tech department and Truebil dashboards. Losses will stop when we consolidate. Right now, there is loss because we are spending. We will be profitable in two years,” says Bansal. Founded in March 2015, Truebil has raised seed funding of $500,000 from Kae Capital and angel investor Anupam Mittal, founder and CEO of People Group.
Vikram Chopra, co-founder and CEO of CARS24, claims to provide “easy and hassle-free car-selling experience” which is very different from the rest in the business. “We connect supply to demand through our network of dealers who deal in used cars. We are organising the supply side of things to bring some order to this otherwise unorganised set up,” says Chopra, an ex-IITian and an ex-investment analyst at Sequoia Capital. Chopra was also the co-founder of FabFurnish, an online retail platform for furniture and home decor which was later bought by the Future Group. So how is CARS24’s model different from other online platforms? “Others generate leads on their websites. They are just marketplaces. They don’t facilitate transactions. At CARS24, we own the transaction,” says Chopra. So how does it work? “We are an online platform with ambitions to change the way people sell used cars,” he says. CARS24 provides free quotes for cars, anytime and anywhere. “We are expert in car assessment and correct-price evaluation. Our quotes are 100 per cent transparent, which allows you to compare different quotes. If you are happy with your used car valuation, you can choose to book an appointment at our centre. We provide you with a free, professional car inspection in just 30 minutes, and guarantee instant purchase and payment. We also guarantee hassle-free transfer of ownership,” adds Chopra. He, however, declines to share any financial information such as revenue generated and funding requirements. The company was registered 18-months ago.
Nagendra Palle, managing director and CEO of Mahindra First Choice, says: “Eventually, the company that is able to monetise and make profit will sustain. New players can enter the market and the old may leave as it’s a long-term industry transformation play.” Palle’s First Choice, which has physical outlets all over the country, doesn’t consider online portals as its competition. He says, “They are classified portals: research and search platforms. The fundamental of buying used car doesn’t work online.” Giving the example of US-based Beepi.com, which had earlier raised $150 million and later turned bankrupt, he says that online buying and selling of cars can work for B2B, not in B2C. First Choice is likely to double its dealer base in FY2017, from 735 in March, 2016 to 1,250 dealers by March-end 2017. Last year First Choice sold 1,30,000 units of used cars.
Following the footsteps of First Choice, a few other OEMs (original equipment manufacturers) have started buying and selling company exclusive used cars. The major ones in the market are Maruti True Value, Honda Auto Terrace and Hyundia H-Promise.