- Three automobile-focused ecommerce platforms —
Cars24 ,Droom and nowCarDekho — have been valued over a billion dollars in the last 14 months. CarTrade has hit the public market in the same time frame, while Droom is planning its public issue in the next 14 months.- CarTrade’s public listing is being looked at as the milestone for the
online car sales segment and has further enhanced the interest of investors.
In this same time span, CarTrade has hit the public market and Droom has formally announced its public issue plans for the next 14 months.
It is safe to say that India’s online car retailers are hitting one milestone after another. But what has been the secret sauce behind this?
Certainly, India’s automobile sales have started $4 overcoming the economic slump and the pandemic blues, but then again these online retailers have very little to contribute to this.
Preetam Mohan Singh, senior vice president of automotive at global management consulting firm Praxis Global Alliance, told Business Insider that around seven lakh used cars — 20% of the overall used car market — are sold by the organised sector annually. Of this, 450,000 are sold by larger players like Maruti Suzuki True Value, Mahindra First Choice and others.
The remaining 250,000 is the share of all these auto-tech players like CarTrade, CarDekho, Droom and others, combined, he added.
Even Droom — which, on one hand, claims to have over$4 India’s online car sales — confirms it only has a $4 in the overall sale of automobiles (both new and old) in India.
India’s online car portals set to generate more demand
Singh noted that the major reason behind this low volume has been that the online market has largely been inclined towards the wholesale purchasing of used vehicles. “However, these players have enough evidence to believe that more Indians now have the confidence to purchase cars online and this will lead to more retail sales for these platforms,” Singh added.
Even luxury car maker Mercedes Benz India could not keep away from this rising used car segment and launched it’s on direct-to-customer selling platform ‘Marketplace’ in August 2021. Meanwhile, riding hailing giant Ola formally announced its entry in this domain earlier this month.
According to a detailed $4 by Mordor Intelligence, the pre-owned car market recorded sales of 4.4 million units in the financial year 2020 as compared to only 2.8 million units of new passenger vehicles in the same year. These sales, however, were largely carried out by the unorganised segment.
The report added that the organised segment in India is expected to witness a compound annual growth rate (CAGR) of 22.79% from FY2021 to FY2026. This would mean that the miniscule market share that the auto-tech players have currently, may grow as well.
Compelling offerings to bring more demands
Devendra Agrawal, founder of investment bank Dexter Capital, added, “Now we see the market is expanding very fast. Now we see this segment getting huge traction. Thankfully, this is a segment where ticket size is large, even though the margins are low compared to new car sales. But the more you sell, the more money you’ll make.”
While we are talking about margins, it is important to note that none of these unicorns (companies valued over a billion dollars) are profitable yet. CarDekho and Cars24 have a loss of over ₹600 crore in FY20.
Droom — whose parent entity is registered in Singapore — too is in losses. It’s Indian entity Droom Technology Private Limited reported a loss of ₹128.55 crore with an operating revenue of ₹136.4 crore as per Tofler. The company’s latest financial statements are not publicly available yet.
Praxis’s Singh further elaborated that these companies have spent the last five to seven years building customers’ trust, and it will start paying off now that the online car sales will take a retail turn.
The fact that these platforms help in end-to-end services — from verification to financing to insurance — has made such platforms into a more compelling offering for the customers as well. This expanded services and the potential of scale in the future is what has garnered the interest of the industry.
But are these valuations frothy?
CarTrade’s public listing is being looked at as the milestone for the online car sales segment and has further enhanced the interest of investors. Despite being the only profitable player in the segment, it is also the least valued one among them all. The company is sitting on a market capitalisation of ₹6,297 crore (over$830 million).
Cars24 is the biggest player in terms of revenue and is also the most valued at $1.8 billion. It is followed by CarDekho and Droom, both valued at $1.2 billion.
While a bigger wallet is the clear reason why Cars24 is valued highest among them all, $4?
Kunal Khatter, managing partner at mobility-focused investment firm AdvantEdge, previously told Business Insider that private investors and retail investors value companies with different yardsticks. Analysts in the public market are more stringent on how they value or give recommendations for a stock as they are answerable to the general public, Khatter added.
Meanwhile, investment firm BlackSoil’s co-founder Ankur Bansal added that these valuations are based on differences in revenue and scale of the companies. However, valuations of public listed companies are considered as a benchmark because each analyst or firm can have different methods to value a business.
Even that seems to have taken a hit right now.
Frost Sullivan’s VG Ramakrishnan, while talking about Tata Motors performance in stock market despite poor balance sheet, said, “The traditional financial ratio model of how to value a company [in public market] doesn't seem to be working right now. A company like Zomato making losses seems to have a nice run in the stock market while a product company with good market share and return on equity doesn’t find followings in the stock market.”
SEE ALSO