Last year was a heady time for used car marketplace CARS24. It raised $850 million over two mega funding rounds in the space of a few months, hit a valuation of $3.2 billion, and almost doubled its India revenue to more than Rs 5,100 crore during FY22.
But, times have changed now, as the tech start-up ecosystem grapples with a funding winter. Investors are telling unicorns in their portfolios to tread with caution. The mantra has changed from growth at all costs to preserve cash no matter what.
Moneycontrol sat down with CARS24 co-founder and chief executive officer Vikram Chopra for an hour-long conversation on how the company is navigating the funding winter, what betting on the future means for the company, and battling with competition, among other things. Edited excerpts:
We heard that last year you were burning more than $20 million a month and this year you have halved the burn to $10 million. How has the funding winter impacted you?
The burn is way less than that. We were burning a lot earlier as we were trying to do things faster. We thought that 'Bhaiyya, iss saal itna raise kar liya hain, phir agle saal raise kar lenge, uske agle saal bhi raise kar lenge (We thought we had raised a lot of cash this year, we will again raise next year, and the year thereafter, too)'. That was the mentality. Now, we are saying what we were trying to achieve in the next two years earlier, we will do in four years. Burn reduction comes from that. That’s not to say that it happens overnight. It takes some effort, but it is possible only when the business fundamentals are strong.
Hypothetically, if I don’t invest in international business and new initiatives, I am almost profitable… We are still aggressive in terms of opportunities. For us, preserving cash and extending the runway is not so much of a concern.
You entered the international market around the first wave of Covid when everyone was talking about the new normal, permanent work from home, etc. Didn’t that have an impact on your decision?
We were very clear that if we are taking a 10-year view, we have to do new stuff. I did not know how many years Covid would stay, and what would be its impact. But, we took a call based on questions like: will more cars be sold online in 10 or 20 years? Yes. Will customers want better answers? Yes. These things will stand true regardless of Covid, world wars, chip shortages, or any other supply chain disruptions.
Of course, lots of people come and give different advice. The world is in a bad place this year. Some stocks are down 90 percent. But, boss, I have to take a 20-, 30- or 50-year view of the business.
If you are taking such a long-term view, then you must also be thinking about a period when there is a large-scale transition to electric vehicles (EVs). There would be a period when people don't buy used internal combustion engine cars anymore.
The transition to EVs is inevitable. It’s already happening in the scooter segment as 20 percent of scooters are already electric. This will happen in cars also. But it would not be an abrupt change. I don’t think it would be an overnight change. With scooters also, it is a gradual shift.
If anything, I would say that the EV future will present us with more opportunities. It’s like the transition from landlines to feature phones to smartphones. Today, our phones are more differentiated in terms of software than hardware. The same thing will happen with cars. We would be possibly doing a large chunk of our inspections while buying a used electric car online as our ability to track things with software improves. Otherwise, business remains the same.
What are the margins and average selling prices (ASPs) like in this business?
Depending on the car type and price, you could make about 7-15 percent between buying and selling. You can make another 5-10 percent on allied services like lending, warranty and insurance. With all these things combined, you can go from 7-8 percent to 20 percent plus.
Most of the business happens in the ASP range of Rs 3 lakh to Rs 7 lakh. In the premium segment, the value is much higher, whereas the volume is much lower.
Quite a few players have raised large amounts of funding in the used car segment. Is the market big enough to accommodate everyone?
Is JustDial the same as Flipkart? I think a lot of the players in the used-cars space are online classifieds whereas I am doing something that is exactly the opposite. I am telling the customer, ‘I will do everything for you’. Effectively, we are an online dealer. From that perspective, there are a handful of players—only two, besides me—to be honest.
The overall market is very large. But, who knows exactly how many used cars are sold online. I read the same industry reports as anyone else. One metric that matters is that India has 2-2.5 cars per hundred people, which is one of the lowest in the world. In Vietnam or Indonesia, the number could be 10-15 cars per hundred people. So, from a long-term perspective of 10-20 years, it could be a market of $300-400 million.
You raised the most amount of cash among your peers last year. Do you think about taking a chance, spending big on marketing, discounts and driving them out of the market?
Absolutely. You want to be the largest but marketing is just one of the tools. There are various other ways to achieve it. But, the way to beat competition is growing your revenues. You can’t make their revenues decline. You can expand to 1,000 cities. Or you can launch new services. In our case, we can expand our lending business also. This is not a boxing match. It is a race where both are running. You have to run faster.
What are some of the new areas you are thinking about?
We will do 10 experiments. Some will work, some may not. Over a period of 10 years, I want to build an ecosystem of cars, both at the frontend and the backend, be it used car transactions, financing, insurance, car servicing, or subscriptions. I am thinking about how to build the backend supply chain of the servicing business, how we can scale logistics and probably also service other auto companies. Some of it we have already done, some of these we are trying out at a small scale. A few will continue and may become big.
It’s my job to think from a long-term perspective. I don’t work on the day-to-day execution of things in the business. When I look at the automobile ecosystem, everything is broken and everything presents an opportunity to solve a customer problem.
There were reports that you were planning an initial public offering (IPO). What’s the update?
I have never ever said that an IPO was being planned. Before I say anything like that to the outside world, I would first share it with the team internally. That has never happened. Of course, we want to start behaving like a public company in terms of audits and other corporate governance matters. We want to be able to project our quarterly and annual revenues down to the last decimal point.
But. there are so many factors that would determine an IPO decision such as market environment, business metrics at that point in time, etc. I would not speculate about something like that ahead of time, but only when the decision has been made.
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