CarDekho drives fast with ‘fin-sure’
Around the beginning of November last year, locals in the pink city (Jaipur) were greeted by an unusually attention-grabbing billboard while passing by the Gopalpura flyover. It belonged to CarDekho, one of the leading players in the fast-growing car aggregation business (with a major focus on used cars) which has recently notched the distinction of becoming Rajasthan’s first unicorn. The billboard featured a 3D rendition of a car that is driving to the sky with its headlights beaming brightly towards the stars. The billboard, in fact, was used to announce the unveiling of the company’s first-of-its-kind second-hand car mall which has added the offline component in the otherwise asset light and tech heavy business platform of 14-year-old CarDekho.
In some ways, the car driving to the sky aptly reflects the ambition of its promoters – the brother duo of Amit Jain (45) and Anurag Jain (43) – who are in the driver’s seat. “In the first year, we had clocked Rs1.2 crore as revenue. Now it is over Rs1,000 crore. For me, it has been quite a journey which promises to add more dimensions,” says Amit Jain, CEO of the company.
The ‘more dimensions’ theory has several elements, starting from the proposed IPO of the group to the big leap of its verticals like insurance and finance and also possible overseas expansion after having arrived in three South East Asian markets – Indonesia, Philippines and Malaysia. With the financial support of a clutch of PEs who have supported it all the way, till the recently held pre-IPO round wherein it raised $250 million to be catapulted to the prestigious unicorn club (the brothers still hold equity in excess of an impressive 30 per cent), the company is also keen on offline expansion, though that would play a supplementary role.
The autotrader inspiration
At first glance, the second-hand car business is the fulcrum of CarDekho, like nearly a half dozen of its peers which include names like Car Trade, CarWale, Car 24, Spinny, Oxl Auto, etc. And that is nothing surprising given the fact that the buzz about second-hand car sales (after Corona) is on the ascent and most of these firms, in their advertising campaigns, are basically catering to the aspirations of the consumer to graduate to a four-wheeler at the earliest. And that second-hand option is now more available than ever before with myriads of good choices. “The second-hand car market has grown significantly in recent years.
Between 2017-21, the used car market has grown by 3 per cent whereas the sales of new cars dipped to a low negative trajectory. There is a clear momentum for used cars which is likely to be sustained in the coming years,” points out Shruti Saboo, Associate Director, India Ratings. A recent report by OLX Autos and rating agency CRISIL projects used car market volumes shooting to over 70 lakh vehicles by 2025-26 from the current level of around 38 lakhs.
Growing digitalisation, changing demographics and aspirations, a rise in the volume of first-time buyers and better financing options have been cited as the possible triggers for this forecast. “Some OEMs may have failed in the past in diligently pursuing sales of second-hand versions as they had other priorities, but they are also busy in subtly creating robust, supplementary platforms now. So, this growing market may well have more competition in the coming years,” adds renowned automobile expert Murad Ali Baig.
The private financing market has clearly understood which way the wind is blowing; it helped three technology car sales platforms to rise to unicorn orbit last year – Droom and Spinny being the other two platforms apart from CarDekho. Cars24, another major entity in the market, raised $400 million last November which took its valuation to over $3 billion.
Much like other developed and emerging markets, the second-hand car market is simply on a roll and for stakeholders like the Jain brothers from the pink city, it is their big moment which they have been waiting for since 2013. Here are some interesting titbits about them.
Both of them share the same birthday (12 November) and are alumni of IIT, Delhi. The first-generation entrepreneurs also shared the ambition of doing something big which today has probably made them the only pair of brothers to drive a unicorn in the country. “While pursuing our basic desire, we had set up a series of small start-ups in the formative years. About 9 ventures failed but the car business survived and took a different trajectory,” says Amit.
The brothers had actually formed a tech firm called Girnar Soft as a holding firm to drive their ventures, mostly with the name ‘Dekho’. Prior to venturing out on their own, Amit had worked as programmer with a US based firm, which gave him the confidence he needed to start a business.
Meanwhile, the origin of their interest in the online car classified business venture is also an interesting story. In 2008, the Jain brothers had visited the auto expo in Delhi. But later, when they tried to find some information on a specific brand they had noticed at the expo, the Internet could not help very much. The next day, they visited the expo again and collected as many physical brochures as they could. Later they put this information online and much to their surprise, they noticed a decent amount of traffic coming to their site. The story of CarDekho began after that. “When we started in 2008, it was primarily a research site to get information,” says Amit.
However, it was a meeting with Chip Perry, the then CEO of the leading global online car sales and purchase platform AutoTrader at their headquarters in the US in 2012, that opened the Jain brothers’ eyes on the largescale build-up that awaited their research-centric platform. “AutoTrader was worth $8 billion then. And getting an opportunity to understand its business model convinced us that we should go full throttle ahead with our car portal. And that decision changed our journey completely,” says Amit.
Five verticals
Nine years later, CarDekho has a more expansive structure and its promoters claim it is a full stack automotive digital company that supports the car buyer at all stages in the real sense of the term. Structurally, it has five verticals – new auto business, used car business, financial service, insurance (with wholly owned subsidiary InsuranceDekho) and the latest addition of international business. And each of them has their respective strengths. The new auto business marks its digital interface with the larger consumer class with over 55 million unique users monthly.
As per a company presentation, this platform is ingrained with all OEMs in India, contributing up to 30 per cent of the annual sale of strategic partners, retailing more than 1 million cars and also bikes annually. Its ecosystem comprises of over 3,500 dealers across the country. The company claims that 90 per cent of new car buyers visit one of CarDekho’s platforms before buying a vehicle. “We are the leaders in digital advertising and the lead generation for automotive,” says Mayank Jain, vertical head (new auto).
In the fast growing used car business, the company is among the leading players, having registered monthly C2D transactions (cars purchased from customers) in 2021. It currently buys cars from customers in more than 100 markets and has an online catalogue of certified pre-owned cars for purchase. It recently opened the first CarDekho mall in Jaipur, bringing the offline element to its operations. In December, it also opened its first used car refurbishment centre in Gurgaon and has plans to open 20 more units.
The finance business is another highlight of its structure wherein it works with 15 banks to facilitate easy loans. As per Namit Jain who heads the finance vertical, the company has become the leading used auto loan originator in India with 11 per cent of the total market share. The total market size of this segment is estimated to be worth over $50 billion in the country. “We are second only to HDFC in this segment,” says he.
Its InsuranceDekho business is another major successful subplot of CarDekho’s growth journey which on a standalone basis has emerged as a leading B2C insurance brokerage firm. What started as a wing to help car dealers in sealing the deal with additional services is now offering insurance coverage beyond auto and has around 50,000 partners across the company selling products of 45 insurance firms. “On 31 January 2022, we achieved the milestone of issuing 10,000 policies in a day,” says Ankit Agrawal, InsuranceDekho CEO.
And then there is the International Division. The company has, so far, taken its operation to three counties – Indonesia, Philippines and Malaysia where it arrived late last year. Its Indonesian online avatar oto.com has become the leading portal (in traffic and revenue) in Indonesia while Carmudi in the Philippines has registered the highest traffic in its category.
Between 2013-15, CarDekho was more of a lead generation site. But as Amit emphasises, it managed to successfully branch out in new directions. “For new cars, there are so many agencies for loans. But that was not the case for used cars. That gave us the idea of creating a platform with 15 agencies dealing with loans. At the back end, we tied up with banks and in the front, we joined hands with dealers. Earlier, the loan approval rate for used cars was 40 per cent. But with so many people to lend to, it shot up to 75 per cent. From 12-15 days approval, we reduced it to 3 days using technology.”
The insurance business, according to him, has been developed with a similar strategy in mind. The four days of insurance deals have been reduced to 10 minutes at the dealer’s end by initiating a pre-inspection process. “Customers get a holistic deal from us – new car, used car, insurance, finance, etc. Now we are also planning service centres. Our cost of acquiring a customer is the lowest in the industry. 90 per cent of our traffic is organic,” he further adds.
From 2013 onwards, the company has clearly moved at a brisk pace and onboarded some of the biggest names in the PE space – Sequoia India, Hill House, Capital G, Leapfrog Investments, PingAn, and Sunley House. The company has also made a spate of acquisitions to add more punch to its operational portfolio and offerings. These include: Gaadi.com (a used car platform), Zigwheels (bought from Times Internet), and YouTube auto content platform Powerdrift which is India’s biggest automotive video platform today with over 2 million subscribers.
“Insurance business has become the biggest. We are doing 2 lakh policies every month. In financing, we are helping out with Rs350 crore of lending every month. A new car is a large piece for us and retail for used cars has just started. But it will also become very large,” says Amit when pointedly asked to underline the lead verticals. And the investors in the company seem to endorse the theory that it is moving steadily.
“Several of their business units hold leadership positions, and are now building further expertise in the used car and financial services space where they are strongly positioned,” Shailesh Lakhani, MD, Sequoia India had commented after round E series which saw the company attaining unicorn status. Furthermore, the company has seen a swift increase in its revenue post the Corona lockdown phase. “Our new auto business is profitable. And the insurance and finance businesses are either profitable or at breakeven stage,” says Anurag Jain, the younger brother and the COO of the company.
Route to the IPO
Marketmen point out that making serious money out of used car sales to retailers when the company is trying to expand its wings online and with new malls (proposed in 15 cities) is a different ballgame because of thin margins and very stiff competition posed by vendors from the unorganised side of the market (organised players are estimated to have only 20-25 per cent share of the pie). Point this out to Anurag and he does not disagree even as he strongly underlines that it is a critical offering of the expanding portfolio. “We buy and refurbish the cars and when they are eventually sold, the margin is usually not more than 3 per cent. Most of these deals happen in the Rs3-4 lakh category. The intention here is not just to sell cars. But we are delivering the customer an experience in his personal mobility journey,” says he.
The company’s decision to open a first-of-its-kind used car mall in Jaipur (and it intends to set up 15 such units in other leading cities) is looked upon as a possible drag which it is nurturing, defying the basic rules of a asset light model. “These are flashy ideas which are unlikely to work. Running a network of unit of this kind may result in serious capital outgo,” says a senior official of a rival company.
“We are trying to minimise the trust deficit with these malls. Many people are still scared of buying cars from dealers as they have several concerns. But we are refurbishing the vehicle, putting it in the mall and even offering them to drive it for seven days and return it if they don’t like it. A normal dealer will have, at the most, 10-20 vehicles on display. But at our malls, a prospective buyer can choose from 500-1,000 vehicles,” Amit explains while adding the point that these malls will not spike the company’s expenses as they are not being set up in high streets. The inaugural unit, in fact, has been created out of a warehouse at the outskirts of the pink city.
The company is now gearing up for the ultimate test at Dalal Street with its IPO debut anytime between January to June next year. But prior to that, two major developments are expected to unfold which may further propel the company’s fortune at the bourses. To begin with, the insurance unit is going to raise funds from PE quarters as an independent entity.
“Negotiations have begun for this and it will be finalised in the coming months,” says Ankit, though he refuses to indicate the ticket size. The unit has recently unveiled its second advertising campaign on leading television channels which is clearly the strategy to create more buzz for the fund-raising process. “Right now, health and life components of our insurance business are only 5-7 per cent. We want to grow this significantly,” Amit underlines.
Equally important would be its finance unit’s foray into the NBFC space as a new entity. “We have already bagged the licence and are likely to commence operations in the first quarter. There are already 15 lenders (mostly banks) on our platform and as an NBFC, we will also become a direct service provider,” says Namit.
The medium-term target for the financing unit is to take its current market share of used car financing from 11 to 20 per cent. And that would be huge considering the projected jump to over 70 lakh used cars sales by 2025-26 as against less than 40 lakhs now. On the international expansion side, while CarDekho has more markets on its radar, Anurag Jain specifies it would not make hurried moves. “We have arrived in three countries which are strategically important for our line of business. But we will access our performance and experience in these markets before opting for further expanding our international footprint,” he says.
However, the company is likely to add one more growth vertical in the medium to long run as it is contemplating ways to tap the emerging opportunities in the electric vehicle business. “EVs could be a big opportunity over the next 5-10 years. New players entering in the market may opt for us as distribution partners. We can become a marketplace where we can help in EV transactions,” points out Amit.