According to people tracking the sector, these firms faced the slowdown as the “growth-at-all-costs” push by venture-backed companies took a backseat and they started focusing on improving unit economics by controlling expenses. Tweaking of business models continued into the current fiscal 2024 as well.
While SoftBank-backed Cars24 has decided to focus on its existing retail markets by slowing down on B2C expansion, it has increased the attention to value-added services like financing and insurance. The people said the company is also chalking up plans to introduce other services such as car servicing with an aim to build an ecosystem for owners and potential buyers of used vehicles. On Wednesday, the company announced its entry into car scrapping, which it launched initially in the National Capital Region and plans to expand to other cities.
Tiger Global-financed Spinny shut down its standalone portals for premium car sales and budget vehicles, laying off around 300 people in the process.
CarDekho also closed its retail used-car sales and customer-to-business (C2B) segments, and said it would put more focus on classifieds and insurance verticals. The company said it was able to record 46% growth in revenue during FY23 on the back of strong performance at its insurance unit, InsuranceDekho, and fintech platform for car financing, Rupyy.
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The company exited the C2B segment citing “inviable unit economics”.
Listed used car sales platform CarTrade Tech — which acquired classifieds portal OLX from Prosus earlier this year — also shut down the C2B vertical of the firm, as it planned an increased push on the classifieds business.
In the C2B business, a platform facilitates purchase of cars by used-car dealers from individuals selling, while in B2C, the company operates as a marketplace for purchase of cars by end consumers.
A senior executive at a used-car sales company said the C2B part in used-car sales is heavily dependent on driving operational efficiencies.
“C2B business is a very execution-intensive segment…the margins are very thin and if there are any leakages, it becomes unsustainable. If you’re selling 100 cars of which 80 are at a profit and 20 are at loss…that loss from 20 cars will eat away the margin from the 80 cars,” he said, explaining the rationale behind companies going slow on this segment. “It’s about how efficiently you’re able to run and that’s not something everyone has managed to do,” he said.
Startups in slow lane
Analysts said the slowdown for the new-age companies in the space was primarily caused by their pulling back on spending, and it happened even as the broader market for used cars continued to expand in India.
According to industry sources, used-car sales rose 27% in FY23 to 5.45 million units. Sales of new cars also rose 27% last fiscal year, as per data released by the Society of Indian Automobile Manufacturers, but the volume was lower at 3.89 million units.
“Following Covid-19, there was a pent-up demand emerging from people wanting to purchase personal vehicles,” said VG Ramakrishnan, managing partner and automotive lead at management consultancy firm Avanteum Advisors. With supply chain issues restricting new car dispatches, this demand was met by the used car market, he added.
“The fact that new cars are being sold means that there will be a growing market for used cars going ahead,” he said.
Meanwhile, following the cut in spending, the new-age platforms found it difficult to expand into new markets in the used-car sales segment, which is still largely unorganised, one of the people cited earlier said.
“In 2020 and 2021, the growth was happening on the back of heavy spending into marketing, advertising as well as expansion into newer markets…and this was largely a function of easily available capital. That is not the case anymore,” another Delhi-based investor in mobility firms said. “But there’s still a large room to grow … that will happen over time as consumer behaviour changes,” this investor added.
Priorities change
Speaking to ET, the founder of a unicorn used-car startup said the overall market was buoyant but a change in the investment scenario for startups meant that priorities for them changed.
“I would not say the market has shrunk…it has been doing decently well. But there was a sudden change for all of us in the business and how we approached things. Everybody had to take the tough call that there is a need to prioritise controlling costs in order to maximise the runway and delay a next round of funding. At least for the first six months of FY23 that was the case,” the founder said, asking not to be named.
“It is difficult to fight that battle along with recording high growth levels. Sometimes you need to slow down a bit in order to grow faster later,” he added.
During the year ended March 2023, Cars24 saw an on-year increase of 7.7% in its operating revenue to Rs 5,535 crore. In comparison, its FY22 revenue had grown 87%.
However, the company’s loss reduced significantly. In FY23, Cars24’s loss came in at Rs 467.8 crore, compared with Rs 1,093.1 crore in FY22, excluding a one-time gain of Rs 850 crore recorded in FY22.
At Gurgaon-based Spinny, which started calculating cash-and-carry sales in its revenue accounting instead of only commissions earned on sales through the marketplace, revenue increased to Rs 3,262 crore in FY23 from Rs 109 crore in FY22.
CarDekho saw its revenue from operations expand to Rs 2,331 crore against Rs 1,600 crore in FY22. Its loss widened to Rs 562 crore from Rs 535 crore.