In an interview with ETCFO, Girnar Software-owned CarDekho Group CFO Mayank Gupta shared his future growth and expansion plans as it claims to go for listing on Indian bourses by next year.
“With scale, leverage, efficiencies, and process improvements we are trying to contribute towards our total EBITDA level profitability and that is what we intend to achieve before IPO,” Gupta told ETCFO. In FY23, the company sees a healthy growth upwards of 50% to 60% year-on-year and it comes with growth and expansion plans.
“We may look at some Gulf Cooperation Council (GCC) countries as well as the growth path continues,” he shared. On the acquisition side, he said, “we do look at opportunities that are relevant, any good asset to partner – anything revolving around auto tech solving customer challenges in a profitable manner like services of cars, rental, leasing or new technology like EVs would be relevant for us.”
The Edited Excerpts:
Q: Inflation, commodity price volatility has not only impacted the prices of the cars but many buyers were said to wait-it-out till prices ease, in such times used-car market has seen an uptick. What has been the impact on your business as you deal with both used and new cars?
Mayank Gupta: The used car industry is pretty massive, almost four to five lakhs cars per month is the sales in the country. The industry continues to grow in high double digits.
Growth story of the used cars is long term for us, however, the pent up demand, customer need and affordability are macro factors that are reasons for the uptick. And beyond commodity prices, there’s a lot of (customer) behavioral shifts during COVID times. People are much more likely, especially the new generation, to buy a first used or second hand used car.
Inflation in India historically has been in the 5% to 7% range. Though it is on the higher end, it’s not significant. In our industry both new and used cars have different impacts on the business. Besides, commodity prices and semiconductor shortage are challenges which have dragged the supply chain issues.
Amidst these challenges, the used car business has shown positive impact in spite of the rising prices of new cars. Used cars have become more affordable.
Q: Used car business is an unorganised sector, how many used cars and unused cars do you deal with in a year?. What are the challenges as a CFO operating in this space?
Mayank Gupta: In the used cars business we are building our scale upwards of more than 30,000 cars per year. However, the challenge between organized versus organized is a classic one.
A sector that deals in mass, we have almost 20,000 dealers in the used car industry in the country. We see this as an advantage because we are solving customer’s problems by leveraging products and tech solutions. On a digital platform choices are unlimited, secondly, it comes with trust and warranty.
The only challenge dealing with an unorganized sector is that companies do the right things in the right way, following every law, however, may not always have the highest level of compliance. This puts pressure on unit economics, at least in the short term. But, in the long term, if you do the right things with scale, the issue of unit economics will solve itself.
Q: How are you looking at the festive season impact on your business this financial year and what are your expectations?
Mayank Gupta: The year 2022 will be rock solid. We expect a good season ahead for all of our businesses as compared to 2020 which was a dampener and 2021 was when the economy was recovering from pandemic impact.
Q: In the car portfolio business, what is the market penetration strategy when we talk about opportunities in tier 2, tier 3 cities in FY23?
Mayank Gupta: The plan is to keep tiering in the country. The content and research platform is from every city in the country, and is open for new launches or old car models research. On the used cars transaction side it is operationally heavy. So we are going city by city, including tier-2 cities.
In FY23 and beyond we are looking for healthy growth – upwards of 50-60% year-on-year and it comes with growth and expansion plans. The business model for us is Business to Business to Consumer (B2B2C).
Both our financial services and the insurance business will continue to expand into the interiors of the country. On the used car transaction as we solve unit economics city by city, we don’t want to grow for the sake of growth but logical and sustainable.
Q: CarDekho has expanded in other geographies as well like South Asian markets and it has been operating in Malaysia, the Philippines, and Indonesia. So what is the expansion plan going forward?
Mayank Gupta: We may look at some Gulf Cooperation Council (GCC) countries as well as the growth path continues. But our strategy is to make sure that we solve the product market fit in the country completely before we go externally. We wouldn’t want endless growth and then end up closing and shutting down those operations later on.
Hence, we have been cautious with our plan, but continue to go deeper in those markets as well as adjoining countries.
On the acquisition, we do look at opportunities that are relevant, especially in these times, any good asset to partner – anything revolving around auto tech solving customer challenges in a profitable manner. Services of cars, rental, leasing, or new technology like EVs would be relevant for us.
Q: What are the plans for Initial Public Offering (IPO) as the company has already stated that it will go for listing by 2023?
Mayank Gupta: In today’s Indian market as well as global markets you need to be a profitable tech company. We are focusing our energy to get to breakeven and then profitability soon and plan to achieve it in the next 12 months. Also, plan to line up the IPOs around that same time, which means a year from now we intend to get listed on Indian public markets.
We are getting ready not just in action, but also in our mindset. For example, we have started quarterly investor calls for our investors, and so on. We are doing initiatives before we hit the market, we should be completely ready on how to run the company.
While unit economics remains our key focus. Out of our four businesses, the auto content research platform is a profitable business, financial services, and insurance, we have tested the cohorts and shown break-even profitability, right now we invest in growth. As we have tapped the equation there we can be profitable soon. In the used car business we are trying to build unit economics, and chase sustainable growth.
With scale, leverage, efficiencies, and process improvements we are trying to contribute toward our total EBITDA level profitability and that is what we intend to achieve before IPO. By leveraging operating lever, by controlling fixed costs and incremental gross margins, and will give a positive impact on revenue.
Q: What is your hiring plan for FY 23?
Mayank Gupta: Each of our businesses are growing. We’re very solid growth plans in Southeast Asia and also strong growth plans in financial services, insurance business. Hiring is possible. There is no one specific number in mind, but clearly, the macro trend is very positive and we are actually actively engaging in it.