Cars24 has been in the eye of the storm in the current downturn in the startup microcosm – with funding becoming elusive as macroeconomic conditions turn adverse, with interest rates rising – ever since news broke of the layoff of 600 employees. These layoffs, however, are in line with the unicorn’s plans to accelerate its path to profitability, said Gajendra Jangid, co-founder and CMO at Fortune India.
“It’s not just us. All tech and tech start-ups have been hit by the headwinds caused by macroeconomic conditions. What has changed now is that when an investor provides significant funding to a startup like ours, the pressure to move towards profitability is far more than it has been,” says Jangid. Cars24 says layoffs are standard business practice followed by the company. “Layoffs have had take place at the start of the ratings season… We also followed this practice of performance-based starts in 2021 and 2019. It’s just that negativity escalates very easily because of the times we live in “, explains Jangid.
It is understood that the company’s decision was an effort to cut costs as fundraising becomes difficult in tougher market conditions, but Jangid reiterates that the changes in the company are the result of increased pressure to become profitable as soon as humanly possible.
Jangid says the company is not seeing a slowdown in demand. “Just because there’s a shortage of funding doesn’t mean consumer confidence has also taken a hit. Consumer confidence is still strong, and in fact we’re very optimistic about demand,” says he.
India’s used car market was valued at $18 billion in FY21 – with 3.9 million used cars sold in FY21 – and is expected to grow at a CAGR of 15 % between FY21 and FY26, according to a Praxis Global Alliance report. The report also states that the used car to new car ratio for India is currently at 1.4 in FY21 and is expected to reach 2 by FY26. “India is still a PV market underutilized, which drives the demand for used cars. Car ownership is 17 in India compared to 400-600 for developed countries,” the report said. Praxis Global Alliance analysts also believe that the implementation of BS VI emission standards and the scrapping policy will drive increased demand for used cars. The revision of the GST rate on used cars from 28% to 12-18% on used cars will also be a driver of growth.
Most start-ups in the used car market are facing a tough winter, after private equity / venture capital investment in the used car space saw a significant surge in CY21 – where funding grew from $259 million in CY20 to a whopping $1.54 billion in CY21. Therefore, every used car tech player has become cautious. “Every used car platform is currently charting its course to profitability,” Vinay Sanghi, founder and chairman of CarTrade Tech, which listed in August 2021, told Fortune India. According to Sanghi, the business has been profitable since 2018. “The CarWale brand itself has a strong presence. spend much less on marketing than our competitors, which also hurts profitability,” adds Sanghi. CarTrade closed FY22 with revenue of ₹359 crore, with its highest ever quarterly revenue of ₹106 crore in the fourth quarter of FY22.