Cars24 has been in the eye of the storm in the prevailing downturn in the startup microcosm—with funding becoming elusive as macroeconomic conditions became unfavourable, with increased interest rates—ever since news broke out that it laid off 600 employees. These layoffs, however, are in line with the unicorn's plans to expedite its path toward profitability, Gajendra Jangid, co-founder & CMO tells Fortune India.
"It's not just us. All tech and tech-enabled start-ups have been hit by the headwinds caused by macroeconomic conditions. What has changed now is that when an investor gives large funding to a startup like ours, the pressure to move towards profitability is a lot more than it has been," explains Jangid. Cars24 says layoffs are a standard business practice that the company follows. "The layoffs happened at the cusp of the appraisal season…We have followed this practice of performance-based exits in 2021 and 2019 as well. It's just that negativity catches steam much easily because of the times we live in," Jangid explains.
It is understood that the company's move was an effort to cut costs as raising money gets difficult in tougher market conditions, but Jangid reiterates that the changes in the company are a consequence of increased pressure to turn profitable as soon as it is humanly possible.
Jangid says the company is not seeing a slowdown in demand. "Just because there is a dearth in funding, that does not mean that the consumer sentiment has also taken a hit. The consumer sentiment is still going strong, and in fact, we're very bullish about demand," he explains.
The Indian used car market was valued at $18 billion in FY21—with 3.9 million used cars sold in FY21— and is projected to grow at a CAGR of 15% between FY21 and FY26, according to a report by Praxis Global Alliance. The report also says that the used-car/new-car ratio for India is currently at 1.4 for FY21, and is projected to reach 2 by FY26. "India is still an underpenetrated PV market, thus pushing demand for used cars. The motorisation rate is 17 in India vs 400-600 for developed countries," the report reads. Analysts at Praxis Global Alliance also believe that the implementation of the BS VI emission norms and the scrappage policy will induce higher demand for used cars. The revision of the GST rate on used cars from 28% to 12-18% on used cars will also drive growth.
Most start-ups in the used-car market space are facing a tough winter, after private/VC funds investments in the used-cars space saw a significant increase in CY21—where funding catapulted from $259 million in CY20 to a mammoth $1.54 billion in CY21. Therefore, every used-car tech player has become prudent. "Every used-car platform is currently charting its path to profitability," Vinay Sanghi, founder and chairman of CarTrade Tech, which got listed in August 2021, tells Fortune India. According to Sanghi, the company has been profitable since 2018. "The CarWale brand in itself has a strong presence. We had 30 million average monthly unique visitors for Q4 FY22, of which 84.20% were organic. What it means for us is that we spend a lot less on marketing than our competitors do, and which also impedes profitability," Sanghi adds. CarTrade closed FY22 with revenues of ₹359 crore, with its highest ever quarterly revenue of ₹106 crore in Q4 FY22.