India’s Droom in the Fast Lane

According to India Brand Equity Foundation, the automotive industry in India is expected to reach INR 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026 driven by increasing middle-class income and a young population. Droom is one of the leading Indian online auto portals that targets this segment.

Droom’s Journey

Gurugram, India-headquartered Droom was founded in 2014 by Sandeep Agarwal and Rishab Malik to deal with the trust issue in online marketplaces for used cars. Sandeep had earlier co-founded small-town online marketplace Shopclues.

Today, Droom is the largest auto dealer platform in India for buying new and used vehicles. Its platform offers a wide range of categories and automobile services such as warranty inspection, roadside assistance, insurance, and auto loan. It has automobiles across 48 categories including planes, bicycles, segways, golf carts, yachts, trucks, and buses. It has created an algorithmic pricing engine called Orange Book Value (OBV) that provides the benchmark value of a used vehicle. It also offers an auto inspection-verification service provider called Eco. It also offers Droom History, a repository for a vehicle’s historical record.

Droom has four marketplace formats: B2C, C2C, C2B and B2B, and three pricing formats – Fixed Price, Best Offer, and Auction. It has over 312,000 auto dealers and presence in 735 Indian cities and over 38 million monthly visitors. It has 6,200 auto technicians who can perform any vehicle inspection under 48 hours.

Droom recently launched Droom Discovery, a product that allows prospective buyers to search by model or brand and provides expert views, price, and EMI calculator to help with the decision. Droom has also diversified into FinTech with Droom Credit, which provides auto financing to both dealers and buyers of used cars and bikes.

Droom’s Financials

Droom earns its revenue mainly from subscriptions and commissions. It charges a commission of 2% to 2.5% for used cars and 2.5% to 3% for used motorcycles. Its dealer subscription for its platform and services ranges from INR 45,000 ($650) and INR 1 lakh ($1442) per year. About 15% revenues are from dealer subscriptions.

Droom has been working on improving its unit economics. In the first year, it made 1.5% of each successful transaction. It has improved that to 1.75% in the second year to 2.4% currently. Its expenditure on marketing decreased from 12% in the first year to 6% in the second year, and 2.9% currently. Indirect expenditure decreased from 4% in the first year to 2% in the second year and 1.5% currently.

Its revenue streams have also diversified from just commissions to subscriptions for dealers and pro-sellers. It has also started monetizing OBV. With Droom Credit, it has three revenue streams: leads to lenders for INR 50-250, processing fees of INR 3000 and 1.5% of the loan value for using their credit technologies, and the most profitable part is that it has started deploying its own capital.

Droom clocked a net revenue run rate of $25 million in 2018, up 147% and an annual GMV of $1 billion. In FY 2015-2016, its revenue was up 87% to INR 17.2 crore and loss was INR 14 crore. For 2019, it has a target of $2 billion GMV and revenue of $50 million. Listings on the platform increased by 39% to 0.8 million. Consumer traffic increased by 53% to 380 million visitors.

Droom has so far raised $123 million from investors including Beenext, Lightbox, Beenos Partners, Integrated Asset Management, Digital Garage, Toyota Tsusho, Ellison Investments, and Joe Hirao. It last raised $30 million in October 2018 at a valuation of $550 million. The company aims to grow its market share in India from 75% to 85% and is investing heavily in emerging technologies such as Artificial Intelligence to make OBV more transparent and product, price, seller and geography agnostic, Internet of Things (IoT) to improve the Eco product, and Blockchain for its credit facilitation services.

Droom is a Singapore Holding Company with 374 employees and subsidiaries in India and the United States. It plans to expand to Vietnam, Philippines, Cambodia, Laos, and Myanmar by the end of 2019. It is preparing to list on the Nasdaq exchange in the second half of 2020. Droom claims that it has controlled its monthly net burn to $1.2 million with a monthly GMV of close to $75 million. It aims to achieve annualized GMV of $3 billion, net revenue of $110-120 million, and profitability before listing.

Droom competes with CarDekho, Cars24, Car Trade, and Spinny as well as Quickr and OLX.

We recently covered its rival CarDekho, which was bootstrapped and was profitable for six years before it raised funding. It acquired several bootstrapped startups to diversify and strengthen its offerings. Founded in 2008, it has so far raised $177.5 million in funding from investors including Google Capital, Hillhouse Capital, Tybourne, Sequoia India, Times Internet, HDFC Bank, Dentsu, RNT Associates, Aquila Capital, and Ratan Tata. It last raised $110 million at a valuation of an estimated $400-$500 million. In an earlier round in 2016, it was valued at $360 million. Its revenues increased 40% to INR 160 crore ($21.6 million) in FY18 from INR 114 crore ($15.6 million) in FY17.

Droom’s revenue and valuation are comparable to CarDekho. CarDekho has proved that its business model is profitable while Droom is yet to do so. However, Droom has consistently improved its unit economics and increased the number of its revenue streams. This focus on the fundamentals is likely to pay off.