OBJECTS OF THE OFFER :
The offer comprises of an offer for sale of up to ₹10,000mn and fresh issue amounting to ₹20,000mn. Out of the fresh issue, ₹11,500mn. would be used for funding their organic growth initiatives, ₹4000mn would be used for funding their inorganic growth initiatives and the balance amount is attributable to general corporate purposes.
DROOM IPO ANALYSIS
CONSISTENT TRACK RECORD OF FINANCIAL PERFORMANCE:
Company’s revenue has been affected in FY21, falling from ₹1,721.72mn in FY20 to ₹1,253.32mn in FY21. The weak performance in the revenue came due to significant impact of COVID-19 pandemic. However, the company was able to significantly reduce its EBITDA margin loss from (64.81)% in FY19 to (22.39)% in FY21. The company’s loss has also decreased from ₹ (1053.7)mn in FY19 to ₹(688.83)mn in FY21.
CONSOLIDATED FINANCIAL SUMMARY OF DROOM
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COMPETITIVE ANALYSIS: MARKET PEERS
Droom Technologies is India's pioneering automobile e-commerce platform and is all set to make its debut on the stock exchanges. There are other listed companies that are working in similar segments. Let’s get familiar with their names and market capitalizations as Droom gets ready for its IPO
|₹ 3,053 crore
MARKET LEADER IN PURE-PLAY AUTOMOBILE E-COMMERCE PLATFORM
Droom Technology Ltd is one of India’s leading automobile e-commerce platforms in terms of GMV and the only major player offering completely online end-to-end offerings. With their proprietary and technology-driven services for certification and convenience, they offer an end-to-end e-commerce platform for buying and selling used vehicles in India. Their proprietary and the vertically integrated platform allows them to control all critical operations and transaction elements, which facilitates a fast, simple and consistent user experience. The company’s automobile e-commerce platform is technology-driven, asset-light, scalable with a wide reach that is category, condition, and geography agnostic. They do not own the inventory or physical stores and their operations rely on technology and data science compared with people heavy operations for sourcing, refurbishment, certification, selling and delivery. This results in significant cost savings and alleviates risks associated with inventory. They have a large selection of vehicles on their platform and they have over 278,807 used vehicles listed across 11 categories present across 1,151 cities in India. Their model ensures trade velocity, economies of scale and economies of scope in that the platform is a category, condition, seller, price, and geography agnostic. Their platform caters to not just cars but also two-wheelers and other vehicle categories; both used and new vehicles; both auto dealers and individual sellers, at all price points and is available across the country.
TECHNOLOGY AND DATA SCIENCE COMPANY OFFERING A SUPERIOR VALUE PROPOSITION
Droom Technology Ltd believes that their automobile e-commerce platform not only offers a 21st-century automobile buying and selling experience but also a model that is economically viable independent of scale due to the use of technology, the economy of scale, economy of scope, assets light, and network effects. They follow a user-centric strategy for their technology infrastructure and have developed an intelligent, robust, and scalable cloud-based platform with modular solutions and easy-to-use plug-ins. Their proprietary technology and data analytics capabilities drive all aspects of the business and they have been increasing their spending on leveraging new-age technologies such as AI, ML, IoT, augmented reality and virtual reality and have adopted a data-driven consultative sales experience which in their experience ensures user satisfaction. They also provide users with an intuitive interface accessible at any time on various platforms including on iOS, Android, M-Site, desktop and as a widget.
DIVERSE RANGE OF PROPRIETARY TECHNOLOGY-DRIVEN ECOSYSTEM PRODUCTS AND SOLUTIONS
Technology is the foundation of Droom Technology Ltd’s business. Their focus on technology has led them to develop a suite of ecosystem products including OBV, the used vehicle pricing engine for which the company currently holds a valid patent in the United States. Their solutions also include ECO, an AI-based vehicle inspection service, History, a database of historical vehicle records, Droom Discovery, a vehicle research tool and Droom Credit, an automobile focused lending platform, all of which have been developed entirely in-house by their technology team. This enables them to rapidly develop modular solutions and add new products to their platform in line with their growth strategies and scale the technology solutions without significant incremental costs. They have also recently introduced Droom Velocity with a focus on last-mile service. The AI-driven matching engine results in quality listings, fair pricing, convenience for users, eliminates information asymmetry and moral hazard problems thereby facilitating trust, transparency, and transaction velocity.
SCALE DRIVING NETWORK EFFECT
Droom Technology Ltd’s investment in technology and infrastructure, combined with the ecosystem of products and services around their core e-commerce platform has resulted in a self-reinforcing flywheel underpinned by strong local network effects and operating leverage. The platform benefits from a virtuous cycle driven by their scaled, digital platform and the data and technology they leverage every day. A larger seller base on their platform leads to more selection options and better price discovery for the buyers. This helps drive a better experience, greater user engagement on their platform and accordingly, greater conversions thereby increasing user loyalty. This attracts more users to the platform, leads to more transactions through their platform and results in lower marketing and promotion expenses for the company. Growth in organic traffic and the higher trade velocity in turn strengthens sellers’ value proposition, attracting additional sellers to the platform and increasing the seller retention rates. This leads to greater scale, driving more vehicles and users to the platform and market data accumulated over seven years, which helps grow their data and technology moat.
ROBUST UNIT ECONOMICS, HIGH OPERATING LEVERAGE, AND SOUND FINANCIAL PROFILE
Droom Technology Ltd is the only major Indian player with a completely online transaction model that both enables and improves used car commerce for consumers and businesses across India. They have an asset-light business model and a lean cost structure. They do not own the vehicles listed on their platform. This enables them to be capital-efficient and scale the business with minimal marginal costs. The company offers one of the most comprehensive offerings among the major players in the industry that allows users access to a broad selection of vehicles through mobile apps and websites with comprehensive and accurate vehicle information and a seamless transaction experience. Since the commencement of operations, the platform has facilitated the sale of 373,867 vehicles. The number of auto dealers on their platform have increased at a CAGR of 11.57% from 16,175 as of March 31, 2019, to 20,133 as of March 31, 2021
Maintaining brand image and reputation is very important for the sustainability of the company.
Company has had negative cashflows and incurred losses in the past and can continue to incur in future.
The nature of the business can get affected due to pandemic or lockdown like situation.
Strategic investment and acquisition opportunities across the automobile value chain to supplement and complement their existing services and strategies.
Entering new geographies can significantly contribute towards the growth of the business.
Plans on investing in the technology, ecosystem, data science and infrastructure space can positively impact the growth.
Changes in laws and regulations in the E-commerce space can hamper the business.
High dependency on customer’s engagement for the digital platform.
Failing to maintain technology infrastructure can materially affect the business.
Dependency of the stakeholders is high and any discrepancies can affect the overall growth of the business.
Company has outstanding litigation proceedings which can affect the business or the brand image.
STRATEGIES GOING FORWARD:
MAINTAIN DROOM TECHNOLOGY’S MARKET LEADERSHIP POSITION BY CAPITALIZING ON INDUSTRY
The automobile industry in India, which includes new and used vehicles and associated services is poised to grow at a CAGR of 16.4% between Fiscal 2021 and Fiscal 2026 to reach ₹42,530 billion by 2026. Growth in the Indian auto industry is expected to be driven by changing consumer preference for personal mobility, increased disposable income and favorable government initiatives. The motorization rate will increase up from 22 cars per 1,000 people in 2019 to 175 cars per 1,000 people by 2040. The used to new car ratio is expected to grow from 1.65x in Fiscal 2021 to 2.23x by Fiscal 2026. The driving forces of such growth include the rising middle class and young population, coupled with increasing disposable incomes and urbanisation leading to a growth in new vehicle sales in India. The growth in used vehicle sales is driven by transparency, convenience and ease of transactions, digital banking, and payments, as well as the certified quality of vehicles. In addition to the growth in the automotive market, which the company expects that it will benefit them greatly, they also expect a further increase in the digitalization of the automotive sector. As part of the auto evolution, emerging technologies such as AI, IoT and ML are being leveraged by players in the industry to enhance product development and delivery capabilities.
CONTINUE TO DEVELOP AUTO DEALER AND SELLER NETWORK
Droom Technology Ltd has onboarded over 20,725 auto dealers from 1,151 cities across India. Since the commencement of their operations, auto dealers and sellers on the platform have provided them with over 3.70 million vehicle listings. The company intends to continue to build technology, tools, and services for auto dealers so that they can adapt to evolving e-commerce opportunities. Their intuitive technology and ability to harness a distributed network for supply will translate into their platform experiencing vehicle listing that no physical automobile dealership can match. In addition to developing technology, tools and services for auto dealers, they also intend to create an engaged dealer community. The company also offers online education content, webinars, seller meets and seller summits, and rewards and recognition.
CONTINUE TO INVEST IN TECHNOLOGY, DATA SCIENCE, ECOSYSTEM, AND INFRASTRUCTURE
Droom Technology Ltd is a technology and data science company enabling automobile buying and selling online. Since commencing their operations, they have grown the platform by regularly adding new products and services. They have invested in building an experienced engineering and design team to develop innovative solutions for the sellers, auto dealers, and buyers. This enables them to further enhance the sellers and auto dealers’ businesses and provide a better experience for the users.
EXPAND INTO NEW GEOGRAPHIES AND ADDITIONAL VERTICALS OF HIGH MARGIN AUTOMOBILE SERVICES
Droom Technology Ltd intends to continue to expand domestically as well as internationally. Within India, the platform covers 1,151 cities. Non-metro cities and towns in India are expected to grow faster in the coming years. Their focus going forward will be to deepen their penetration in such cities. To grow the network in these cities, the company intends to onboard additional auto dealers to ensure that they have an adequate supply of vehicles to address the demand from consumers. They will also undertake targeted marketing campaigns to educate potential users about the features of the Droom’s platform and also make it available in several regional languages to ensure faster adoption. Droom Technology Ltd commenced their international operations in November 2018 in Malaysia and have since then they have expanded their operations to offer OBV in 38 countries, including Saudi Arabia, Singapore, and Vietnam. Going forward, they intend to commence operations of the Droom platform with its entire functionality in the Middle East and South East Asia.
CONTINUE TO IMPROVE UNIT ECONOMICS AND FOCUS ON PROFITABLE GROWTH
Droom Technology Ltd has over the years continued to grow the scale of their operations and deploy more and more technology which has resulted in better unit economics. Their scale has helped them to reduce fixed infrastructure cost on a per-unit basis. They have been able to bring efficiency in their marketing spend because of free traffic growing faster than paid, paid traffic getting cheaper owing to the learning curve and scale. Going forward, they will continue to focus on growth in a profitable and sustainable manner. The company will continue to invest in technology, data science, infrastructure, and processes that will ensure them to improve their unit economics.
SELECTIVELY PURSUE STRATEGIC INVESTMENT AND ACQUISITION OPPORTUNITIES
While Droom Technology Ltd continues to expand their business organically, they intend to evaluate and selectively pursue strategic investment and acquisition opportunities across the automobile value chain to supplement and complement their existing services and strategies when such opportunities arise. The focus of their proposed acquisitions would be to enhance the technologies and products and in particular in the blockchain, AI / ML, big data analytics and IoT space. They also intend to acquire entities that will help them expand the user base as part of their proposed international expansion strategy. Their extensive industry experience and insights enable them to identify suitable targets and effectively evaluate and execute potential opportunities, support their long-term strategy, strengthen the company’s competitive position, and aid in acquiring technical expertise and achieving greater scale to grow their earnings and increase shareholder value.
Disclaimer -The content on this page is made available on the basis of the DRHP (draft red herring prospectus ) filed by Droom Technology Limited. The final content could change based on the Red Herring Prospectus (RHP) filed