Cars, Bikes & OLX: Inside CarTrade's 'classified' act

Vinay Sanghi, chairman and managing director, CarTrade Tech. Image: Mexy Xavier

Dubai, March 2023. Both the parties started the conversation on an apprehensive note. And it was natural. Vinay Sanghi, a veteran in the game of buyouts—he bought online classifieds portal CarWale in 2016, automobile valuation platform Adroit in 2017, and vehicle auctioning platform Shriram Automall India in 2018—was about to meet the potential seller for the first time. The seasoned entrepreneur, who got CarTrade listed in 2021, was trying to read the minds of the negotiator. The biggest risk for a seller, underlines the chairman and managing director of CarTrade, is to find out if the buyer is serious about the transaction.  

Sanghi was dead serious. His envious past in cracking deals meant that he had boldly ticked the box of ‘seriousness’. The founder outlines other usual questions that bug a prospective seller: Do they have money? Are they capable of pulling off this transaction? What will they do with the employees? “In a way, they will try to judge you on all aspects,” says Sanghi, who was in Dubai in the third week of March to attend his board meeting. A stickler for discipline, Sanghi’s track record of all his acquisitions had one common trait: Planning. Nothing was random.  

Meanwhile, in Dubai, it all started with a random call. “You can call it chance or serendipity,” says the founder, alluding to his interest in exploring the latest buyout offer. “OLX is looking to sell the auto business in India. Would you be interested?” uttered the voice from the other side of a phone call. “Are you serious?” asked Sanghi. “Obviously, it interested me straightaway,” he recalls. The meeting was fixed at Waldorf Astoria Hotels & Resorts, and Sanghi was about to meet Robin Voogd, head of the classifieds vertical at Naspers, and head of M&As and strategy at OLX.  

The meeting started, and even the battle-scarred founder started getting fidgety. “Why are they selling the auto vertical?” was a natural question to ask. The biggest online classifieds player in India had put its C2B (consumer-to-business) automotive transaction business on the block. “Is there anything wrong with the venture?” Sanghi wondered, as he got sucked in a vortex of queries. “What will happen to the classifieds side? Would users not get confused if there are two OLX entities? How will it impact business?” he wondered. The meeting lasted for 90 minutes, and over the next few weeks, OLX put its classifieds part also on sale. The picture was now complete, and Sanghi’s not-so-guarded apprehensions turned into unabashed excitement. “This could be the opportunity of a lifetime,” he reasoned with himself.

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Five months later—and over a month into completing an all-cash deal of buying OLX India for Rs535.54 crore—Sanghi’s excitement shows no sign of abatement. He explains why. “It is a fantastic acquisition for our entire portfolio,” he says, listing out the first biggest plus of having a new member which is likely to change the nature of the family. Look at the numbers. OLX has had over 100 million app downloads, has over 35 million average monthly unique visitors and there are more than 32 million used listings across categories (see box). “Suddenly, everybody with a mobile is my customer now,” he says, as his eyes lit up with the prospects of umpteen business and possibilities. What this means is how CarTrade, which so far was into the consumer and business side of cars and bikes, will transform over the next few years.  

Sanghi explains CarTrade’s future makeover. Imagine somebody selling a car today on OLX, and the same person selling his mobile, furniture, electronics and house also on the platform. “In one go, our user base has ballooned,” he says. While automotive makes up 50 percent of OLX India, the rest of the business is non-automotive and consists of electronics, jobs, furniture and real estate. “It is one of the few platforms in India which has got a staggering 32 million listings every year. It’s a phenomenal number,” says Sanghi, talking about the most interesting part of the deal. Classifieds is a highly profitable business. “Imagine, they don't spend money at all on the classifieds side of advertising,” he says.  

CarWale abSure at Ahmedabad.
The second-biggest plus of OLX is the seamless synergies it rings in. “There are perfect synergies,” claims Sanghi. While OLX is powerful in used cars, CarWale is dominant in new cars. “This combination is quite powerful,” he says. In fact, OLX fits in with BikeWale as well. While the latter is about new bikes, OLX happens to be the largest used-bike platform in the country. “So, when you look at the synergies, the buy was compelling,” he says. For Sanghi and CarTrade, OLX indeed will change the trajectory of the entire company. From being a player in the auto market of 4 million new cars, 5-6 million used cars, and 10-12 million two-wheelers, CarTrade as a group is suddenly reaching out to a huge customer base with multiple offerings. “It’s a massive opportunity for us,” he underlines.   

The challenges, though, are equally daunting. The biggest is the baggage of loss that the C2B side of OLX brings into a profitable company. Can he turn it around? Sanghi sounds confident. CarWale, he underlines, was a loss-making venture when it was bought by CarTrade. It had a revenue of Rs33.83 crore and a loss of Rs48.65 crore in FY15. “That was in the past. It has been making money for years,” he says. Though Shriram Automall India was close to breakeven when it was bought by Sanghi in 2018, the vertical has been posting profits since then. “Over the next few months, we have three objectives,” he says. The first is to fix the unit economics of the C2B business. The second is to grow the classifieds business and its profitability. And the third is to conclude the transfer of technology from the erstwhile parent of OLX. “We are pretty confident that we will bring down the cost to get to very reasonable unit economics in the C2B business,” he says.  

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But then there is another big problem. Will one plus one add up? Can CarTrade be successful in exploring the cross-synergies among the various brands in the group and cross-sell? In its recent brokerage update, JM Financial underlined the opportunity and the flip side of the CarTrade-OLX deal. Let’s start with the advantage. In comparison to vertical platforms such as CarWale or CarDekho, the brokerage house underlined in its report released last month, OLX generates higher margins as there is higher customer lifetime value (CLV) due to the horizontal nature of the platform. While a typical user would engage in auto sales and purchases once in four to six years, the same user can still be selling mobile phones, furniture and electronics more frequently. “This improves CLV/CAC (customer acquisition cost) ratio for OLX,” it maintained. .

OLX Franchisee at Jaipur

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The report, though, also highlights the likely blip. “We remain apprehensive of CarTrade’s ability to cross-sell to this customer base,” it added. “We still remain unconvinced on CarTrade’s ability to make C2B profitable due to extremely high CAC and huge operating expenses,” it further underlined. In another report, Nomura pointed out another challenge. Though the company's approach to prioritise profitability over growth provides comfort on losses reducing over the years, execution will be the key monitorable. 

CarTrade’s biggest challenge, reckon marketing and branding experts, would be to maintain a balancing act. When the opportunity in the classifieds business is immense, it is likely to tempt the group to spend a disproportionate time, money and effort to make it more profitable and bigger. CarTrade, points out Ashita Aggarwal, professor of marketing at SP Jain Institute of Management and Research, has been synonymous with cars and autos. Though the group has managed to have independent entities—new and old cars and bikes—under its umbrella, OLX has much bigger brand recall compared to the others. “The new member must now dwarf the others,” she says. “Can CarTrade strike a delicate balance between classifieds and automotive?” she asks.

Shriram Automall at Coimbatore

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Sanghi, for his part, is confident about the game plan. While CarWale is 80 percent about new cars, OLX is 100 percent used [cars]. The objective, he points out, is to allow customers the best of everything. “Both will exist, both will grow and both offer very different values to the user,” he says. On the question of striking a balance, Sanghi reckons that a rich experience of not merging any acquired company in the past has already set an example. “We never changed the team,” he says, alluding to the fact that all the acquired companies are still being run by the old management. “What we have done is not normal. It's rare to acquire a company and let them be. It’s very rare,” he says, adding that when one acquires a company, one must believe that the team has created some value. “Not a single person from CarTrade is going to OLX,” he says. “People talk about mixing culture. We don’t believe in that. Each has its DNA, and each must grow independently,” he says. OLX, Sanghi adds, will force the company to have a bigger vision, purpose and mission. “It’s a massive change and we are excited about it,” he signs off.