Droom eyes Nasdaq for IPO, looks at three other stock markets as well

Operational since 2014, Droom has managed to move away from being only a used vehicle seller to a growing fintech startup, and now, it is eying Nasdaq for its IPO.

Droom, the online automobile marketplace, is aiming to go public in 2021, with a listing at Nasdaq. The startup, though, is also mulling a listing in Mumbai, Singapore, and Hong Kong markets. It has been planning an IPO since 2018 which was initially delayed to 2019, followed by 2020. Droom has now set a deadline for 2021

In 2019, the company saw its net revenue double to $32 million from $16 million in 2018. It estimates that the net revenue in 2020 will increase to $63 million. 

It also expects its orders to increase from 6.11 lakh in 2019 to 15.95 lakh in 2020. Besides that, Droom estimates the total number of listings on its platform to increase from 18.51 lakh in 2019 to 24.14 lakh this year. 

Droom’s IPO dreams

The startup has confirmed to AutoStory that while its focus will be on the American stock exchange, the high level of compliances required to be met for Nasdaq will prepare them equally for listing at the other three exchanges.

Speaking to AutoStory, Sandeep Aggarwal, CEO and Founder of Droom, said, “By the time we file for our IPO, if we get more comparable assets in Hong Kong and we see a business rationale, we may consider Hong Kong. The same is the case for other listings.”

When asked about why Nasdaq, Sandeep said that he wants to see Droom competing with the global technology stocks which are in essence true competitors for a global business like his. 

This strategy was also used by the online travel company MakeMyTrip when it listed on Nasdaq in 2010. To make the listing compliant with regulatory norms, Indian companies externalise its structure by commencing a new parent company in the country where it is aiming to be listed. 

However, the Indian government is working to this end by bringing changes in the Company’s Act as confirmed by the Finance Minister Nirmala Sitharaman during her budget speech on February 1, 2020. Sources close to the development suggest that the government wants these tech companies to be registered in India. 

Speaking about the long delay in Droom’s listing plans, Sandeep said, “2019 was a very tumultuous year due to the US-China trade tariffs and Hong Kong protests. The threat from coronavirus has added further strain in the market. We also set a new target for us, as we do not want to be listed once and then fall flat.” 

He added, “So, the delay has been largely due to the market risks combined with the evolution of our strategy. We believe a three billion GMV and $120 million in revenue, both of which we can deliver in the calendar year 2021.” 

Unperturbed by WeWork debacle 

Last year, SoftBank-backed WeWork’s valuation of $47 billion was cut by 70 percent, crushing the then CEO Adam Neumann’s dream of raising $4 billion from the IPO. However, Sandeep is unperturbed by the WeWork’s failed IPO gloom.  

Unlike several technology startups, Droom did not receive any large investor, adding to its valuation and funding.

“Our valuation is a function of the scale we have achieved and the fundamentals we have delivered. Valuation is always a function of growth, innovation, and the profit margin expansion.” Sandeep said adding that if a large investor comes and gives a company valuation more than it can support, it is detrimental to it, be it in the short or long term. 

Droom believes that it is an under-priced asset. “We are a very large scale company, unlike most startups, be it automobile, ecommerce, or food delivery. Hence, we stand a chance to lose the least amount of capital, and have a clear roadmap to profitability,” Sandeep added. 

He believes that Droom’s valuation is supportive of the scale of business of the startup. That’s not all, he also sees more headroom for a further increase in valuation. 

It is also working on its final round of funding. As per Sandeep, certain market developments led to delays, but it will be closed soon. The company aims to raise $150 million in the pre-IPO round, which will make them a unicorn startup.

Mission 2020 and beyond 

Droom is also focussing on used vehicle finance opportunities. Introduced in April 2017, Droom Credit today boasts of a 100 percent paperless approval of loans in just 30 seconds. With the industry being rattled by the NBFC crisis in 2018, Droom Credit completed 250 loans. The numbers, though, grew in 2019 with 12,000 loans. 

The startup expects to cross the 40,000 mark by the end of 2020 with Droom Credit. In November 2019, it acquired Xeraphin, a Delhi-based NBFC firm, in an all-cash deal for an estimated $3-3.5 million. 

It has also increased the number of onboarded lenders from three in 2018 to over 12 in 2019. Besides that, Droom has also increased its team size at Droom Capital from under 10 in 2018 to over 40 by December 2019. 

India is the third-largest automobile market in the world, and for the last decade, its growth pattern has been the envy of many international markets. However, last year was one of the worst years for the Indian automotive market in three decades. 

Passenger vehicle sales declined by over 16 percent in April-December 2019 compared to the same period last year. Further, two-wheeler sales registered de-growth of 15.80 percent in April-December 2019 from the previous year. 

However, the scope of opportunity is still very high, and this is where Droom stands to gain the most.

Sandeep added, “India is 67th in the world in terms per capita vehicle availability. Only four percent of Indian households have a car and 24 percent of households have a two-wheeler. With income and education levels going up, it signifies an unprecedented demand for transportation in the near future.” 

He points out that ecommerce accounted for 0.2 percent of total retail in India eight years back, and today, it has grown to become 2.5 percent. Similarly, back in 2014, the year when Droom was founded, the online marketplace for automobiles accounted for 0.1 percent and has now grown to one percent. While the used vehicle market saw players register between high single-digit and low double-digit growth, Droom grew 10 times faster the used vehicle market

Speaking on the long-term plans for the startup, Sandeep said, “Five years from now, 35 percent of Droom will be a fintech company, while 50 percent will be our core transitional business.” He added that at least 15 percent will be advertising and subscription business. 

(Edited by Suman Singh)