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Redefining car ownership | Tarun Lawadia and Sameer Kalra @ PumPumPum
285 Plays2 years ago
PumPumPum is revolutionizing the car leasing industry in India. They have reimagined the traditional leasing model, making crucial tweaks to find a product-market fit at scale. Tarun and Sameer talk about the importance of perfect timing and utilizing technology as an enabler in an operation-heavy business.
Read the text version of the episode here.
Read more about PumPumPum:-
1.How PumPumPum is making used-car rentals hassle-free for users
2.Pumpumpum bets big on leased vehicles
3.Used-car leasing firm PumPumPum raises $2 mn in equity funding
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Transcript
Introduction to Pump, Pump, Pump
00:00:00
Speaker
Hello, everyone. I'm Samir Kalra. I'm the co-founder of Pump, Pump, Pump. Hi, everyone. Myself Tarun. I'm founder, CEO of Pump, Pump, Pump.
00:00:21
Speaker
I remember, as a kid, that my father was interviewing for a senior position in a five-star hotel chain. And one of the perks of the job was a company car. In that era, a company car was the ultimate middle-class status symbol. Back then, I did not understand how this whole thing worked and I assumed that a company would just buy a car and give it to the employee.
00:00:40
Speaker
But the way this actually happens is through a fintech
Car Leasing in India: Challenges and Adaptations
00:00:43
Speaker
play. When a company gives a car to an employee, it actually leases the car as an asset and pays a monthly subscription for it to a corporate leasing company. The corporate leasing company is essentially lending money in the form of a car and earning interest on the loan in the form of the monthly subscription. Corporate leasing is a fairly well established business because for an employee, it is a very tax efficient option to opt for a corporate leased car. But this never really took off in India.
00:01:10
Speaker
In this episode of the founder thesis podcast, your host Akshay Ghat talks to Tarun Navadia and Sameer Kalra, founders of the car leasing company Pampampam. Pampampam is building up a car leasing business for India. They have taken the fundamental car leasing model and made some significant tweaks to it so that it finds product market fit at scale in India. And in this episode, they talk about getting the timing right, making use of technology as an enabler in an essentially ops-heavy business.
00:01:37
Speaker
Stay tuned for this fascinating conversation and subscribe to the Founder Thesis podcast and any audio streaming app to learn about building solutions that scale in India from leading founders of the country.
00:01:55
Speaker
I started exploring finance industry, so I found interest around the trading ecosystem, how the stock market and global ecosystem, what are the main factors, how these things play, behave.
Tarun's Entrepreneurial Journey
00:02:08
Speaker
And I found a good interest. So I think in my third year of my college, I participated in a competition around a virtual trading conducted by one of the, I think, India's leading crop trading firm, Future First. So they conducted a trade mobile kind of competition. So I got selected top
00:02:25
Speaker
50 and I received a peak placement offer from that company. So after completing my graduation I joined Future First as a fixed income trader. I used to create fixed income market mainly in the US and European region. So during my college life also I was sort of involved in a couple of startups.
00:02:44
Speaker
wanted to create some basic problem statement and wanted to create some solution for the consumer, for some B2B business. So I think that some angle of startup was there in my mind. Our trading was also quite a startup kind of experience because you are solely responsible for your personal PNN.
00:03:01
Speaker
So I spent two years, I actually came from a poor middle class background family. So basically money was some first angle that I wanted to clear out in terms of my personal loans, my father's debt, those debts. So I think two years that gave me a good opportunity to sort of become stable and do something on my own.
00:03:22
Speaker
and that was the time I was sort of confident to take a risk. So 13, I joined Chios as their founding team member. Chios was very early, couple of upgrades. Chios I just opted because of my self personally interest in food, beverage, like I'm an enthusiast around cooking and cooking. So I joined Chios, knew nothing apart from what kind of work I'm getting into.
00:03:45
Speaker
founder who is Nitin Saluja. So he is like here, okay, you can go for the operations kind of background, which always need a person where you can manage a lot of people. People background could be from down labor kind of people to a very senior kind of people. So that's how I got myself into the operational background.
00:04:02
Speaker
So during my child's days, I was responsible for setting up of their outlet supply chain, basic operations, in-store operations, kitchen to supply chain, those kind of thing. I think after one and a half year, my major understanding that I wanted to gain from the child is to learn how to scale a business, how to start a company, how the startup ecosystem behaves, how do you raise money and those kind of thing.
00:04:27
Speaker
So after one and a half year up, we raised money from Tyher Gugal. So I was confident enough to move on and to start something on my own. So 2015, I co-founded a company called PlusApp.com, which was an online medicine delivery space. We raised a million dollars. We expanded our operations to Hyderabad, Dagu, Dalitsia. And it was more of a hyper-loper play where we enabled all the retail pharmacy stores and created a
00:04:52
Speaker
created a supply chain where end user can deliver medicine within like 30 minutes. So that was our initial idea. I think 2015 we got ourselves into the same market ship where people from GMV started questioning about GMV approach and focusing more on the profitability and new economics. So for us to pivot to scale our business with that new approach needed some good amount of funds. I think that is where then we explored options of merger.
00:05:21
Speaker
So, we received options from couple of industry leader and we got acquired by Netmits. So, we sold our company to Netmits. How was Netmits model different from your model? Yeah. So, Netmits was initially delivering their entire medicine from single warehouse that was Chennai.
00:05:36
Speaker
So, they were like inventory-led model. Yeah, they were inventory-led and against their competition, which were like FarmEasy, 1MG, which were more of quick delivery play. So, I think Netmats was struggling to deliver seem to delivery in lots of major, better cities.
00:05:52
Speaker
And FarmEasy and 1MG, are they also inventory-led? So 1MG, that point of time was a mix, I think a mix of inventory plus a partnership model. FarmEasy was purely, basically FarmEasy started a more backward integration where they initially onboard a lot of retailers and wholesalers.
00:06:12
Speaker
and they also created a forward being when they onboard a lot of detailed pharmacy and they used to deliver their medicine from those channels but they used to refill their inventory, refill whatever they consume and they used to give them some incentive. That was a very good model. I think Netmet was pure inventory like model delivering pan India from single warehouse. So we created a pure inventory and pay only at Netmet but we created a hub and scope model. So we created a lot of
00:06:38
Speaker
So, we created two other warehouses, one was in Chennai, another in Delhi and then we created some small warehouses in Hyderabad, Bengaluru, Kolkata, Yarmulbhai, those areas so that all the micro-cities can get their medicine delivered on the same day and the remaining areas can be fulfilled at least in total credit. Do you think you took a wrong call of being an aggregator instead
00:07:01
Speaker
of owning the inventory. Like you were essentially your, what was aggregated, right? Like you were stocks. When we started, we used to share the same poverty place. So Grofords founded by another like, so we
Exploring Car Leasing Opportunities
00:07:13
Speaker
used to share. So Grofords was one of our initial B2B partner of Chives. Then Grofords invented their model of this hyper-lupine plane and delivering groceries to their approach. And they received a good amount of earnings. So the hypo-local was something at that point of time.
00:07:28
Speaker
flavor of the season. Exactly. So basically, when I was exploring the idea, so my other go counter ati, so they were like, you're okay on medicine, the subject, which gives a good angle and the online pharmacy is something again, where a lot of people are putting their money in and I saw the hyper-local play, how growth was pivoted and how the growth was coming better to aggregate more. So I said, why not apply the hyper-local thesis on the pharma vertical.
00:07:54
Speaker
and that gave us immediate funding so this entire thing along with our team everything we received I think couple of months we received our first million dollar funding so but I think I think immediately suddenly that 2015 the sentiment shifted from those GNV approach to profitability I think I think we got stuck in that phase
00:08:11
Speaker
and eventually for setting up an inventory land water unit and so and at Netmeds you were largely like in a COO kind of a role like it's like looking at operational efficiency yes so I was responsible for operational supply chain at Netmeds so my initial loans I almost spent a year at Netmeds immediately to set up their entire supply chain so I set up warehouses across different cities enabling new supply chain efficiencies which can bring their competitive edge along with their competitors
00:08:41
Speaker
So I think after one year my media job was there and then again I wanted to explore. So I learned a lot of things from understanding or being into the operational background. So I've always taken up those kind of challenges where to create something you need to be strong on the operational front. The technology becomes enabler. So my background comes from that angle. I was not a tech
00:09:05
Speaker
oriented kind of a founder. I wanted to explore those kind of problems which people are not able to solve just by technology. And there are a lot of operational benefits or operational efficiencies required. So after NetMits, I joined a startup studio called T9L as a resident entrepreneur to provide consulting support to some of their portfolio companies in the healthcare space, in food tech space, but mainly buying some time for myself to explore new business ideas.
00:09:35
Speaker
So, I think that the used car was never in my mind because my understanding of used car is that point of time was here, a lot of people have already into the used car. There are old age players, players like Karneeshan, Mahindra, Maruti, these kind of players, then Karthik, who Karthik, lots and lots of people are there. So, I was working that point of time more in the farming space. My idea that point of time I was working more interested. In the OQQ farming is again
00:10:00
Speaker
where the technology is one angle but the operational challenge was there in the farming or the agriculture ecosystem and I wanted to build an organic layer which creates a D2C brand play of organic goods which can be directly delivered to the end user so that was the idea was working I think Ustar as a problem came very interesting naturally you know made also made a good sense to my entire personality and entire friends I found this is one of my friend over there a designer was looking to buy a luxury car
00:10:30
Speaker
that point of time. And I was in the idea that car you can easily buy from any, there are a lot of marketplace, there are a lot of spinny was there at that point of time, cars and deco products were there, a car that you can easily buy from any, there are a lot of marketplace, there are a lot of spinny was there at that point of time, cars and deco products were there, a car that you can easily buy from any, a car that you can easily buy from any, there are a lot of marketplace, there are a lot of spinny was there at that point of time, cars and deco products were there, a car that you can easily buy from any, a car that you can easily buy from any, a car that you can easily buy from any, there are a lot of marketplace, there are a lot of spinny was there at that point of time, cars and deco products were there, a car that you can easily buy from any, a car that you can easily buy from any, a car that you
00:10:57
Speaker
Nobody was addressing and even someone who is willing to spend a B.S. purchase like a bank, outcome was very, very not supported from the consumer perspective. The warranties were not their financing of luxury car. No bank were able to find a huge luxury car.
00:11:15
Speaker
What confidence you are getting into a 2025 lakh rupees transaction and maybe after one your car can give you lot of trouble. So that was the idea and then it was a surprise to me why there are no options which gives me a single platform to own a car without worrying about all the hassle I'm ready to pay.
00:11:38
Speaker
spent big amount. So that was the initial problem and then I started researching about the used barico system and it met the same criteria. A lot of people invested a lot of not only technology like car, vehicle, battery and all this play a lot of technology but the outcome from a consumer perspective was not there in terms of warranties, in terms of hassle free ownership, in terms of financing. A user is purely relying
00:12:03
Speaker
on his own or the dealer partner who help you figure out a car, maybe you organize till now, till they give you a car with a basic work of six month that then help you get a finance from the banks, but banks are not in their control. Banks decide which car they want to find, which car they don't want to find.
00:12:23
Speaker
What is the LTV? Everything ends for the bank understanding. After two years or three years, when you are done with the car, then again reselling, you have to go out C2C platform or who elects star 34. You sell your back. So if you look at from a user journey.
00:12:38
Speaker
The entire responsibility of car management, maintenance, all the rest associated with the car remains with the user only. So that was the idea I found. And then I thought we had a big observation that we identify in the used car.
00:12:53
Speaker
that the average ownership of a used car is reducing. Currently, the average ownership is only 2 years. And in Uganda, it's 4 years. So our thesis is that if the average ownership is only 2 years, then why should a person buy
Corporate vs. Consumer Leasing: Opportunities and Risks
00:13:06
Speaker
a car? I shouldn't technically own a car for 2 years. Someone else should take care of everything in terms of car quality, service, maintenance, purchasing and so on. That was the idea.
00:13:16
Speaker
And then I got to know the leasing, the leasing place. And then we found in India, there are a lot of leasing companies, but they are only limited to Nuba. And that again, you gave me a surprise to why nobody is looking at a two-star. And then we founded all the leasing companies, majorly, globally owned companies. So they come with their global win rate, global SOP. They have a fixed proposition.
00:13:37
Speaker
releasing only vtubi limited to top youtube companies at all. So that was the initial thesis I found. So I, I started PuffGum in wit 2018. Initially with the idea of creating a subscription round used car and first concept, concept level understanding, we wanted to create something.
00:13:55
Speaker
then where the end user can simply get the card delivered so we wanted to do a POC so we took a debt, family, friends, 45 lakhs then I took some debt from the bank and then I think we delivered some 40 cards and then I was confident enough that this model has clear-cut validation and clear-cut demand from the user perspective and mid-19 we full fledgedly rolled out the per per per subscription blade I think December 19th I think once we secured the first round of funding okay bye bye
00:14:22
Speaker
Wait, let's get Samir into the story first. We were by this time. Exactly, December 19th is where I met the Samir actually. So Samir, please. So one request, your phone is ringing. Yes, tell me your origin story here. Yeah, so I've been born and brought up into a simple Punjabi joint family in Delhi.
00:14:47
Speaker
typical 1975 is the model that I am. So, it was a simple Punjabi family, a joint family. Everybody was into service. Never anybody had ventured out into business. So, I went to a school called Spring Data, which is in Dalagwind. Did my schooling from there. Went on to do my graduation from Delhi University in economics. So, I'm an economics graduate from Delhi University. But then my MBA was a simple lifestyle.
00:15:09
Speaker
Started working way back in 1999. Initially, seven to eight years were in training and consulting. So I worked with companies like Hero Mind Mind, which is part of the hero group, but get into training and consulting and not typical manufacturing as the hero group is known for. Then worked for a company called NIT because at that point in time, computerization was the mainstay, right? Everybody was wanting to get into computers. So kind of and I've always been into sales, right?
00:15:33
Speaker
So 2007 onwards, I joined the auto lease industry and since then have stuck to that industry. So I happened to work with the world's largest leasing company, which is Lease Plan in various capacities for eight and a half years. As Tarunthi, you know, leasing has been prevalent in India since 1999. However, still in 2007, the back, the challenges were huge. I mean, people never understood what leasing is all about. So either people knew an outright purchase of a car or they knew taking a bank loan.
00:15:59
Speaker
There was never a third way of owning a car. So leasing was something which was very new. The few challenges which we faced initially to actually train the market or to educate the market about what leasing is all about. So we did that. Now in 2015, I moved on to a company called AVIS. AVIS is part of the ABG group globally, US, which is in almost 160 countries.
00:16:18
Speaker
And in almost 55 to 60 countries, they also run an auto lease portfolio. So I was heading that as part of the management team. That kind of made my understanding very strong around the leasing thesis, because I got to know the 360 degree view of how the business looks like, both from the operations side, finance side, sales side, structuring and various things that are required to build a business around that. That was around three, three and a half years, then moved to a company called Clicks Capital.
00:16:42
Speaker
Clicks Capital is an erstwhile company of GE. It's an erstwhile GE capital, promoted by both Bhasin and Anil Chabla, both founders. So there I was part of the organization as vice president for automobile business, looking after used car leasing and used car loans. So you're saying that used car leasing already existed? No, so it was used car loans and new car lease. All this wise that I worked with, as Tarun told you, most of the organizations are only stuck to new cars.
00:17:06
Speaker
Only we took corporates, right? I don't think as an individual, I can get a car. Absolutely. It was a B2B. However, used car, no one was more to the individuals. It was individual, but corporate was the way that auto leases were sold in this country. 2019, calling mid-age crisis, I completed 20 years working, always wanted to do something on my own. And because of my last experience, nothing apart from auto lease. So my last 12, 13 years during that time were already spent in that, and I was very sure to start something in that region.
00:17:36
Speaker
That is where I left my job, started consulting a few people. So I've consulted Car Deco for a couple of projects. I consulted Rev there into car subscription, just like Shink cars. Happened to consult them for some time. And that is when Ayant Tarun met. The idea was astounding, because all this while that I've spent in this industry, people have been asking this question that, why can't you provide me a used car instead of a new car, if I so desire? And if you also look at it, Akshay, the market for used car is almost 1.5 times the market of new cars in terms of number of units.
00:18:06
Speaker
Yet, there has been not a solution to provide this. And Tarun and I discussed it at length. He already had a few cars, which he's already done. There was already proof of concept. I wanted to start something on this one, and that is how we got together. And I always had a flair for only growth, looking at various partnerships. Tarun had his hands strong in operations. So I think it went out to be a perfect combination for both of us to really build compound.
00:18:30
Speaker
And why is car leasing offered only to corporates? Is it that the underwriting of our individuals is difficult and hence? It's one of the underwriting criteria. All the leasing companies that you've seen today, all in large names, have their global headquarters. They are very risk averse. I mean, they would want to not go into the retail market. That's one. But having such that, Ache, even if you look at the retail sector, despite having a huge demand for new cars, leasing really doesn't work because, see, leasing lies in a situation where there is a risk of ownership.
00:18:59
Speaker
In a new car, typically there is no risk of ownership. So banks will give you loans happening. Risk of ownership? What is that? Risk of ownership is when you are not clear in terms of what am I going to spend on the journey of this car. So if you take a new car today, all the OEMs are giving you back-to-back warranties. Banks are giving you 100% funding. Most of the OEMs are also giving you a buy-back guarantee.
00:19:21
Speaker
Which means whatever was supposed to be a risk of ownership, the audience are already doing. Why? He chose corporate rotates because there is an additional benefit of tax. So it is tax friendly. So it went through the corporate route and it was from the underwriting criteria very good for these VC companies. But used car was very different. There was a real risk of ownership. It's like a black hole. So we always say buying a used car up till pump pump came was like walking into a hospital without health insurance.
00:19:47
Speaker
So it can go either ways, right? So you can buy a good car, you cannot buy a good car. So it's a risk. So that is the leasing trade. Very relevant. So what was the model? Like how did you price it like you did a pilot? So maybe you bought a used car for 10 lakhs and how did you price it on a monthly basis? What was the, I mean, just tell me about that, like the details of that pilot.
00:20:08
Speaker
Five was very simple, so we did a very simple initial customers who were interested in the idea. So they were very simple approach. YOGA, let's say if I buy a car of 5 lakh rupees, after two years, the market, I'll be able to fetch 2.5 lakh rupees of the same car after two years. So they know YOGA 2.5 lakh is the depreciation cost that I have to pay for the car.
00:20:30
Speaker
And then obviously for let's say the duration two year you will do a two week insurance, annual insurance. This is your kilometer, average kilometer understanding for one year, which is around 10 to 50,000 kilometer. So there is going to be a three schedule surveys basic. So we factored in those simple, simple past.
00:20:46
Speaker
and the depreciation cost along with the interest on foreign, okay. For example, if you take a low on a 5 lakh, then obviously you will pay interest on the total 5 lakh amount. Here what we are saying, okay, you will get the principal recoveries are going to be of 2.5 and the interest on. So, putting up all these costs together, that was the simple approach for the customer.
00:21:06
Speaker
For the retail, we used to give him a cost comparison. There is going to be 10% cheaper lending opt for a subscription or leasing. Because of our involvement, we bring the economies of scale into the play. Whatever cost that a customer is individually is going to pay, our cost is going to be lower. You take it from the procurement. If you're buying a car as individual, obviously at a sale, I'll buy the same car at slightly lower price.
00:21:32
Speaker
The service maintenance is going to be lower, the financing is going to be lower. So we make our money out of those margin that we create and we pass all the benefits to the user also. So the user clearly technically it's a cost effective and without any risk associated. What is the product for a user? He gets monthly like all maintenance is your headache. What about fuel? Just describe the product. Who pays for fuel? Who pays for maintenance?
00:21:58
Speaker
So actually the entire lease rental that we're talking about monthly EMI covers your insurance for the entire tenure. It covers your maintenance, tires, batteries, scheduled maintenance, unscheduled maintenance. It also covers certain value added services like pickup and drop, which means whenever you want to send your car for service, our shopper will go pick up the car and drop it back. So these are the value added services which are all bundled.
00:22:21
Speaker
All you need to do is fuel it according to your mileage and drive it. So as they say, fill it, shut it, forget it. It's typically that model. We're in a art from fuel because it is dependent on its usage, which is also obviously designed upfront. That is how the pricing is device. However, the fueling and rest, everything is left to us to take care of.
00:22:39
Speaker
In our costing, we always factor in the costing from an average. So obviously, there are some cases, 10-20% are going to be some rash driver, there are going to be some of those kind of driver, but we have a very clear cut, wear and tear policy, in terms of users policy. So you can't use these cars in rallies or sub-adventures, those kind of things. So the end use case is defined. Does a good driver and a bad driver pay the same?
00:23:06
Speaker
because the maintenance cost would differ according to quality of driving. So, generally the uses are defined in the contract. For example, you want to take a word here 50,000 kilometers. Now, there is a guidelines of vehicle usage. So, for example, what is covered? So, there is like a minor stretches or regular uses are technically covered in all the scenario, but anything which
00:23:29
Speaker
gives an indication because of abusive users. For example, you drive a car in that way, if a brand new driver gets totally out at 5000 km, then obviously there is a direct relation to the user driving. So, those are the additional corner cases, those scenarios are defined in the user's policy.
00:23:49
Speaker
So if a regular driver is driving the car in the regular way, technically nothing to worry about. But still average users, because in India it's not something like the roads, those are the things. So we have already factored in those kind of the costs in our maintenance package. So 99% of the cases we don't have to worry about.
00:24:08
Speaker
So, end of 2019, you said you did your fundraise.
Funding and Business Model Evolution
00:24:11
Speaker
How much did you raise and whom did you raise it from? So, first, immediately from the Syndicate platform, we raised two and a half per hour to let's venture mainly and then one year later, then we raised our own subsequent round.
00:24:24
Speaker
The first round of partnering was through LV and some group of individuals that they onboarded. I think there were a lot of business-wise, strategy-wise things that evolved after we reached the winning. The first round of partnering, whatever the idea we had
00:24:39
Speaker
The way we wanted to scale this kind of business, we did a lot of challenges. I think first round of funding, I did 3-4 months, we faced the COVID outcome. And the COVID in some ways supported this kind of business play because a lot of demand for the personal car started after the COVID scenario. But the challenges were more on the demand remains always high.
00:24:59
Speaker
in this business model. The challenges are more on the financing side, the FinTech side. How you are able to fund let's say if I have to buy 100 car then obviously you can't use the liquidity money to buy the 100 cars and that is where I think our initial effort started. I think first we were able to convince ICIC like shown confidence in the model and they funded our initial line of money but then banks will always come with a limited
00:25:25
Speaker
Does a bank fund individual card like would ICICI give you money for every card you bought like they would ask you to submit documents for each card. So overall assessment underwriting is done on the company base they give us a revolving credit line however the documents obviously is done on a car to car basis. The underlying security is the card for the banks.
00:25:45
Speaker
So if you're buying 100 cars, then essentially you're getting 100 car loans from ICICI bank in a way. Yeah. Yes. Okay. You were saying that you needed lending or you needed lending partners to help you scale. So ICICI came on board. Then we initially thought, okay, for a bank, it's a beautiful play because right now when banks fund in a used car, banks generally treat used car as a risky category. Even though there is underlying security, but the eloquencies or the defaults are very higher than a new car.
00:26:15
Speaker
and what we identified that the majority of the loans, the default in the loans not because of the credit behavior or big credit issues, they were majorly because of the asset failure that people start showing default indexes because maybe after one year my vehicle needs a one lakh is requiring maintenance.
00:26:33
Speaker
They know that after spending this much of money, there is no guarantee that this vehicle will not ask for more money. And then there is a principle outstanding and those kind of things, which leads to a delinquency kind of nature. So we believe that when we are taking care of this entire service maintenance thing, then obviously the delinquencies are going to be way lower and then banks should give us infinite money.
00:26:53
Speaker
This is our demand. But obviously banks don't work in that way. They will always leverage our equity versus debt. And then we started getting into that problem where our equity was like 2.2 and then obviously beyond a 5-6 year, no banks will go to 40 debt.
00:27:09
Speaker
So that is where I think we pivoted from asset-heavy to asset-like. And then we started now more working through a FinTech kind of approach. Because the more demand, I'm only able to fulfill the demand if I have the right supply in terms of financing. Whether the supply from the car purchase, those kind of ecosystem are well-created, or the demand is there both from the corporate world, from the retail world, that we are clearing the biggest
00:27:33
Speaker
question why it is around the financing. I think the entire initial host whole way. The asset light shift helped us grow 1000% in last financial year. So we created a model in Jambay. What is the difference between asset heavy and asset light model in your business?
00:27:57
Speaker
For asset heavy, you need to put in like maybe 20% of the car value and 80% can be financed, something like that.
00:28:07
Speaker
Initially, it was, but now over a period of time when brands have also got the comfort of seasoning with us, we don't need to put in beyond 5% of the money for any car. However, having said that, when we take these cars from our financial partners on an operating basis, it basically means it is on their books, which is not on our books. We just value add and give it out to the end customer.
00:28:26
Speaker
They would buy or you would buy and tell them, okay, this car I'm buying on your books. They would buy, this is our assessment. So we have the customer who looks at a car, we assess the car and then they buy and they continue to treat it on their books the way they have to depreciate. And we further sublease those cars to our customers. So we'll become a light in the process. So the difference is only that 5% of your own money that you have to put in between these two models.
00:28:49
Speaker
Not only 5%, but also it makes us asset light. See, okay, as you said, if banks were to fund me directly, I mean, there is a limit, there is a concentration of risk that happens, right? How, how, for how long can they, they can't fund me for 1000 crores. But if I'm multiple lenders at the market,
00:29:05
Speaker
Why not? I mean, you could work with multiple NBSCs and get 1000 crores each month. That's what we are doing. But this is a mixed match. So what means is, if there are people who are taking the risk on their books or buying these assets on their books, my concentration of risk problems also gets sorted out. So if I tomorrow immediately need, say, 20 crores or 30 crores of death in one month, a bank may not be able to support me. But yes, these leasing partners and these lending partners can support without actually coming on my books.
00:29:33
Speaker
So it's essentially like a mix, like these are different channels and you want to maintain a healthy mix between different channels. And what is the split, how much is where it is not on your books and how many of your cars are not on your books and how many are on your books? Almost, I think 60 to 70% would not be on our books now, 70%.
00:29:55
Speaker
Firing initial ones that we purchased were on our books. And there are some cards, some pages obviously with banks, lines we can't deny. The rates are better. Obviously the excess with banks from a long term perspective is definitely not fair. So we always, I think we believe it is going to remain in a mix of 60, 70% remains asset light, maybe 30, 40% remains with banks, which come, which give a comfort and don't create lots of less concentration on income.
00:30:25
Speaker
So your margins would be better when it's on your books, right? Because you would probably, anybody who's taking the car on their books is earning that extra margin, which you are having to build. Absolutely. The margins are better. We get the benefit of depreciation as well. However, there is a limitation, but as he said, Tarun said, we've maintained a healthy mix and we want to come.
00:30:44
Speaker
that will be growing as well. Tell me about your procurement process. How do you ensure supply of good quality inventory? I would say that in any used product market, it's all about supply. If you have good supply, then the demand is there to tap. So how do you ensure good quality inventory?
00:31:05
Speaker
So if you look at our supply chain partners, we have almost all the institutional players thoroughly tied with us. There are these platforms. What does that mean? Institutional players? Institutional players like OLX, cars 24, SPIRI, we take cars from them. We also take cars from our new car leasing companies. But our credit, the assessment of these cars is very different from where a trader would assess that car.
00:31:27
Speaker
where a trader assesses that car or typically a cost 24-wheel assesses whether this car is good enough to be run for the next three to four months and is it at a right value so that it can be played at a better value. With us, since we are taking a risk for the next three to four years on that asset, the core assembly of the car is more important for us.
00:31:43
Speaker
We assess the car very differently. We have our own individual assessment criteria. There is also an assessment app. There are a team of investors who go out and assess the car basis, the requirement that we have. So hence the kind of supply that we are chasing is very different from what traders are chasing.
00:32:00
Speaker
So for us, it's very simple that the car has to run well for the next four years, three to four years. The risk is mine. And that is what also gives confidence to my end customers that instead of they haggling for the right car, they have an expert who's going to take that risk. So it is in their interest that they get me a better car. So it works out very well from there.
00:32:18
Speaker
From that, we also have a dealer model wherein all the large dealers can list their inventory with us, which is already pre-approved, which means these are pre-inspected, pre-approved and can be offered to the end customer as a lease or a subscription. So this is the entire channel how we operate.
00:32:34
Speaker
So, help me understand this dealer model. So, you as a dealer, if you have 20 cards, we pre-inspect out of which five qualify for our lease program because the cars are good. Those cars can be listed on a platform wherein a person can come, choose, and there's already a price available. And the moment he says yes, we immediately go ahead and procure that car because we know where it is. So, we run an inventory life model. Typically, we always run an inventory life model. We don't want to keep an inventory with us. It's just when the car comes, we will buy the car.
00:33:01
Speaker
Yeah, I agree with you. It makes no sense to buy in advance because each person would have their own tastes and preferences and what color, what model and so on. And actually, that's the basic difference between a car rental company and us. In a car rental company, you first have a car, then you hunt for a customer and the customer has a very limited choice.
00:33:19
Speaker
Without it's the other way around. I first have a customer, he chooses his car and then we go out and buy the car of his choice. So you're actually acting like a concierge for the customer. The customer would probably share with you his preferences and then you would go out, identify, share some options with him. Tell me the customer journey, like what is the customer journey like? So the customer right now comes to our platform. They give us the idea.
00:33:44
Speaker
Virtual cars, there are some dealer partner car which are listed on our platform. User selects the car as per is requirement. What do you mean by virtual cars? So virtual cars are basically like, so we used a 2015 Swift back for example. We also listed 2018. Okay, okay. Which you are confident that you will get those cars? Okay.
00:34:04
Speaker
So, those cards which are commonly available in the market plus the dealer real cards are also available on the website. User selects the card simple that give us a very simple token money in order to show the commission that is willing to take the card on the subscription. There is a credit check instead upload of his banking and we run a civil check
00:34:44
Speaker
And this entire process is done within 15 days, at first 15 days from the time he chooses to commit his deliver.
00:34:51
Speaker
Okay, so what would be the monthly subscription for say like a 2015? Like 2015 monthly ship going to be some 80-90 thousand rupees approx. How does it compare to the EMI cost if like for a customer like what is the maths for a customer? If a customer was to think that okay let me buy it and take a loan and pay EMI versus let me lease it. What is the maths for him?
00:35:14
Speaker
If you typically look at a Swift 2015 will cost you around 4 to 4.5 lakh rupees in the market, market retail price almost 5 lakhs. If the usage was to be say 12 months because our product is available for 6 months, 12 months and 24 months. If you were to take a loan for 5 lakh rupees for at best 24 months, your minimum EMI that you would be paying will be around 25,000 rupees and this is just the EMI that I'm talking about.
00:35:37
Speaker
On top of it, you need to get the insurance done, you need to get the repair, maintenance and everything with us. And the use case is only two years. He only gets to pay 18,000 rupees a month. Everything included by his car gives it back to us. End of two years, either he upgrades or he's going to another city, he can take another car. Everything is possible. He wants to extend the lease. Extension is also possible.
00:35:58
Speaker
So it's typically 10 to 15% lower than actually taking a car or buying it himself and then disposing after 2 weeks. Here also there is a good consumer angle. Like Samir mentioned, the user actually goes for a 4 year loan. Because they look at the EMI. If I am planning to buy a 5 lakh car, then I know my monthly spending capacity is 14-15,000 rupees. Then what I will do? I will do a 4 year loan or a 5 year loan.
00:36:25
Speaker
But average data of ownership says the user keeps start for 2-2.5-3 year max. So the user actually passing on current problem to the future. After 2.5 year technically you cannot sell your car. The user look at the EMI and I am paying 14-15 thousand but after 2.5 year there is going to be principle outstanding.
00:36:45
Speaker
and you got close you got sell your car first you have to clear off the load then only you can sell the car so that's the complication that people get into when they take a load slightly lower to the duration but they are actually planning to own so the subscription perfectly meets the criteria of the usability and you'd be actually 49 that you are using the car
00:37:08
Speaker
The cost of ownership overall is lower through leasing than if you buy, maintain and sell. So that maybe a 5 lakh car you will sell in 3 lakhs. So that 2 lakhs you spend over 2 years plus maintenance and all of that. So that will be higher you're saying. There could be major issues also whether you buy a 5 lakh car, assuming a normal scenario. There could be a other user market in the very grey market when the meter back
00:37:34
Speaker
There are some issues which are very major, but at the time of purchase, just try to rectify those issues that they are not visible, maybe for 3-4 months, but they will come in your life. So, those things also lead to your future life. It can be anything. So, nobody is securing
00:37:53
Speaker
You're pricing. So if you're taking a car for 18,000 for 12 months, then you are sure even car needs an engine replacement. It's not going to go out from your pocket. You're cost of 1 year remains same.
Consumer Benefits and Technology in Leasing
00:38:06
Speaker
Got it. I think essentially the biggest value add for a consumer and if I was a consumer would be the risk that you're taking off the table.
00:38:14
Speaker
Even if there is a price differential or even if there's no price differential where that risk is a big deal Got it. And you raised another round in 21, right? How much was that? The next round then we raised around 6.5 crore. That was I think mid-April 2014. And we recently, I think 4-5 month-life, we raised $2 million in huge security and some venture debt put together.
00:38:39
Speaker
So what are the things that you need to unlock to grow 10x? What are those challenges in front of you right now? So I think visually was the financial partnership. I think now we are very confident with the kind of base ecosystem that we have created. The lending as a problem getting sold.
00:39:00
Speaker
And now the demand is not a problem. So we are both in corporate entity. Right now, we are only in huge economy. So for even us to go 10x, whether we can immediately start our services in Hyderabad, whenever we go to the other metro cities, very easy. The demand is definitely there. Plus the corporate side is
00:39:19
Speaker
is still holds human's potential because there is a clear cut precedence of the base level which already be established from the new god leasing company. So all new god leasing companies jointly put together they have a active fleet of 1.5 lakh car and which is even because of their in every I'll say limited scenario
00:39:37
Speaker
where the eligibility or the auction available for Carly's only VP and above like top 10% because of the long term requirement of 4 to 5 year. The adoption, even though there is a tax benefit, lease benefit, but the adoption out of those 10% still remains very low, not more than 10 to 15%.
00:39:55
Speaker
So technically in the top blue chip companies 1-2% is the least penetration. What we have seen in our offering, companies are very comfortable opening our policies to talk 40-50% of their employees because that is where the entire used car ecosystem makes sense for larger audience.
00:40:12
Speaker
And there are only leasing traditional issues that generally companies use in terms of launching lease policies. We have very much simplified our leasing proposition for the companies. So now even a startup, a 500 startup can simply open a lease program for their employees because it gives them a good retention tool for the company. It's a very HR friendly or HR
00:40:36
Speaker
which they want to rule out for their employees. So what we are seeing that companies are technically opening our policy to 40-50% people and used car is something where usability is not long in a 1-2 year. So demand is also almost 8-10x higher than what a new car leasing companies are having in the economy.
00:40:54
Speaker
So, these aren't the good channels plus retail remains a very huge opportunity. But right now, retail basically because of our direct exposure on the user. So, we keep our major focus on the corporate. So, I think 70-75% of our current portfolio is through the corporate lead. 25% is the retail subscription because
00:41:12
Speaker
The risk of default remains with pop up. We only underwrite highly credible user goods and reach people only. But now we have some plans to create a model where simply the risk can be spread to different lending partners.
00:41:30
Speaker
Okay, instead of me taking risks, people will take risks on the retail user and those are some future plans that we are working out. But remaining with the corporate and the existing play, we are confident with the current rule 3. I think we will touch 10X, maybe a couple of years, very easy. So your corporate customer acquisition must be happening through like a sales team. How do you acquire retail customers? So retail customers are through the digital journal. Basically, digital marketing is cooked ads. Yes.
00:41:57
Speaker
So an obvious lease plan is 24 months. What happens after 24 months to the car? So the car, there are three options that the user has. Either he can surrender the car and move on. He can surrender the car and upgrade. He can extend the car. All three things are possible. What we have seen as a consumer behavior, almost 85% to 90% of the people whose leases have ended have actually remained our customer, which means either they have upgraded or they have continued to use the car.
00:42:23
Speaker
There's hardly been a person who's once driving a leasing car has gone back to owning. I mean, that in my entire career. So I haven't seen many people. Once you start driving with that comfort and with that kind of a thing, you really don't want to own a car. If somebody surrenders a car, then what does it get reused in the platform or do you sell it or like? It gets redeployed. It gets redeployed. It comes back to us. It is refurbished once again. It is cross-checked for every parameter. And based on it, if it is ready for deployment, it is up on our inventory list and our sales team is free to redeploy.
00:42:53
Speaker
So, what is the role of technology in this business? What are the touch points where technology can make an impact? So, the users are basically the onboarding of the users, the entire thing remains from the partnership perspective. So, what we are building to our workshop partner, to our dealer partner. So, we are giving them basically a dashboard that of thing where they can simply upload their inventory.
00:43:17
Speaker
We have an in-house inspection, basically 2D vehicle inspection. The retailer gets a verified report of their vehicle also, which they can use for their sale purchase also. The workshop partner gets a regular business with a couple. They have a clear-cut understanding of which car coming mapped with that workshop so that the repeat job can also be assigned to those workshops. Basically, there is an IoT device which is enabled in all the cars. It's a GPS-enabled device which helps us monitor the vehicle health also and the user behavior.
00:43:47
Speaker
So, the kilometer can be monitored on a monthly basis. The driving pattern gives us the indication whether a user is good driver or bad driver. So, those are the things which are basically we have also created a driver spore also. That is right now for internal use also. So, our system knows okay it's a good driver bad driver. We can actually give on give up incentive to good driver also and by driver we can keep a watch.
00:44:12
Speaker
on those people and initially we used to do the OBD device that's all onboard diagnostic device which used to give all the health parameter likes your engine temperature your vehicle performance parameters whatever things you see on your dashboard everything so gets monitored in real time so our idea is to use that device to basically get a preventive approach in terms of vehicle maintenance instead of some minor issue which can
00:44:39
Speaker
possibly leads to a bigger issue ending up with a high amount of repairing maintenance. We can actually identify issues at source and rectify the issue without adding a high spending on the service and maintenance. But the challenge that we face in the OBD device that the current OBD device are majorly designed from the suite operator perspective, which only wants to do the geofencing or the driver monitor
00:45:05
Speaker
But they are never designed from a retain or an individual perspective. And the compatibility of these devices are also not very friendly. So what we have seen, even we have nested one of the best ones, but they are not compatible with all the cars. They are compatible with 50, 60% of the car. So that is what we have done. We have stopped, used the OBD device, still tight, be able to receive good amount of funding. So we can deploy some coins on the R&D side of the OBD device, which we can create for our own purpose, which can actually
00:45:35
Speaker
enhance the user's safety, enhance the vehicle performance also. Users are unnecessary getting stuck on some highway. It's better if he gets obtained outside possible, which can lead to a shoe. So the idea of our technology is to make the vehicle fully kind of like tech enabled. So anything, it's a car, the car can go wrong. But our idea, whatever the best form of technology we can use, so the user experience remains seamless throughout
00:46:01
Speaker
Like, if there is a breakdown of a vehicle, then the user will just call you and then it's your responsibility.
Growth Strategies and Partnerships
00:46:07
Speaker
Absolutely. There is a 24-acre-7 roadside assistance already available. He can just, R can be talked to the nearest workshop and he can go back home safely. So that's not an issue. Everything has been bundled into the price.
00:46:18
Speaker
that we've already done for it as an end price. So the idea is it's not only about maths, it's not only about ransing, it's not only about risk, it's also about convenience. I mean, there is a huge amount of convenience with it. We've also seen especially a lot of interest from women drivers. I mean, generally women who are travelling, students who are travelling, once they get stuck, it's a beautiful model when you don't have to take a risk on anything. And your usage is very, very limited and for a very limited period of time as well.
00:46:44
Speaker
So that is where this this entire bundled offering takes takes really makes a lot of sense. What is your fundraiser pipeline looking like? So that seems to be like the key unlock to really grow 10x, right? So what is that pipeline looking like for you?
00:46:59
Speaker
So currently, basically in the market scenario, the funding plans, we have taken this decision, okay, maybe for six to one year, we remain focused on our core parameters. We want to make this entire piece right before we see. We are continuously focusing on the profitability. So we are already a bit of a profit team. So funding in this kind of business is not, so we are not earning a lot of money. So technically for our current business, we don't need good amount of funds. What we are planning maybe for a year,
00:47:29
Speaker
to focus on the profitability and to scale in our current territories. So that once the current market scenarios, they recover the kind of amount and kind of value that we are seeking. So we are planning to use our ask at the right time when the market conditions are upward and unlike the burning models, we don't have to rely on the funding mode. So that is
00:47:54
Speaker
That is one key, but the approach we always take internally, if a single car is not making money, then it's better to keep the car idle. We never give out any car if it gives me a burn or use. This time also gives us the opportunity to assess the risks that the business carries.
00:48:11
Speaker
We are continuously monitoring the risk and also taking steps both in terms of operational efficiency and compliance to cover our risks as far as possible so that once we grow, we only have the focus on growing and nothing else. Rest everything is sorted out. So this gives us a wonderful opportunity for the next six months to one year to do that.
00:48:29
Speaker
Okay. So you mentioned a lot of plan to reduce the risk on your books. I'd love to learn more about that. Yeah. See, it is still under process. So what really happens is we are looking at a model where in the end risk, the way we have just done for leasing for ourselves is something that is also passed on to the lenders in the retail sector as well. Right. So, so which means we don't have to worry about standing up. It's an individual to do that.
00:48:51
Speaker
But that's still under process. I believe actually too early to talk about that. But yes, that's a model which obviously will shape the future of going into the retail and will also pave the path for us going into retail.
00:49:03
Speaker
That would essentially be like a matchmaking service. You would find a lender who's willing to, or an investor who's willing to fund the car for a particular buyer profile. And you would probably have some sort of a platform fees for enabling that matchmaking plus the maintenance and all the operational work that you will do, something like that.
00:49:22
Speaker
When we said our core will always remain to us, we will be underwriting the car. I mean, we will be taking the risk from the ownership. It's just about a matter of how we can scale retail and in which the risk can be spread from the financial perspective. That's the model. Rest everything will remain the same. There's nothing that's going to change for the industry.
00:49:38
Speaker
The idea of spreading the risk rather than taking by bump bump bump will pass on the risk to the lender. So the lender can be many well like maybe I have bank, private limited individual whoever wants to put money and there are people who are planning to buy car, take a load, leasing, subscription. So that's very very long vision but idea is okay right now people are planning for a two year free or subscription there is a partner simply
00:50:04
Speaker
there is a matchmaking and basically this is that and we give a user some radio aids credit everything is there if there are some user credit score is low our system can show you okay if someone is saying okay i can give a loan 24-25 percent a person wants to accept so we become a platform for that kind of aggregator and without us bearing any risk and we keep our service maintenance everything in short so that our lender know that asset is secure and our customer also knows okay the asset basically take it care by far
00:50:31
Speaker
So you said you're focused on profitability. Give me some breakdown. We talked about that 2015 example where you would charge $19,000 per month. What would be the profitability for you in that? What would be your costs in that? So basically on a monthly basis, we make something around 15, 20% kind of property on a monthly basis. That is basically as a combination of our financial cost plus service maintenance cost, the insurance component that you factor in.
00:50:59
Speaker
and then there is a 5-10% kind of margin we make or the reseal of the vehicle. So for example, let's say after 2 years, if I decide to resell the car, so the residual value that we factor, they are generally lower, 10% lower to the expected market reseal price. Okay, so then that is where we make some of our money as a margin. So in total if you look at, if I
00:51:23
Speaker
cumulate the entire, my sourcing margin, procurement margin, my resale margin and along with my service maintenance. So we are making a 25-30% kind of gross margin on a month or month basis. Okay. How do you offer service maintenance span in India? Like that would be pretty expensive, right? Like you said roadside assistance. Is it through third-party tie-ups? Yeah, it is true. See, we companies like us thrive on partnership models.
00:51:48
Speaker
So at Fudding, we use car space today. You have a lot of people who are aggregating a lot of workshops, Pan-India. So just to give you an example, today as we speak, our cars are running in almost 50 cities. We are managing, even though we are sourcing customer only in Delhi and Bengaluru. But my customer base is in almost 55 cities, spread across the length and breadth of the country. And we've been managing it beautifully. I think the Google rating says it all.
00:52:14
Speaker
We've been rated at 4.7 as amongst the top most pleasing player in terms of customer service. The partnership model is something which is working very well for us. It doesn't put us into drain of any capex. It's a pure OpEx. It is based on need. And there are terms and conditions which are pre-agreed. There are turnaround times which are pre-agreed. And it's pretty standard practice in the leasing industry how we work.
00:52:35
Speaker
So I'm guessing someone like a Go mechanic might be that aggregator of workshops that you would be working with too. There are people like Bosch, there are people like Pick Stop, there are people like Go mechanic and then there are obviously authorized players as well. There is authorized workshop network from the OE, which we also have.
00:52:53
Speaker
Living from a core logic always starting this business model 5 years back was difficult because of these infrastructures was not very organized. Why we start this model or make sense now? Because now buying selling of people is not a challenge. You can buy from people digitally in real time. Previously the entire buying selling was offline.
00:53:17
Speaker
So creating a model so the service maintenance kind of like chrome mechanic is going to create a layer. Your insurance companies, digital insurance companies created layer. So leasing is basically a bundling of all the organized layers which are there in different, different pieces. We club it together and we bundle it, offer in a single solution to the customer. So that's how the leasing always makes sense. Got it, got it. Okay, amazing.
00:53:40
Speaker
So essentially today the leasing business is more about financial engineering and being able to do good financial engineering than about operationally heavy kind of workloads. And if someone was to end in the middle of the lease, like you said that somebody got a job change and had to change cities or whatever.
00:54:01
Speaker
Yeah, they're very flexible to know what generally is like funding traditionally, right? For closing a loan in which there is a market, there is a penalty, there is an outstanding book value, and there is a market value of the car, which God knows what is right and what is wrong, whatever leasing says is right.
00:54:20
Speaker
But with us, we have a very specific foreclosure terms, which says beyond a certain lock-in period, you can foreclose the car. However, you need to pay X number of rentals. The rentals are free. So a person, after a close, what he needs to pay. Now, I wave that off if that person goes to another city and takes another car from me.
00:54:37
Speaker
So it's a flexibility that we provide. And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in