Used Car Unicorn Droom’s IPO Plans Amid Declining Financial Health

Used car unicorn Droom is preparing to raise INR 1,000 crore through an initial public offering (IPO), aiming for a valuation between $1.2 billion to $1.5 billion. However, the company’s financial stability has considerably worsened, as its revenue from operations has plummeted by two-thirds in the previous fiscal year.

Financial Performance of Droom

According to the consolidated financial reports submitted to the Registrar of Companies (RoC), Droom Technologies experienced a staggering 66% drop in revenue from operations, which fell to INR 85.3 crore in FY24.

Droom primarily generates revenue from service fees that encompass commissions on vehicle sales and associated services on its marketplace platform, in addition to fees from pro-seller subscriptions. The company has not provided a detailed breakdown of its revenue sources. Nonetheless, it accrued INR 4.6 crore from non-operating activities, including investment interest and excess provisions for write-offs. This resulted in a total income of INR 90 crore for FY24, a significant decrease from INR 262 crore in FY23.

Cost Management Strategies

From a cost perspective, Droom, established by Sandeep Aggarwal, allocated 65.3% of its overall expenses to marketing and incentives. Due to decreased operational scale, such expenditures fell by 67.3%, amounting to INR 85 crore in FY24. Employee benefit expenses also faced a reduction of 39.5% over the year. Overall, the company’s total expenses saw a drop of 60%, declining from INR 325 crore in FY23 to INR 130 crore in FY24.

Reduction in Losses

In spite of a 66% decrease in revenue, Droom has succeeded in lowering its overall losses by 34.8%, bringing them down to INR 40.4 crore in FY24. The Gurugram-based firm expended INR 1.52 to generate every rupee earned during this period.

Deteriorating Financial Metrics

Droom’s financial metrics have shown a decline, with its Return on Capital Employed (ROCE) dropping to -304% and its EBITDA margins to -41.56%. By the close of FY24, the company’s total current assets reached INR 30 crore, inclusive of cash and bank balances of INR 3.5 crore.

Challenges Ahead for Droom

Droom achieved unicorn status due to its previous growth narrative paired with ambitious projections for future expansion up until 2023. However, the firm has postponed IPO plans in the past, which were initially intended to raise INR 3,000 crore. Its recent performance raises concerns regarding suitability for public markets, marked by irregular metrics, unmet projections, and governance challenges. Numerous claims of recovery have been made, but many investors have lost track of them. As the pre-owned vehicle market experiences its own fluctuations, Droom may need to devise extraordinary strategies, such as offering a zero-maintenance guarantee on every vehicle sold for two years, to distinguish itself and attract buyers based on brand strength. Unfortunately, Droom has yet to make such advancements and remains underwhelming in the eyes of potential customers, appearing as a brand struggling to survive in a competitive environment.