Cars24 leans deeper into debt as the used-car flywheel demands more working capital

Cars24's expansion of its debt facilities through a combination of NBFC credit lines, warehouse receipts and structured paper instruments is the natural consequence of a business model that requires significant working capital to hold and refurbish used-vehicle inventory between purchase and sale. The Vikram Chopra-led company, which pioneered the instant-buy model for used cars in India - offering sellers a transparent online valuation and same-day payment - has built a two-sided marketplace that is structurally capital-intensive in a way that asset-light platform businesses are not. The inventory funding question is central to Cars24's economics. Unlike a pure-play broker model where the platform connects buyers and sellers without holding the asset, Cars24 takes ownership of vehicles, refurbishes them to a certified standard and resells through its own retail channels. Each car on the company's books represents tied-up capital between the purchase price and the eventual sale proceeds, with the holding period averaging several weeks across the fleet. As transaction volumes grow, the absolute working capital requirement scales proportionally, requiring either equity capital or debt facilities that match the velocity of the vehicle-procurement cycle. The debt-facility expansion comes ahead of an expected equity raise that company advisers have been quietly mapping. Bankers tracking the situation suggest the equity round - likely a pre-IPO instrument given the company's vintage and investor expectations - could be priced flat to marginally above Cars24's last unicorn valuation, reflecting the improvement in the company's unit economics even as the headline growth rate has normalised. The overseas operations, particularly in Australia and the Middle East, are reportedly closer to unit-level breakeven than the India book, which continues to invest in refurbishment capacity and customer-servicing infrastructure. The Indian used-car market is structurally large and under-organised. Roughly four to five million used-car transactions take place annually in India, with the vast majority occurring through informal dealer networks and individual-to-individual transactions with limited pricing transparency or quality assurance. Cars24 and the organised segment - which also includes Spinny, OLX Autos and CarDekho's transaction services - represent a small fraction of total volume but are growing much faster than the market overall as consumer confidence in the platform model increases. What to watch: the timing and terms of the expected equity raise relative to the debt-facility expansion, whether the overseas operations reach the profitability milestone that would justify a separate capitalisation, and how the competitive dynamics with Spinny evolve as both companies target the same Tier-1 city consumer segment.

Original source: Mint Street