Last September, used-car platform Carro announced that it had doubled its revenue year on year to more than S$650 million (US$489 million) in its financial year ending March 2022. It also doubled its gross profit over the same period.

The Singapore-based company’s recently released financial statements for FY 2022 back that up. But they don’t show what Ernest Chew, the firm’s chief financial officer, describes as a “record full year EBITDA” for its recently completed FY 2023, for the year ending March 2023.

However, the FY 2023 financial statements are not yet publicly available, and in any case are unlikely to contain EBITDA figures.

Meanwhile, the FY 2022 statements show that Carro made an operating loss of US$18 million, which was an increase of 229% over the one-year period. This was due to total expenses widening by nearly 2.5x.

While gross profits did rise from US$12 million to US$26 million, the company’s gross profit margin declined slightly from 6% to 5% in FY 2022. This is half of the 10% margin it achieved in FY 2020.

Apart from Singapore, Carro currently has operations in Indonesia, Thailand, Malaysia, and Japan. Chew tells Tech in Asia that its top three markets are Indonesia, Malaysia, and Singapore.

While Carro is known for its auto marketplace, this is just one of its five business segments. The others are fintech, insurtech, mobility, and repair and maintenance.

In an interview with consultancy firm McKinsey in 2020, Carro CEO and founder Aaron Tan described financial services as “a very important vertical” and something the firm “needed to get right.”

Carro founder and CEO Aaron Tan / Photo credit: Carro

The firm offers auto financing through its fintech subsidiary, Genie Financial Services. In FY 2022, its loan book grew to US$285.7 million, doubling from the previous financial year.

Chew says that the company typically obtains secured borrowings from banks in order to finance its lending activities.

“We lend at a fixed rate and also borrow at a fixed rate for the lifetime of the loans we originate,” he adds. As a result, the firm’s net interest margin is fixed and rising interest rates do not affect its existing portfolio.

Given current macroeconomic uncertainties, Chew says that Carro has tightened its lending policies. For example, it has adjusted lending rates, required a higher down payment on certain types of cars, and been more selective on loan approvals.

The company also offers auto insurance in Singapore and Malaysia through third parties like Income Insurance and MSIG.

In February, Carro announced that it had received an investment from insurtech firm ZA Tech as part of a joint venture deal. As part of the agreement, Carro will adopt the latter’s platform to manage tasks such as policy renewals and quote generation.

The company’s repair and maintenance vertical provides after-sales services such as repairs and provision of spare parts. Taking all of its verticals together, Carro’s platform is able to cater to users for the entire cycle of their car ownership journey.

Revenue from these other segments is far smaller than Carro’s main marketplace business but is growing quickly, albeit off a small base. Between FY 2021 and FY 2022, revenue from repair and maintenance grew by 343%, while fees and commission income was up 394%. This compares to Carro’s overall revenue growth of 151% over the same period.

However, income from interest was only up by 40%.

Fee and commission income are generated by Carro’s fintech and insurtech verticals, while interest income comes from its fintech vertical. Finally, leasing income is attributed to its mobility vertical.

The ancillary businesses have higher profit margins than the car marketplace segment since they are relatively asset-light.

According to Chew, Carro’s insurtech and financial services verticals have “nearly 100% gross profit margins,” while the equivalent figure for repair and maintenance is over 30%. Significantly, over 60% of the company’s current gross profit comes from non-marketplace verticals and are mostly recurring.

He expects the firm’s gross profit margins to improve as it grows these ancillary segments. He adds that the company achieved a gross profit margin of over 10% in its most recent quarter, doubling from FY 2022’s 5%.

Carro will have to improve its overall margins in order to achieve an operating profit, which still eluded the company in FY 2022.

Three of its biggest expense items for the period were the cost of sales, employee benefits expenses, as well as selling and marketing expenses.

In terms of their increase as a percentage of revenue, these items went up from 94% to 95%, 6% to 7%, and 1% to 3% of revenue, respectively, compared to the previous financial year.

While such percentage changes may not seem like much, these small increases in operational expenses make a difference when it comes to whether the company is loss-making or profitable.

For example, in FY 2022, employee benefits expenses rose by US$22 million while operating income was negative US$18 million.

In FY 2022, Carro saw a surge of US$428 million in cash flow from financing activities. This was the result of its series C and D fundraising rounds during the period, from investors that included heavy hitters like SoftBank Vision Fund and Temasek.

As a result, Carro’s cash and cash equivalents as of March 2022 stood at US$251 million after accounting for negative cash flow from operating and investment activities.

Assuming FY 2022’s outflow of US$130 million in cash from operations, this implies a cash runway of around two years.

However, this figure does not include the undisclosed sum raised from ZA Tech’s strategic investment in February this year, which may further extend its runway. This injection was not reflected in its FY 2022 statement.

According to Chew, Carro has nearly US$451 million in liquidity from “cash including money market instruments, liquid investments, easily monetizable inventories, and financing receivables,” along with over US$195 million of undrawn financing lines.

In terms of runway, Chew points to the record EBITDA for FY 2023, and the fact that Carro’s monthly EBITDA is also tracking at about US$3 million and the firm has a positive adjusted operating profit.

As such, the company’s runway is now “infinite,” Chew says.

Looking ahead, Carro expects to double revenue growth in FY 2023.

The company has also been making acquisitions and expanding into new markets.

During the FY 2022 period, it acquired Motto Group, a pioneer of automobile auctions in Thailand, for US$31 million in cash and 296,916 Carro shares.

Other investments made during this period include those in Indonesian banks Allo Bank and Bank Index Selindo.

Another significant transaction was the acquisition of a 50% stake in Mitra Pinastika Mustika Rent (MPMR), an Indonesia-based consumer automotive and transportation company, for US$59 million.

Through this partnership, Carro hopes to provide consumers in Indonesia with an “end-to-end ecosystem” from a marketplace to financing, rental, repair, and after-sales services.

Chew explains that with the deal, Carro benefited from MPMR’s strong supply of vehicles and customer base of blue-chip corporates. This complements the used-car firm’s own customer base, which mostly consists of dealers and retail customers. MPMR’s large reconditioning and repair capabilities nationwide also complemented the firm’s business, especially outside of Jakarta.

The Carro Automall in Jakarta / Photo credit: Carro

Carro is also making moves in markets beyond Southeast Asia. In September 2022, the company said it was entering Japan through a joint venture with SoftBank, one of its investors.

The country offers a significant growth opportunity. According to Carro, the size of Japan’s used-car market is double that of Southeast Asia’s.

For now, the company will not be buying and selling used cars in Japan. Instead, it will provide financing and insurance products as well as subscription-based car services and car leasing.

Chew attributes this to Carro’s “prudent approach whenever we enter new markets,” although he says that the company’s Japan strategy is “still evolving.”

Back in October 2021, Tan spoke of readying for an IPO within the next 18 to 24 months.

However, a lot has changed since then.

Will the company be going public anytime soon? While Carro “would like to consider an IPO in the next 12 to 18 months,” predicting when markets would reopen and when the valuation environment becomes more favorable is “difficult,” Chew says.

He adds that while Carro “is not in need to IPO at all cost to secure fresh capital,” the firm is “IPO-ready,” with its accounts PCAOB-audited in the past two years.

Currency converted from Singapore dollar to US dollar: US$1 = S$1.33.