[What The Financials] Furlenco Revenue Growth Outpaces Expenses In High-Demand Furniture Rental Market

From the idea of sharing food in childhood to sharing living spaces, Indians have been increasingly building on the sharing economy. To begin with, the sharing economy means that the users rent a product instead of buying. The trend gained attention with pooling services in cabs by Ola and Uber, but today, the users are sharing everything, from their homes, under AirBnb, to their furniture with apps like Furlenco.

The trend of sharing furniture has picked up pace over the last few years with players such as Furlenco, RentoMojo etc coming into the industry. Even though global leader IKEA has been trying to sell heavily in India, there has been no dearth of takers of rental furniture for multiple use cases.

Founded by Ajith Mohan Karimpana in 2011, Furlenco is an online platform offering furniture for homes on a subscription basis in Bengaluru, Delhi/NCR, Hyderabad, Chennai, Mumbai, and Pune. The company has raised $40 Mn in funding from investors such as Lightbox Ventures, Crescent Enterprises and others.

Furlenco claims to have over 89K customers across the cities it is present in. It claims to further provide additional benefits such as 72-hour ultra-fast and free delivery, setup and pickup. The subscription model allows customers to swap and upgrade packages at will, relocate from one home to another and avail free deep cleaning service for products subscribed through the company.

However, the company continues to be one of the many cash-burning startups, far away from returning profits over the last few years. According to the company’s ministerial filings, it has improved the revenue reaching INR 64.62 Cr in the financial year ending March 31, 2019.

At the same time, Furlenco’s expenses are 2.2X of its revenue reaching INR 144.6 Cr in FY19 with a loss of INR 80.03 Cr for the year.

Understanding Furlenco’s Expenses

As reported earlier, Furlenco designs and owns the furniture it rents out. Hence, the company has larger set of expenses creating weight on its performance.

We noted that the company has strongly reduced its advertising expenditure over the last three years. While in FY17 the company spent INR 13.6 Cr on this, in FY19 the advertising and promotional expenses were mere INR 9.7 Cr, almost similar to FY18.

Further, the company has increased its employee benefit expenses by 27.7% reaching INR 33.5 Cr in FY19 from INR 26.22 Cr in FY18. Also, the company’s depreciation depletion and amortisation expense were INR 20.5 Cr in FY19 as compared to INR 14.11 Cr in FY18. It is to be noted that depreciation expenses are non-cash expense. If we discount depreciation from both the years, the Y-o-Y increase of expenses is 36.27%.

Also, the company spent INR 7.52 Cr on transportation distribution expenses, a Y-o-Y jump of 60% from INR 4.69 Cr in FY18.

Furlenco’s Revenue Model

One of the good aspects of Furlenco’s financials were its operational income coming in only from its rental subscriptions. The company earned INR 63.08 Cr, a 63.7% Y-o-Y jump from INR 38.53 Cr revenue in FY18.

However, in the longer run, especially considering Furlenco’s asset-heavy model, the company has to find more sources of revenue to ensure it is able to find a runway to grow. A recent PWC report estimated that the rental market will be worth $335 Bn globally by 2025. Growing at the current rate, renting is set to become mainstream by the end of 2020 and will permeate to other industries, transforming the lifestyles and the way people work.

Of India’s total INR 1,294,06 Cr furniture market, 85-90% is unorganised and offline and online furniture retailers like Urban Ladder, Furlenco, Rentomojo and Pepperfry cater to just 2% of the market.

Update: November 16, 2019| 17:30 PM

• The story has been updated to clarify that depreciation expenses are non-cash expense and if discounted from both years, the Y-o-Y increase of expenses is 36.27%
• The headline of the story has been changed from ‘[What The Financials] Furlenco Fights Losing Battle Against Losses As Expenses Balloon’

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