Can Zoomcar’s SPAC In The US Turn Around Its India Fortunes?

Can Zoomcar’s SPAC In The US Turn Around Its India Fortunes?


After the $456 SPAC deal is finalised, car rental startup Zoomcar is set to go public on the Nasdaq in the US next year

Despite the IPO plans, its India business is in tatters with high losses, multiple failed pivots and is also severely overleveraged in terms of debt from OEMs, NBFCs

For the past two years, Zoomcar has been besieged by several complaints from customers related to refunds, payouts, the quality of service which has cast a pall on its India ops

Despite all its challenges, failed models and customer criticism over the past two years, Zoomcar is now on the verge of an IPO.

After being in the news for the past two years for a slew of issues including customer complaints, refunds, pivots and business downturn due to the pandemic, the Bengaluru-based car rental startup has signed a merger deal worth $456 Mn with blank check firm Innovative International Acquisition Corp.

After the deal is finalised, the company is set to go public on Nasdaq in the US via the special purpose acquisition company (SPAC).

The decade-old startup first floated the idea of SPAC-led IPO in June last year. At the time, cofounder Greg Moran had said that the company would be eyeing markets beyond India after its US listing. And sure enough that’s the objective of this merger, as the company has said in a statement.

On listing, Zoomcar will see a capital infusion of $235 Mn to fuel its operations for tech development and global footprint expansion.

Founded in 2013 by Greg Moran and David Back (who exited in 2015), Zoomcar is looking to join the likes of Indian companies Freshworks, MakeMyTrip and on the US stock exchanges. On the face of it, it seems like a win for the company, which has seen so much upheaval in the past year when its car rental business was pretty much killed by the pandemic.

But the reality is that Zoomcar’s problems will not disappear after the listing.

As we will see, there are a whole host of issues with Zoomcar. Not only has the company continued to book losses, but it’s also severely overleveraged in terms of debt and loans. Its revenue-to-loss ratio may have improved slightly in FY21, but this is largely a factor of cost-cutting rather than revenue growth.

Besides this, for the past two years, the startup has been besieged by several complaints from customers related to refunds, payouts, the quality of service provided as well as other more serious issues such as theft of auto parts and belongings from rented vehicles.

Zoomcar’s Pivots & Sorry Financial State

Currently, the startup claims to have 3 Mn+ active users and over 25,000 vehicles registered for use on its marketplace. But this is over the course of a decade, so these numbers do not exactly fill us with confidence.

In the past, it also launched Zoomvest which allowed individuals to buy and lease small fleets of cars on its platform and earn a minimum income of INR 20K per vehicle per month. But this was shut down in 2017. It also launched cycle-sharing, which was shut down in 2018.

Besides this, between 2018 and 2020, Zoomcar launched a purchase and lease model for car buyers as well as a subscribe and lease model for those who were not keen on owning cars but wanted the income from rentals.

But after Q1 2020, operations across these models were stalled and it also led to a host of cancellations. That’s when Zoomcar launched a SaaS tool for fleet operators during this time to keep its business afloat. It’s not yet clear whether this SaaS product has seen any real traction since then.


In FY21, Zoomcar’s revenue from ops fell by over 70% from FY20 to INR 79.3 Cr, with a loss of INR 152.6 Cr down from INR 452 Cr in FY20. A lot of this improvement is due to cost-savings related to curtailed operations due to the pandemic.

The startup spent INR 168.5 Cr in FY21, a 62.2% fall from INR 721 Cr in FY20.

Simply put, in FY20, Zoomcar earned only INR 0.40 for every rupee it spent, but this only marginally improved to INR 0.47 earned for every rupee spent. Let’s take a closer look at whether Zoomcar can indeed revive the Indian business based on how much it spent to lower its losses in FY21.

Depreciation, depletion and amortisation cost — one of the biggest on-book costs for companies in this space — fell to INR 48.5 Cr in FY21 from INR 153.6 Cr in FY20.

Zoomcar’s ‘other expenses’ — consumption of stores and spare parts, power and fuel, rent, repairs to buildings, repairs to machinery, and insurance — plummeted to INR 96.7 Cr in FY21 from INR 413.6 Cr in FY20.

Clearly, any revenue growth involves high depreciation expenses as well as costs associated with maintenance and repairs. So essentially, if Zoomcar has to revive its business and show EBITDA profitability, it will also have to contend with these costs growing again.

Worryingly, the debt to equity ratio had touched 2.40 in FY21, worsening from 1.57 in FY20. This means Zoomcar’s debt is more than 2X the total assets it has. In this highly leveraged situation, Zoomcar risks missing debt payments, especially if it sees a revenue decline.

This ratio also means the company would face problems in raising new debt to keep itself afloat. While Zoomcar halved its negative interest coverage ratio in FY21, it is still in the danger zone with a negative 2.22 interest coverage ratio. This means the company is not in the financial position to cover all its interest payments on the debt raised till FY21.

Zoomcar has loan charges worth over INR 310 Cr as per its financials. This includes several tranches of loans in FY22, where it borrowed over INR 16 Cr (more than $2 Mn as per FY22 rates) from automobile OEMs and other NBFCs.

Nirmal NR, who was appointed as Zoomcar’s CEO in January this year, did not respond to Inc42’s questions (first sent in September and again this week) about the company’s financial state in FY22 or FY23.

Customer Complaints Dog Zoomcar

The other big problem for Zoomcar is that customer complaints and refund requests have refused to die down even two and a half years since March 2020 when the lockdown was put in place.

Inc42 has reviewed dozens of social media posts from customers of Zoomcar just this week alone that highlight several operational and executional issues.

The customer complaints pertain to quality of vehicles, theft of auto parts, replacement of original components, arbitrary charges and more, Zoomcar has a lot to fix with regards to its business in the Indian market. Other social media posts complained about payouts not coming on time to Zoomcar ‘Hosts’ or those who list their cars for rentals.

Many have complained about Zoomcar not returning their vehicles for several weeks after taking them in for repairs.

There’s a whole lot for Zoomcar to fix within its operations, in addition to lifting its financial performance. In a way, the customer issues are directly affecting adoption of Zoomcar since these negative comments are more prevalent than positive reviews for Zoomcar these days as this Twitter search shows.

One of the reasons for the spate of bad reviews is that Zoomcar looked to democratise rental car supply with its various models, but this approach does not ensure strict quality control, which is critical for customer experience in this space.

To ensure consistency in user experience and quality of vehicles after each rental, Zoomcar would have to rope in an inordinate amount of resources, which was not possible given its cost-cutting in FY21.

Zoomcar’s public listing via a SPAC comes at a time when stock markets around the world are down, particularly for new-age tech stocks which have not shown profitability.

Most experts expect that markets will not stabilise for the next year at the very least. Besides this the global semiconductor shortage has caused a crunch in car supply as well as slowed down production of new cars.

In terms of listed car rental companies in the US, the stock performance of Avis and Hertz in the past six months will temper some of Zoomcar’s optimism. Avis is down by over 31% since April this year. Hertz is down by over 22% in the same period.

The SPAC deal for Zoomcar is expected to be completed in the first half 2023, so there’s a likelihood that some of these macroeconomic headwinds might clear up by then. However, the pandemic is far from over so things are also just as likely to change for the worse.

India’s Car Rental Startups Stalled

To date, Zoomcar has raised more than $290 Mn in a mix of debt and equity funding across multiple rounds from Sequoia India, Mahindra & Mahindra, venture debt fund Innoven Capital, US-based SternAegis Ventures, Silicon Valley’s NKM Capital, the Sony Innovation Fund and a slew of angel investors.

While Zoomcar has been able to raise funds, Drivezy has not raised funds since the $20 Mn Series B led by Das Capital in 2018.

Drivezy’s India business, which is operated out of five separate entities, is also in the red. All five were in the red as per their financial statements for FY18, FY19, FY20, but none of them have reported the financials for FY21 and FY22.

Y Combinator-backed Drivezy was reportedly close to being acquired by Japanese auto giant Yamaha for $40 Mn. It is not yet clear whether that deal has gone through since there has been no official announcement in this regard.

Yamaha was keen on integrating Drivezy’s rental tech platform into its Middle East and African operations, but currently the deal seems far from closed.

Revv’s last disclosed funding round was the $14.3 Mn Series B led by Hyundai in 2018 too, but cofounder Karan Jain said the company raised a subsequent round in late 2019, which helped it navigate the initial year of the pandemic, before things picked up again.

The Delhi NCR-based company reported losses of INR 61.27 Cr in FY21 against a revenue of INR 70 Cr. But Jain told us that on a quarterly basis, the company is now profitable before taxes at the end of the quarter ending September 2022.

Inc42 could not independently verify this claim; Jain added that the PBT margin is currently in the single-digit percentage of the gross revenue, and the EBITDA margin is at roughly 30% of the GMV.

Revv offers a monthly subscription-based ownership model as well as daily and weekly rentals. Of these, the subscription offering seems to have picked up most traction in this year as offices, schools and other public spaces have opened up.

Is Zoomcar Shedding India Focus? 

Given the number of issues in the India operations, it is pertinent to ask whether Zoomcar is giving up on the Indian market.

Besides India, the company has operations in Egypt, Vietnam, Indonesia, and the Philippines. Notably, its press release does not make any mention of the plans to deploy the post-merger capital into the Indian business. It is targetting Southeast Asia, Latin America, MENA, and Sub-Saharan Africa post the merger.

The company also claimed that the post-pandemic recovery has provided steady growth, but we were not provided any financial metrics or other growth numbers to back this claim.

In September, the company said it has more than 25,000 registered vehicles on its marketplace platform globally. Moran added that the company is targeting a fleet of 200 Mn+ cars by 2025 to cater to a car rental market worth over $90 Bn.

The addressable base for Zoomcar may indeed be huge, but in the Indian context, the mobility sector has been completely decimated by the pandemic. India is said to be the home market for Zoomcar, but as we have noted above the past infusions have not translated into sustainable revenue growth.

Car rentals are not only more commonplace outside India, but also more likely to deliver positive unit economics, given the high customer acquisition costs and depreciation costs related to automobiles in India.

Reviving the India business would mean a significant jump in costs for Zoomcar, at a time when the mobility business is going through severe churn. Other mobility startups have also had a tough time, and it’s no surprise that Zoomcar is looking beyond India for growth.

Ola, for instance, has more or less turned its entire focus to the electric vehicle business, while the ride-hailing vertical has taken a backseat and has seen downsizing.

Bounce pivoted from ride-sharing to an electric vehicle maker, while Vogo and Shuttl were acquired by Chalo in two separate distress sales.

Bengaluru-based Yulu also transitioned from a consumer-centric mobility play during the pandemic and shifted much of its focus to B2B and delivery fleet operations and infrastructure for swappable batteries.

All this points to a major consolidation wave in the ride-hailing and rental segments in mobility. The major funding has gone towards the electric vehicle companies — OEMs as well as charging infrastructure startups.

Sure, the potential for EV rentals is large in the next few years, but at the moment, the infrastructure is not up to scratch to back this thesis. While the government is making a push in this regard along with private players, the infrastructure development has been slow and not up to the scale required to drive EV adoption.

So the question now is regardless of its IPO in the US and the focus on other markets, will Zoomcar’s model indeed continue to be relevant in this new-look mobility landscape?

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