Pepperfry narrows losses improving margins on the back of private labels, new business lines

Furniture and home furnishing marketplace Pepperfry closed fiscal 2018 on a high note, thanks to a strong performance by its private labels and new lines of business that helped improve margins.

Pepperfry, owned by the TrendSutra group and backed by Goldman Sachs and Norwest Venture Partners, posted a 20% increase in revenue at Rs 308.46 crore. Its loss shrank 32% from the previous year to Rs 169.26 crore.

The financials are consolidated and include the numbers of TrendSutra Platform Services, which operates the Pepperfry marketplace; wholesale home decor trading firm TrendSutra Client Services; and the group’s logistical arm, Pepcart Logistics.

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Much of the growth has been driven by private brands which now form about half the total revenue. Newly launched business lines such as rentals and furniture exchange as also newer categories like modular kitchens, mattresses and home decor have been picking up steadily.

“Our goal is to continue expanding to become a full-stack player in the home and interior space including interior designing and interiors projects of home interiors including flooring, ceiling, painting, tiling, etc. We will continue to expand our house brands and foresee the modular kitchen and wardrobe segment as a key opportunity area,” Pepperfry chief executive Ambareesh Murty said.

Competition in India’s furniture market has heated up in the last one year after Flipkart announced its plans to go aggressive and deep in the category, even as Amazon has been stepping up its play in the space. Global furniture brand IKEA launched its first store in India in Hyderabad earlier this year, and is on track to launch two more stores in Mumbai and Bengaluru with investments of over Rs 1,000 crore for the same.

Experts say the presence of these deep pocketed players in the industry has led to increased discounting and significantly hurt margins of vertical players. However, the good news is that the sector itself enjoys gross margins of 40-45% which helps keep cash burn in check.

The India’s online homeware and furniture retail market, it is expected to cross $1.1 billion in revenue this year, up from about $900 million in 2016, according to industry estimates.

Going forward, Pepperfry is betting on the home interiors and renovation category where it will compete with TPG Growth and Goldman Sachs-backed Livspace, and offline studio expansion through a franchise model to penetrate into towns and small cities to boost growth. Offline studios currently drive more than 25% of the overall business for the firm and with Pepperfry’s renewed focus on the utility and home decor category, this number is expected to rise significantly.

“We will grow at 2-3x of the market’s growth while ensuring that our unit economics continue to be focused. As we continue to expand our offerings … we will gain from our foundation of a strong financial architecture built through strong unit economics and low overheads. Therefore, as we expand, we will gain from efficiencies of scale which will set us to profitability,” said Murty.

In March, Pepperfry raised Rs 250 crore from US-based financial services firm State Street Global Advisors(SSgA) along with existing investors including Norwest Venture Partners, Goldman Sachs, Bertelsmann India Investments and Zodius Capital. With this Pepperfry has raised over Rs 1,200 crore (about $163 mn) since inception, 6 years ago.


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