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Why investors are flocking to ‘hometech’ firms during the pandemic

Sangeetha Chengappa Bengaluru | Updated on September 11, 2020 Published on September 11, 2020

Earlier-than-expected demand recovery a boost for such companies

Home interiors and renovations firms like Livspace, HomeLane and Design Cafe, which had laid off 12-15 per cent of their employees shortly after the Covid-19 outbreak, are on their feet on the back of earlier-than-expected demand recovery.

On track to get to pre-Covid levels of business in October and grow at 120-130 per cent month-on-month thereafter, these firms which are currently expanding to Tier-2 and -3 cities, have attracted a lot of inbound investor interest, raking in millions of dollars in funding recently.

Last week, Livspace raised $90 million in an oversubscribed round led by Kharis Capital and HomeLane raised ₹60 crore in a bridge round led by Stride Ventures. Design Cafe, which is backed by WestBridge Capital and Fireside Ventures, is all set to announce a fund raise in the first week of October.

“We reduced headcount in April/May after the Covid-19 outbreak thinking that the home interiors industry, which was badly hit by the lockdown, will take 18-24 months to recover, but we were pleasantly surprised at the speed of recovery. While footfalls to our experience centres have fallen by 50 per cent, over 70 per cent of our bookings are virtual now,” said Ramakant Sharma, co-founder and COO, Livspace. The company hit a gross revenue run rate of over $200 million in February, and expects to become profitable in its India operations in 2021.

Covid effect

There are two major demand drivers contributing to the speedy recovery of the home interiors industry, says Sharma. “One million new homes come into possession every year in the top 6 metros. Home owners who are paying both EMI and rent are hurrying up and getting their kitchens, wardrobes, bathrooms and interiors done up so that they can move in and reduce expenses in these hard times. Second, the large unorganised segment that was thriving, got hit badly due to Covid-19 as most of the contractors, carpenters, plumbers, electricians left metro cities to return to the safety of their home towns. Therefore, home owners had to necessarily move to organised players like Livspace to do up their interiors in 10-12 weeks.”

Growing enquires

Srikanth Iyer, founder and CEO of HomeLane.com, said, demand bounced back very quickly and the company received 80 per cent of its pre-Covid orders and achieved 112 per cent of its pre-Covid revenues in August. “Besides doing up new homes, we are getting a lot of requests for renovations as people are spending most of their time working from home and therefore want to make their homes more comfortable. Before Covid-19, six per cent of our customers would meet us virtually, now its close to 90 per cent.” HomeLane expects a 40 per cent jump in revenue in FY21, from ₹230 crore to ₹320 crore.

Design Cafe has chalked out an expansion plan to add six new experience centres and three new cities including Pune, Chennai and Coimbatore to its portfolio in the next 6-9 months.

Experience centres

“We will be back to pre-Covid levels of business next month and are already at 90 per cent recovery. Customers meet our designers online and tour all our experience centres with the power of VR (Virtual Reality). Our designers have 4-5 meetings/day with customers vs 1-2 meetings pre-Covid. Virtual conversions of orders on our platform have increased by 30 per cent across cities. That’s why you see significant investor interest in HomeTech firms in the last two months, because it is becoming an asset light business with a huge addressable market opportunity” said Shezan Bhojani, co-founder and CEO, Design Cafe. The annual spend on home interiors and renovations is pegged at ₹30,000 crore, growing at 7-8 per cent CAGR; 95 per cent of this spend is in the unorganised segment, so there is massive headroom for organised, asset light players to grow, added Bhojani.

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Published on September 11, 2020
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