Pepperfry raises Rs 2.5 billion from State Street Global Advisors

Online furniture platform Pepperfry has raised $38.5 million (Rs 2.5 billion) from State Street Global Advisors, the asset management business of State Street Corporation. 
 
State Street Global Advisors joins Norwest Venture Partners, Bertelsmann India Investments, Zodius Capital and Goldman Sachs, which have previously invested in Pepperfry. Including this current round, Pepperfry has raised over Rs 12 billion of capital since it began operations six years ago.
 
This is the highest amount of capital raised by an e-commerce furniture and home products company in India till date. Last week, Pepperfry’s closest rival Urban Ladder raised Rs  778 million from investors like Kalaari capital, SAIF Partners and Sequoia Capital, among others. Indian furniture players are gearing up as global furniture giant IKEA is poised to enter India with investments of over Rs 105 billion.

 

The fresh funds will be deployed to expand Pepperfry’s Experience Centers in Tier II cities, invest behind developing AR/VR technology for virtual touch and feel, and enhance the Private Brand franchise in preparation for its next financial milestone of an IPO. In addition, the funds go towards expanding their logistics business Pepcart over the next three to six months, said CEO Ambareesh Murty.
 
The company presently has 26 experience centres across the country and will add eight  more by early April and expect to reach 50 stores by the end of this year, said Murty.
 
“Over the past few months we have received a lot of interest for franchisees from non-metro cities so our next round of studios will be in cities like Siliguri, Imphal, Vizag, Indore, Goa. Mysore and Hubli,” said Murty. The Mumbai based furniture portal earns around 80 per cent of revenues from their furniture business alone and had introduced a rental category in September last year to tap into a younger customer base.

 
State Street Global Advisors has over $2.78 trillion in assets under management. “We are excited to enter the Indian e-Commerce market through our investment in Pepperfry. India’s large Furniture and Décor market is ripe for disruption and we believe that Pepperfry’s unique strategy, proven execution capabilities and passionate team are the perfect ingredients for success,” said Anandh Hari, Managing Director Private Equity, State Street Global Advisors.
 
Pepperfry’s revenue has grown at a CAGR of over 83 per cent in the last 5 years and with this fresh round of investment, it has enough dry-powder available to accelerate past the break-even point and become a profitable business over the next 12-18 months, said the company. Murty added that with a minimum 25 per cent gross margin on sales, the company is poised to reduce losses significantly this year.

 
“Last we not only grew at the top line level but we also managed to cut our losses. I expect 40 to 50 per cent reduction in losses this year,” said Murty. Last year the company reported losses of Rs 1.2 billion compared to Rs 1.5 billion in the year ago period. Their reported revenue stood at Rs 1.2 bilion last year.
 
Analysts have repeatedly pointed out that Pepperfry, with it’s steady business is a a prime candidate for other e-commerce giants for a buyout. However Peeprfry is not seeking out such options said Murty. “We have worked towards building a fundamentally strong business with great support from investors. We are under no pressure to ally with anyone.”

 
A KPMG report pegs only 15 per cnet of the furniture market in India to be organised with e-commerce accounting for less than 2 per cent of the pie. A World Bank report also expects the organised furniture industry to cross $32 billion by 2019.