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CarTrade Tech IPO opens today: Analysts give thumbs-up to profitable multi-channel auto platform

CarTrade Tech IPO: On the balance-sheet front, it is a net cash-positive company, with surplus cash amounting to around Rs 650 crore, as of FY21, say brokerages.

August 09, 2021 / 11:11 AM IST
 
 
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CarTrade Tech, a multi-channel auto platform with a presence across varied vehicle types and value-added services, has opened its public offer for subscription on August 9.

All analysts have given the thumbs-up to the offer, considering its first-mover advantage in the segment, its No.1 ranked platforms (Carwale & Bikewale) in their respective categories, profitable and scalable business model, high brand visibility and affinity, and focus on data science to provide superior solution.

The IPO comprises a complete offer for sale (OFS) of 1,85,32,216 equity shares by CMDB II, Highdell Investment, Macritchie Investments, Springfield Venture International, Bina Vinod Sanghi (jointly held with Vinay Vinod Sanghi), Daniel Edward Neary, Shree Krishna Trust, Victor Anthony Perry III, and Vinay Vinod Sanghi (jointly held with Seena Vinay Sanghi).

The company plans to mobilise Rs 2,998.51 crore through its offer at the upper end of the price band of Rs 1,618 per share. Of this, it has already garnered Rs 900 crore from anchor investors on August 6, a day prior to the issue opening. The offer will close on August 11.

“CarTrade is the only profitable player in the vehicle platform space in India and one of the few players internationally. It owns the No.1 ranked platforms in their respective categories, i.e., Carwale & Bikewale, which instils confidence in the sustainability of its growth, which is powered by this network effect," said Nirmal Bang.

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Further, “with a war chest of Rs 668 crore in balance sheet, CarTrade is well positioned and plans to capture adjacent business opportunities, such as insurance, financing, servicing of vehicles, accessories and refurbishment-cum-sale of cars," said the brokerage, which believes CarTrade offers an attractive opportunity to participate in a new-age business with a leading vehicle platform company at a P/B (price-to-book value) of 4.2x and market cap/sales of 27x, and recommended 'subscribe' to the issue.

Marwadi Financial Services also assigned a 'subscribe' rating to this IPO as the company has a profitable and scalable business model with focus on data science to provide superior solutions, and is well positioned to benefit from the growth of the automotive sector and digitalisation.

CarTrade Tech has a unique business model with no listed peers in the market. It operates various brands such as CarWale, CarTrade, Shriram Automall, BikeWale, CarTradeExchange, Adroit Auto, and AutoBiz. The platform connects new and used automobile customers, vehicle dealers, vehicle original equipment manufacturers (OEMs) and other businesses to buy and sell different types of vehicles.

The company offers a variety of solutions across automotive transactions for buying, selling, marketing, financing, and other activities.

The company generates revenues from several business streams, primarily comprising commission and fees from auction and re-marketing services of used vehicles, online advertising solutions, lead generation, technology-based services, and inspection and valuation services.

At the upper end of the price band (Rs 1,618 per share), Anand Rathi feels the issue is offered at 4.4x P/BV and 29.6x EV/sales and 73.4x P/E (price-to-earnings). If we exclude accounting adjustments for deferred tax and attribute it on equity, the asking price is at a P/E of around 199.26x to its FY21 earnings, with a market cap of Rs 7,415.95 crore, which shows the issue is priced exorbitantly.

However, considering the future prospect of the company and since has a first-mover advantage, the brokerage assigned a 'subscribe' rating, saying investors can invest in this company with medium- to long-term perspective.

On the valuation front, Asit C Mehta seems to agree with Anand Rathi. The brokerage recommended that only high-risk investors should subscribe to the issue from a listing gains prospective.

CarTrade is profitable since FY19, and was the only profitable online auto platform in FY20 due to its asset-light business model, control over employee costs and low balance sheet risk due to minimal carried inventory (unlike some competitors).

On the balance sheet front, it is a net cash-positive company, with surplus cash amounting to around Rs 650 crore, as of FY21, said ICICI Direct, which believes CarTrade offers a unique play on rising digitisation of new and pre-owned vehicle transaction value chain/ecosystem.

Also readCarTrade Tech IPO opens today; 10 key things to know

Given the prevailing preference for digital platforms, including the recent listings, the brokerage assigned a subscribe rating to the issue for listing gains.

“Long-term wealth generation at CarTrade will be a function of scalability, relevance and journey towards healthier return ratios," said the brokerage.

As of FY21, the company had 2.6 crore monthly average unique visitors on its websites/apps (of which 88.4 per cent were organic, i.e., from unpaid sources) and featured 8.14 lakh vehicle listings on its online and offline auction platforms.

Annual new car sales in India are expected to grow from 27 lakhs in financial year 2021 to 44 lakhs in financial year 2026, while annual used car sales is expected to grow from 44 lakhs in financial year 2020 to 83 lakhs in financial year 2026. "There is substantial headroom for the Indian auto industry to grow. This growth will definitely benefit CarTrade," said Asit C Mehta.

Choice Broking also assigned a 'subscribe' rating for the issue.

CarTrade Tech is a professionally managed company, and is backed by marquee institutional investors, including Highdell Investment (affiliate of Warburg Pincus LLC), with a 34.44 percent stake; MacRitchie Investments Pte Ltd (an affiliate of Temasek), with a 26.48 percent stake; CMDB II (private equity fund run by JP Morgan) and March Capital (which owns Springfield Venture International & MCP3 SPV LLC), with 9.79 percent stake.

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Sunil Shankar Matkar
first published: Aug 9, 2021 10:01 am
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