CarTrade Tech shares plunge 9% on debut, what should investors do?

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CarTrade Tech had a disappointing debut on the bourses, falling 8.8 percent in the morning on August 20 following nervousness in the market that was down nearly one percent. The stock opened at a 1.1 percent discount at Rs 1,600 on the BSE and hit a low of Rs 1,476 against the issue price of Rs 1,618.

"We recommend allotted investors to book profits on listing day and if non-allotted investors wish to buy on the listing day, it is better to wait and watch to accumulate at a better pricing range in the near future," Prashanth Tapse, VP Research at Mehta Equities told Moneycontrol.

They were optimistic about the asset-light business model of the multi-channel auto platform which was profitable and highly scalable. "As an investor with risk may consider investing for long term," he said.

CarTrade raised Rs 2,998.51 crore through its initial public offering which was an offer for sale by shareholders.

Astha Jain, Senior Research Analyst, Hem Securities, said investors should book partial profits and remaining for the long term. The company was the leading marketplace for automotive sales with a synergistic ecosystem and proprietary end-to-end technology platforms with focus on data science to provide solutions, she said.

It was the only profitable automotive digital platform among peers with an asset-light model and decent EBIDTA margins, she said.

CarTrade is a multi-channel auto platform with coverage and presence across vehicle types and value-added services, operating under several brands like CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz.

Its several platforms enable new and used automobile customers, vehicle dealerships, vehicle OEMs and other businesses to buy and sell their vehicles.

The company operates on an asset-light business model, operating only 114 automalls, a large majority of which are leased or rented from third parties.

The company has invested in building technology platforms that can manage considerably increased offerings without requiring sizable additional investments, and its growing scale has resulted in a decrease of the share of fixed costs.

Its investments in technology have made the platforms scalable in a highly capital-efficient manner, and its asset-light business model has also allowed the company to use cash on its balance sheet for acquisitions which have formed important parts of its strategy, experts say.

"Looking at the business model and the future growth prospects, this IPO might turn out to be a good investment opportunity," said Gaurav Garg, Head of Research at CapitalVia Global Research.

"Any investor who is upbeat about this space can hold for two-three years as this company offers a variety of solutions across automotive transactions for buying, selling, marketing, financing, and other activities and the business model appears to be robust," he added.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.