Shares of CarTrade Tech have fallen almost 52 percent from their issue price in August last year. Like Paytm, CarTrade has never risen above its initial public offering price of Rs 1,618. It listed on August 20 last year with a market capitalisation of about Rs 7,528 crore.
The stock touched a fresh low of Rs 772.50 on the BSE, down 4.7 percent from its previous close.
Analysts attributed the fall in the stock price to a slowdown in the auto industry. They also said the continued surge in Covid-19 cases is likely to affect its business and its operations, cashflows and financial conditions in the future are uncertain and cannot be predicted.
“There are multiple factors responsible like premium valuation, supply chain issues with auto sector, fast changing/evolving nature of the tech based platforms with low entry barrier. The company also reported loss in Q2 FY22. Off-lately, since the start of current year, these tech-based companies are impacted by an aggressive sell-off in the Nasdaq index in the US market. We feel that this current negative sentiment will continue for loss making tech-based companies with poor track record. Until the dust settles, we are recommending investors to keep away from this space”, said Rajnath Yadav Research Analyst Choice Broking.
Here are some analysts’ reasons for the fall in the stock:
Weak earnings: The company has not made a profit in the first two quarters of FY22. It reported a net loss of Rs 35.35 crore in the quarter ended September and a loss of Rs 46.12 crore in the three months ended June. Investors now await its December quarter earnings, scheduled to be released on January 25.
The company reported a loss for two consecutive quarters of FY22, which can be because demand for certain types of used cars may have suddenly declined due to the introduction of innovative technologies in new cars, said Mohit Nigam, head - PMS, Hem Securities. Likewise, manufacturers or dealers could offer greater incentives for the sale of new vehicles, which may lead to a drop in the sales of used vehicles on its platforms, he said.
No expansion funds: CarTrade’s IPO was a 100 percent offer for sale and the company did not get any funds for business expansion. The company’s existing promoters and shareholders raised Rs 2,998.51 crore via the offer for sale.
Unorganised market: In India, the major share of the used-car market is still controlled by local dealers because of low penetration of technology. Analysts said the government’s scrappage policy, BS-VI engine emission norms, safety norms, increase in car prices, and higher insurance costs have also affected both the new and used-car markets and this has weakened investor sentiment.
Interest rate hike: Reports suggesting that the US Federal Reserve will roll back its easy liquidity measures amid higher inflation and indications of multiple interest rate hikes this year have weakened the case for investments in richly priced technology stocks with no near-term visibility on profitability. The next Fed meeting is scheduled on January 25-26.
We expect strong but slowing growth, elevated inflation and accelerated Fed policy normalisation in 2022, including four rate hikes and balance sheet runoff in July, analysts said.
Auto industry slowdown: In the near term, the chip shortage, which is impacting auto industry volumes, is the key headwind. Over the long term, emerging trends such as ride-sharing, car rental services and increasing preference for public transportation could hurt individual car ownership and industry volumes.
Increase in competition: CarTrade’s key competitors include automotive portals such as CarDekho, Cars24, Spinny, Olx and Ola. These companies have raised substantial funds and are looking to ramp up their business, especially in the used-car space.
“As a result, we expect competitive intensity to remain high. While competitive intensity is relatively low in new car lead generation/advertising and Shriram Automall India’s auction business, entry of new players or increased focus by existing players in these segments cannot be ruled out,” Axis Capital said in a recent report.
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