End-to-end technology solutions provider:
The end-to-end technology platforms largely developed by the company’s in-house
team, allows them to offer a seamless solution to their customers. The company uses
machine-learning and AI to advance its proprietary pricing, marketing & inventory
technology for customers to enhance user experience and keep systems up to date
with tech advancements, enabling better market insights, price discovery and efficient
inventory management. CT offers a variety of solutions across the automotive transaction
value chain from discovery and research tools, pricing and auto financing information
to connecting consumers with dealers and OEMs for both used and new vehicle purchases.
It also offers CRM and ERP software to third-party users which are currently being
used & subscribed by BMW India and MG Motors India.
Asset-light & profitable business model:
CT operates on an asset-light business model, operating only 114 auto-malls, a large
majority of which they lease or rent from third parties. They have invested significantly
in building technology platforms that can manage considerably increased offerings
without requiring sizable additional investments. Their investments in technology
have made their platforms scalable in a highly capital-efficient manner, and the
asset-light business model has also allowed them to use cash on their balance sheet
for acquisitions which have formed important parts of their strategy in the past.
Together with their strong brands, longstanding relationships with customers, dealers
and other stakeholders, and an expanding suite of offerings, they have created a
profitable and scalable business model.
Leading Marketplace for Automotive Sales:
CT is a multi-channel auto platform with coverage and presence across vehicle types
and value-added services. Their custom-built platforms provide an intuitive vehicle
buying and selling experience. Company’s brands, CarWale, CarTrade, Shriram
Automall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz, are trusted brands
for automotive buyers and seller. Their brands, CarWale and BikeWale, ranked number
one on relative online search popularity when compared to their key competitors
over the period from April 2020 to March 2021.
To increase monetization opportunities:
The company intends to increase monetization opportunities by introducing complementary,
value-added products and services to improve the experience of buying, selling and
owning vehicles. For example, CT provides vehicle buyers with dynamic, personalized
and real-time financing offers from multiple financing providers digitally through
its finance platforms. CT also plans to provide vehicle servicing, automobile accessories
and automobile insurance by engaging with product and service providers who will
provide these to consumers on its websites.
Low entry barriers:
The business model is easily replicable with formalization of the industry. More
firms may seek entry with increased demand. It is still an unregulated industry
with strong presence of unorganized firms.
Inability to maintain high ranking in organic search:
Increased competition may lead to rise in marketing spend to increase engagement
and attract visitors, which is crucial for growth.
Highly competitive space:
With India gaining prominence as a startup opportunity globally, many companies
have entered the vehicle platform business since 2014 including the bigger competitors
like Cars 24 and Droom who, just like CT are backed by multiple marquee global investing
firms. An increase in aggression by competition, could impact the competitive positioning
of the company and its profitability.
CarTrade Tech (CT) is one of the largest, online auto portal for cars & two- wheelers and a leading auction platform for used vehicles. It provides value-added services across product segments through brands, such as Carwale, CarTrade, Shriram Automall, Bikewale, CarTrade Exchange, Adroit Auto and AutoBiz. The platforms enable new & used automobile customers, vehicular dealerships, OEM & other businesses to buy and sell vehicles in a simple and efficient manner. They are the only profitable digital auto platform among the key competitors like Cars24, CarDekho, Droom etc.
CT plans to continue to invest in improving their technology such as AI and machine learning capabilities in order to provide more relevant and timely information to their customers, and enhance user experience. The company intends to increase monetization opportunities by introducing complementary, value-added products and services to improve the experience of buying, selling and owning vehicles. They also plan to provide vehicle servicing, automobile accessories and automobile insurance by engaging with product and service providers who will provide these to consumers on their websites.
At the upper price band of Rs 1618, the IPO is valued at 27x FY21 EV/Sales which is reasonable when compared to other private players such as Droom, valued at 49x EV/Sales and Cars24, potential valuation of 46x EV/Sales. However, such lofty valuations may or may not be sustainable considering the auto industry itself is expected to grow by mere 8-10%. Hence, we recommend only high-risk investors to SUBCRIBE to the IPO for listing day gains only.
Use of Proceeds:
The total issue size is of Rs. 2,999 crore is fully an OFS constituting offer for
sale of up to 1.85 crore equity shares by investors. Company will not get any capital
from this issue. All proceeds will go to such selling investors.
Book running lead managers:
Axis Capital, Citigroup Global, Kotak Mahindra Capital, Nomura Financial
Management:
CT has a strong management team with significant industry experience. Led by their
Chairman, Managing Director and CEO, Vinay Vinod Sanghi, who has 30 years of experience
in the automotive industry, their entrepreneurial leadership team has demonstrated
the ability to successfully create, build and grow their various businesses. The
organization focuses on building an environment of innovation, trust, respect, ownership,
agility and teamwork.
Yr End March (Rs Cr) | FY19 | FY20 | FY21 |
---|---|---|---|
Net Sales | 243.00 | 298.00 | 250.00 |
Material Cost | 0.00 | 17.00 | 1.00 |
Employee Cost | 128.00 | 133.00 | 130.00 |
Other Expenses | 86.00 | 109.00 | 80.00 |
EBITDA | 29.00 | 39.00 | 39.00 |
EBITDA Margin | 12.00% | 13.00% | 16.00% |
Depreciation & Amortization | 15.00 | 17.00 | 20.00 |
EBIT | 14.00 | 22.00 | 19.00 |
Other Income | 24.00 | 20.00 | 32.00 |
Interest & Finance Charges | 2.00 | 3.00 | 4.00 |
Profit Before Tax - Before Exceptional | 36.00 | 39.00 | 47.00 |
Tax Expense | 10.00 | 8.00 | -54.00 |
Effective Tax rate | 28.00% | 21.00% | - |
Net Profit | 26.00 | 31.00 | 101.00 |
Net Profit Margin | 11.00% | 10.00% | 40.00% |