Many of you may be familiar with auto platforms such as CarWale and BikeWale. It provides an in-depth analysis of all prominent cars and two-wheelers that ply on Indian roads. The company that operates these brands, CarTrade Tech Limited, has launched its three-day IPO today— August 9. In this article, we take a closer look into the company and learn more about its IPO.

Company Profile – CarTrade Tech Limited

CarTrade Tech Ltd (CTTL) is a multi-channel auto platform with coverage and presence across all vehicle types and value-added services. Their platforms help automobile customers, vehicle dealerships, automakers, and other businesses to buy and sell different types of vehicles in a simple and efficient manner. The company operates brands such as CarWale, BikeWale, CarTrade, Shriram Automall, CarTrade Exchange, Adroit Auto, and AutoBiz

The company generates revenue from commission or fees from auctions and remarketing services of used vehicles. It also earns income from online advertising solutions on platforms, lead generation, technology-based services, and inspection & valuation services. 

CarWale and BikeWale were ranked #1 on relative online search popularity amongst their peers in the previous financial year (FY21). On the other hand, Shriram Automall has become one of the leading platforms that facilitates the sale of used cars, two-wheelers, and farm & construction equipment. The company’s consumer platforms (CarWale, CarTrade, and BikeWale) collectively had an average of 2.71 crore unique visitors per month for the quarter ended June 2021 (Q1 FY22). Out of this, organic traffic (visitors that land on the platform as a result of unpaid search results) accounted for 88.14%!

CTTL has zero promoter holding and is a professionally managed company. It has a strong management team with significant industry experience. Large equity investors such as Highdell Investment (an affiliate of Warburg Pincus LLC), MacRitchie Investments (Temasek), CMDB II (JP Morgan) hold significant stakes in CarTrade Tech. The company is well-positioned to benefit from the growth of the automotive sector and digitalisation.

About the IPO

In July 2021, CarTrade Tech received approval from the Securities and Exchange Board of India (SEBI) to float its initial public offering (IPO). The public issue opens on August 9 and closes on August 11. The price band for the IPO has been fixed at Rs 1,585-1618 per share. 

The offer for sale (OFS) of up to 1.85 crore equity shares from existing shareholders aggregates to Rs 2,998.51 crore. Individual investors can bid for a minimum of 9 equity shares (1 lot) and in multiples of 9 shares thereafter. You will need a minimum of Rs 14,265 to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 117 equity shares (13 lots). 

The primary objective of the IPO is to provide an exit strategy (or liquidity) to CarTrade Tech’s shareholders and early investors. Thus, the company is not raising any funds through the public issue. It aims to achieve the benefits of listing the equity shares on NSE and BSE. 

Financial Performance

CarTrade Tech has posted impressive financial performance over the past three years. Its revenue has grown at a CAGR of 1.3% during FY19-21, while net profit has increased at a rate of 133.8%. Even though revenue fell in the financial year ended March 2021 (FY21), profit had jumped 223% YoY. However, it was mainly due to a deferred tax write-back worth Rs 63 crore. The company derives ~57% of its revenue from commission and fees from vehicle auctions and remarketing services. Interestingly, CTTL is the only profitable automotive digital platform compared to key competitors (since FY19). 

The company has posted an average Earnings Per Share of Rs 11.93 during FY19-21. The average Return on Net Worth (RoNW) stands at 3.52%. RoNW shows how well the company uses shareholders’ capital (equity) to generate profits. Moreover, CTTL is a debt-free company.

Risk Factors

  • A general decline in individual car ownership or a sudden decline in demand for certain types of vehicles can adversely affect CarTrade Tech’s business.
  • The continuing impact and uncertainty surrounding the Covid-19 pandemic could severely impact its overall financial performance.
  • CTTL has stated that it may experience disruptions, failures, or breaches of its technology platforms. The company’s systems could be prone to third-party breaches through Trojans, spyware, ransomware, etc.
  • The failure to protect personal information and sensitive data could damage their reputation and brands.
  • The inability to keep pace with advancements in technology or the development of new products in a timely manner could lead to loss of business.
  • Any fraudulent behavior by sellers or buyers of used vehicles listed on the company’s platforms could adversely impact its business and reputation.
  • The increase in competition among automotive digital platforms could affect its profitability. Its key competitors include Cars24, CarDekho & BikeDekho, Mahindra First Choice Wheels, etc.

IPO Details in a Nutshell

The book-running lead managers to the public issue are Axis Capital, Citigroup Global Markets India, Kotak Mahindra Capital, and Nomura Financial Advisory and Securities. CarTrade Tech Ltd had filed the Red Herring Prospectus for its IPO in July 2021. You can read it here.

Conclusion

CarTrade Tech’s vision is to create a holistic automotive digital ecosystem to connect customers, automakers, dealers, banks, insurance companies, and other stakeholders. The company aims to help users select cars or bikes, compare prices, get the best policies, sell their old vehicles, and much more. However, they face intense competition from the unlisted companies as mentioned before. Even though valuations are high, analysts believe that it is justified as a result of CTTL’s strong brand growth, better technology platforms, and a profitable, scalable business model.

CTTL has received great interest in the grey markets (the unofficial markets for unlisted shares) as well. The grey market premium (GMP) is anywhere between Rs 380-400. It means that shares are being traded at Rs 400 above the issue price. 

Before applying for this IPO, we will wait to see if the portion reserved for institutions gets oversubscribed. Institutional investors have bought in a lot of shares in recently concluded IPOs. If that is the case here as well, we may be able to see some listing gains. As always, do consider the risks associated with this company and come to your own conclusion. 

What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.

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