IPO update: CarTrade

CarTrade came out with its IPO about four months ago. Value Research's analysis of the IPO can be found here. This follow-up article focuses on the IPO's performance, post-IPO events, and changes in its valuation since then.

Our analysis of the IPO
We gave a score of 15 out of 26 to this multi-channel auto platform when it came out with its IPO. CarTrade is looking to create an automotive digital ecosystem in India. Over the last ten years, it has connected all the stakeholders to one digital platform. Millions of people visit the company's website per month to sell or buy a vehicle. Even though it is a brand where customers come, it is, in essence, a technology and software company that connects all stakeholders in the automobile ecosystem - customers, dealers, manufacturers, banks, insurance companies, etc. CarTrade is also one of the largest data sources for automotive dealer data, consumer data and vehicle data.

The company's total addressable market (TAM) is $14 billion (as of FY20). This represents the total revenue pool for CarTrade and its competitors. It includes $6.5 billion in vehicle transactions (45.4 per cent of TAM), $3.1 billion in after sales (21.5 per cent), $1.8 billion in ad spends (12.2 per cent), $1.4 billion in the auto finance marketplace (10 per cent), $1.1 billion in auctions & remarketing (8 per cent) and $0.4 billion in auto insurance, inspections and valuations (2.9 per cent).

Our rating of the company was based on the following:

• Out of the 11 business metrics, the company did well on four.
• It scored five out of six on management-quality-related metrics.
• It did well on financial metrics with a score of six out of eight.
• It didn't clear any valuation-related metric.

Stock performance since listing
The company saw a good response to its IPO, which was oversubscribed by more than 20 times. The qualified institutional buyers (QIB) portion was oversubscribed by 35 times, while the non-institutional investors' portion was oversubscribed by 41 times and the retail portion by nearly 3 times.

CarTrade didn't have a great debut on the stock exchanges, with the shares listing at a discount of 1.1 per cent over its issue price, opening at Rs 1,600 and ending the day at Rs 1,500. Post listing, the stock has continued to drift downwards and reached its lowest price of Rs 806 on December 27, 2021. At its lowest price, the stock is 50 per cent lower than its issue price of Rs 1,618.

Business performance
The company has reported its quarterly results for the September quarter, with a 35.0 per cent YoY growth in revenues at Rs 77.6 crore. Compared to the previous quarter, revenues were up by 45.7 per cent. The company reported a net loss for the September quarter of Rs 35.3 crore compared to a net profit of Rs 10.9 crore in the year-ago period.

In Q2, the company's EBITDA turned negative at Rs 33 crore compared to a positive Rs 10.4 crore in Q2 FY21. However, the main reason for this loss was increased employee costs by nearly three times to Rs 83.2 crore. Out of this, more than half (Rs 46.9 crore) accounts for share-based payment expenses. Thus, adjusting for this one-time non-cash adjustment, the EBITDA is a positive Rs 13.9 crore, and the EBITDA margin is 17.9 per cent against 18.1 per cent in Q2 FY21.

During the quarter, the company reached its highest average monthly unique visitors at 34 million. Of this, 86.7 per cent came organically, i.e., the company didn't have to spend any money to drive traffic. Unique visitors have grown 26 per cent QoQ. The company also reached its highest auction listing at 3,00,671, recording a growth of 73 per cent YoY and 41 per cent QoQ. The number of vehicles sold via auction was 63,533 in Q2 FY22, representing a YoY growth of 104 per cent.

What to do now?
The company plans to be a dominant digital auto platform. It wants to be the number one auto loan marketplace in India. It has recently launched 'Carwale abSure', a service which provides a used car shopping experience online. This has been launched in nine cities.

Since its listing in August, the company has traded at a P/E between 41-79 times. It currently trades at a P/E of just over 43 times. While the company's growth has been tremendous and its addressable market is huge, what needs to be monitored are the seamless execution of its plans and the actions of competitors.

Disclaimer: This analysis is not meant to serve as a recommendation. Do your research before investing in the company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com