CARTRADE
Cartrade recently breached their all time high of c.1500 recorded during listing in Aug 21 and is looking quite strong . The recent triggers being the following .
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Overall buoyancy in auto sales (Both Car and bike) : As per the management commentary the current scenario is a goldilocks situation (Not too hot or cold) as there is sufficient demand but there is also ample supply unlike covid times where there was supply crunch leading to OEMs not spending on marketing.
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Growth in OLX revenue after integration : Both on Auto and Non auto segment . The co. was initially focused on auto part of OLX business as its their forte , management is planning to focus on the non auto side as well. OLX already is a 25% margin business with strong network effects and moat. Peers like Craiglist in the US boasts of margins upwards of 70% if I am not wrong. This is the business I am most bullish about. If the management can get their act right on this one they can rap rich rewards.
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Bounce back of the Remarketing business : Management thinks that SAMIL has kind of hit the bottom and can only move upwards from here.
Pasting below a report that I prepared about Car trade in September 2024. The basic premise remains the same while the prices have run up a bit.
Cartrade Tech Ltd : Why does this new age platform demand a fresh look ?
Legendary Investor Mr. Ramesh Damani told an interesting anecdote about his purchase of United Spirits (Then Mc Dowells) in early 2000s.
“No doubt there were issues and that’s the reason these stocks gave you the opportunity. McDowells was 50% of the Indian spirits market and it was available for 160 Cr. People will swim across the sea with alligators and whales in it to buy this company and the stock market is giving it to you for Rs 160 Cr. At that price everything is captured -there couldn’t be a downside but only an upside. With 100 crore you could have bought 10-20% in Indian liquor industry or 2 flats in NCPA in Mumbai – that was the value proposition. You could have seen what Anheuser- Busch in US or San Miguel in Philippines is valued”.
Source : Master Class with Super Investors; Vishal Mittal/Saurabh Barsar
I believe Cartrade tech now presents with such a unique opportunity.
About the Business
Cartrade tech is a platform company predominantly in the automotive space (Cars, Bikes, Used and New). They have 3 broad verticals.
Consumer Group : Houses Carwale, bikewale and Car trade.com platforms .
Consumer group offerings:
Consumer group generates revenues from Auto OEMs, Auto Dealers, Used Car dealers , Finance companies , Auto Ancillary companies who generate traffic and inturn sales from Cartrade Platforms.
Google Trends : Relative Search Interest
Despite deep pockets invested competitors like Cars 24, Car Dekho , Spinny and Droom entering into the space , Carwale still maintains the lead in google trends.
Remarketing Group : Cartrade exchange, Shriram Automall and Adroit Auto
The remarketing business ( Shriram Automall, Cartrade exchange) gives an opportunity for finance companies , hire purchase companies and banks to display and auction their repossessed vehicles . This business has a phygital (Physical+digital) presence. This business has not been firing offlate due to reduced number of repossessions due to lower delinquencies.
Management is expecting that this business has bottomed out and should improve from here on.
Classifieds Business : OLX Business
Cartrade tech acquired the India business of OLX (OLX classifieds platform and OLX C2B business) from Sobek Auto Pvt Ltd for Rs. 535 Cr. OLX is owned by Naspers across the world .(Cartrade subsequently discontinued C2B business of OLX due to unfavourable unit economics).
OLX is the no:1 classifieds portal in India with 10 Cr app down loads and c. 4 cr unique visitors. Think about it : when you and I want to buy or sell used stuff which is our first port of call?
OLX has massive network effects:
That’s the reason why the whatsapp, facebook, VISA, Master cards of the world survive and thrive.
And to build sufficient network effects all platform companies throw money with little concern for profits.
OLX acquisition is the reason for giving the story about Ramesh Damani and Mc Dowells. If you think about it a profitable company with 24% margins with 10 Cr+ app installs and 4 cr unique visitors per month and is the first port of call for the country in classifieds is available for 3800 Cr (4400 Cr mkt cap - 700 Cr cash) .
45 % of the OLX business is used cars and rest 55% is categories like Real estate, Mobiles, Furniture, electronics, jobs etc.
Excerpts from the Concall :
OLX has 2 types of revenue streams :
- Consumer Paid Listing
- Dealer Paid Listing.
OLX is a profitable entity with 24% adjusted EBITDA margins.
(Craigslist, one of the pioneers in classifieds business is operating at a revenue of C.700 Mn $ with 80% profit margins !!!)
About the Management :
As evident from the above the entire management is with Cartrade for several years. Infact Cartrade in the current form was created by acquiring several companies like Carwale/Bike Wale , Shriram AutoMall , Adroit Auto , OLX etc. It’s a testimony to the vote of confidence in the Chairman Mr. Vinay Sanghi that all these entrepreneurs decided to stick on with Cartrade (Any patterns that you recognize there? 
)
The jockey Vinay Sanghi hails from a family which is traditionally into automobile space. They used to import cars for the Maharajas in pre independence era. Then they set up dealership business.
- Vinay Sanghi joined family dealership business post his studies.
- Then he wanted to do something on his own and incubated a company called Automart in 1999, which eventually became Mahindra First Choice .
- After associating the with Mahindra and HDFC bank in Mahindra First choice for 10 yrs plus running this business, Vinay quit
- In 2009 he started B2B and C2B auction platform and subsequently started Cartrade exchange and Cartrade.com, the first auto exchange platform in India.
- Acquired Carwale and Bike wale in 2016
- Acquired Shriram Automall (SAMIL) in 2018
- Acquired India business of Olx in 2023
Financials
The revenues have grown substantially post OLX acquisition so has the Operating margins. We can assume an annual run rate of c. Rs 100 cr.
If you look at segment wise results both consumer and Classifieds business are high margin businesses with Remarketing a bit of a drag .
Valuation
Current Price : Rs 940 (As on 5th Sep 2024)
Market Cap : Rs 4450 Cr
PE : 56.4
Cash in hand : c. 700 Cr.
Avg quarterly run rate PAT (Forward) : Rs 25 Cr.
Annualized PAT = 100 Cr
Forward PE = 37.5
Financials Comparison with Unlisted Competitors (FY 20)
- Cartrade is the only profitable company among its peers (Unlisted).
- Cars 24 have a gross revenue recognition policy and hence their revenues look optically high.
- Cars 24 is valued in the private market upwards of 3 bn $ (c. 25k Cr Rs) followed by Spinny, Car Dekho and Droom !!!
Relative financials with other New Age Listed Platform Companies
| Relative Valuation | Cartrade Tech Ltd | Info Edge (India) Ltd | PB Fintech Ltd | Zomato Ltd |
|---|---|---|---|---|
| Market Cap | 4,453 | 96,767 | 78,561 | 2,25,098 |
| Current Price | 941 | 7,479 | 1,722 | 255 |
| Stock P/E | 56.4 | 151 | 767 | 374 |
| Book Value | 441 | 2,339 | 130 | 23.1 |
| Dividend Yield | 0 | 0.29 | 0 | 0 |
| ROCE | 4.79 | 3.65 | 1.75 | 1.14 |
| ROE | 2.86 | 2.44 | 1.14 | 1.12 |
| Face Value | 10 | 10 | 2 | 1 |
| Debt to equity | 0.05 | 0.01 | 0.04 | 0.04 |
| Interest Coverage | 12.1 | 46.5 | 5.46 | 7.9 |
| Dividend yield | 0 | 0.29 | 0 | 0 |
| Sales growth | 48.5 | 6.71 | 39.2 | 72 |
| Profit growth | 77.5 | 55.3 | 135 | 177 |
| Enterprise Value to EBIT | 38.5 | 85.1 | 539 | 361 |
| Free cash flow 3years | 112 | 1,574 | -2,016 | -1,251 |
| Return on assets | 3.39 | 2.09 | 0.99 | 0.99 |
| Sales growth 3Years | 25.2 | 31 | 57.1 | 82.5 |
| Profit growth 3Years | -14 | 60.6 | 33.2 | 34 |
| Profit growth 5Years | 48 | 49.9 | 16.8 | 16 |
| Sales | 545 | 2,587 | 3,783 | 13,904 |
| OPM | 17.5 | 28.1 | -3.98 | 1.92 |
| YOY Quarterly sales growth | 64 | 8.11 | 51.8 | 74.1 |
| YOY Quarterly profit growth | 68.7 | 56.8 | 321 | 12,550 |
| Price to Free Cash Flow | 120 | 184 | -117 | -540 |
Conclusion (To cut the long story Short ):
- The markets are generally efficient and is a continuous discounting machine. Yet this New age platform business is valued presently valued at 4400 Cr market cap (with c. 700 Cr cash in books).
- This same company was listed at a price of c. Rs 1600 and c. 7600 Cr market cap when they were barely profitable and OLX was not part of the deal.
- I believe a confluence of factors like sweet ESOP deals, general fatigue towards new age companies over the last few years, market focus towards other sectors like defense , PSU , Reale estate , electrification and heavy industries shifted the focus from this company.
- This is a platform company which is cornering the used car space (with a foot in the door in new car segment) with excellent and prudent capital allocation available at descent valuations.
- OLX is a feather in the cap with exceptional network effects. It is profitable with excellent Operating margins and huge runway ahead. What remains to be seen how Mr. Vinay and co is able to capitalize the Non-auto business too.
Source :
Company Presentation, Concalls, DRHP
Value Pickr Forum: CarTrade Tech - A Multi-Channel Auto Platform - #39 by GARP_niveshak
Master Class from Super Investors: Vishal Mittal and Saurabh Barsar
Other Web resources
Disc: Invested around Rs 950 . Looking to add more. Current allocation is small.
Not qualified to advice. Please DYDD.