CM RATING

48/100

CarTrade Tech is a multi-channel auto platform with coverage and presence across vehicle types and value-added services. Its platforms operate under several brands: CarWale, CarTrade, ShriramAutomall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz. Through these platforms (proprietary Websites/Apps), the company enable new and used automobile customers, vehicle dealerships, vehicle OEMs and other businesses to buy and sell their vehicles in a simple and efficient manner.

Originally incorporated as Kaymo Fastener Company Private Limited on April 28, 2000, at Mumbai, the name of the company was subsequently changed to MXC Solutions India August 12, 2009. Subsequently, in October 2009, the current management and some of the current shareholders, including Vinay Vinod Sanghi, acquired Equity Shares in the Company. The company launched CarTrade and CarTrade Exchange in 2009. Subsequently, it acquired Automotive Exchange Private Limited (CarWale) in 2016. In 2018, it acquired 55.43% of the outstanding equity interest in ShriramAutomall (SAMIL), which added automalls across India to its platform. Again in April 20, 2021, the name of the company got changed to CarTrade Tech Private Limited and once again to CarTrade Tech Limited on May 12, 2021.

The company is a professionally managed company and does not have an identifiable promoter in terms of the SEBI ICDR Regulations and the Companies Act, 2013.

The company provides services across different vehicle categories, including new and used cars, new and used two-wheelers and used commercial vehicles and farm equipment leveraging its leading brands. Further through its various business operations or technology platforms it works with several stakeholders in the vehicle ecosystem such as automobile consumers, dealers, insurance companies, financiers, and leasing companies. For example, its technology product CarTrade Exchange connects stakeholders such as dealers, consumers, insurance companies, financiers, and auction sellers on a single platform.

Overall, the services offered by the company are Auctions for Cars; Marketplace for New and Used Cars; Marketplace for New and Used Two-Wheelers; Auctions for CV & Others; and Inspection and Valuations. Its platforms facilitate B2B, B2C and C2B transactions in auto value chain for used vehicles.

The company in addition to its online presence, have also created a physical presence through ShriramAutomall and the CarWale franchisee network comprising a select number of used car dealers who carry the CarWale brand and who are required to adhere to certain standard operating processes so that customers can buy used cars with confidence. Currently the company operates 114 automalls, of which 111 automalls are located at sites leased from various landlords. The company buy and sell quality cars to franchisee dealers, who refurbish these used cars to the standards of the company before selling them to customers.

Revenues from several business streams primarily comprising: (a) commission and fees from auction and remarketing services of used vehicles for retail customers, banks and other financial institutions, insurance companies, OEMs, leasing companies, and fleet and individual operators; (b) online advertising solutions on CarWale, CarTrade and BikeWale for OEMs, dealers, banks and other financial institutions; (c) lead generation for OEMs, dealers, banks and other financial institutions and insurance companies; (d) technology-based services to OEMs, dealers, banks and other financial institutions and insurance companies; and (e) inspection and valuation services for banks and other financial institutions, insurance companies and OEMs.

While commission and fees contributed Rs 142.495 crore in FY2021 and revenue from online advertisement solutions, lead generation for OEMS/dealers/banks as well as technology-based services to OEMs, dealers, banks/FIs/insurance companies together accounted for Rs 88.196 crore. The inspection and valuation services for banks and other financial institutions, insurance companies contribute RS 17.692 crore in FY2021.

Offer details and objectives

The IPO is a pure offer for sale of 18532216 equity shares of Rs 10 face value by investor shareholders as well as other shareholders. The Offer would constitute 40.43% of the post-offer paid-up Equity Share capital of the company.

The objects of the IPO to provide and exit option for the investor shareholders and achieve the benefits of listing the equity shares of the company in the stock exchange.

The company will not receive any proceeds from the Offer and all the Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by the respective Selling Shareholders as part of the Offer.

Post issue the investor shareholders, i.e., CMDB II, Highdell Investment, MacRitichie Investment, Springfield, have a hold 7.57%, 17.76%, 16.69% and 3.58%, respectively. Similarly, the other selling shareholders, i.e., Shree Krishna Trust, Victor Anthony Perry III and Vinay Vinod Sanghi hold 0.95%, 0.11% and 2.14%, respectively. However, the other two selling shareholders, i.e., Bina Vinod Sanghi and Daniel Edward, will not have any stake.

Strengths

Company's brands, CarWale, CarTrade, ShriramAutomall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz, are trusted brands for automotive buyers and sellers, and enjoy a strong brand affinity. Strong, popular brands that are trusted for quality and reliability are key attributes in the e-commerce space.

The technology (web/APP) platforms of the company, i.e., 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, while ShriramAutomall is one of the leading used vehicle auction platforms based on number of vehicles listed for auction for the financial year 2020.

The consumer platforms of the company, i.e.,CarWale, CarTrade and BikeWale, collectively had an average of 27.11 million and 25.66 million unique visitors per month in Q1FY2022 and FY2021, respectively, with 88.14% and 88.44% of its respectively, being organic visitors (i.e., as a result of unpaid searches).

Its strong recognizable brands have also allowed it to develop new offerings such as price tools, financing solutions and trade-in solutions.

Large inventory for selection and unbiased transparency and intuitive search results of its platforms offers superior experience to all stakeholders. Its platforms offer superior consumer experience, which is reflected by an average time per visit of 3 minutes and 7 seconds during the three months ended June 30, 2021, on the CarWale website.

Online and offline pan-India presence and vehicle agnostic approach of it will enable the company to efficiently grow its products and services and cater to its customer needs across touch points. Further, its combination of online and offline presence (auction for ShriramAutomall) as well as related services is synergistic and drives customer traffic, creates competition among its network of professional dealers and helps ensure that it can achieve the best price for its users. Additionally, data collected from offline and online transactions can be used for the benefit of sellers on CarWale, CarTrade, CarTrade Exchange and ShriramAutomall, who can get insights into vehicle pricing and leverage price and supply differences across India.

The company offers a variety of solutions across the automotive transaction value chain for marketing, buying, selling, and financing of new and pre-owned cars, two-wheelers as well as pre-owned commercial vehicles and farm and construction equipment.

Online automotive portals are increasingly preferred considering highly fragmented used vehicle marketplace with lot of inefficiency in price discovery as well as complexity. The total addressable market for online automotive portals in India was estimated at US$ 14.3 billion in the FY2020.

Among its key competitors, it is the only profitable automotive digital platform for FY2020.

Strong management team with significant industry experience and was led by Vinay Vinod Sanghi, the CMD of the company, has 30 years of experience in the automotive industry. It has marquee institutional shareholders including Highdell Investment Ltd (affiliate of Warburg Pincus LLC), and MacRitchie Investments Pte. Ltd. (an affiliate of Temasek), JP Morgan and March Capital.

End-to-end model of the company allows it to offer a superior solution and experience to all stakeholders while reducing its cost of operations and enhancing its ability to offer complementary products and services and derive multiple revenue streams from a single customer.

The end-to-end technology platforms of the company is largely developed by in-house team allows it to offer a seamless solution to the customers of the company. Further the large customer base across its technological platforms allows the company to develop its other business lines with relatively low entry and customer acquisition costs and could enable it to create an end-to-end marketplace that would provide a comprehensive set of offerings for automotive customers. The company intend to increase monetization opportunities by introducing complementary, value-added products and services to improve the experience of buying, selling, and owning vehicles.

Its deep understanding and technology penetration in each of the businesses it run, the company offer a suite of products which can be deployed or sold to third parties such as automotive dealers, OEMs, financial institutions, or fleet owners. For instance, its white-labelled solutions in CRM, used car ERP and other areas have been used by or licensed to BMW India and MG Motor.

Investments in technology have made its platforms scalable in a highly capital-efficient manner.

Considering its market leadership and brand strength, it will gain from increase in the number of used car dealers in India subscribing to paid services on online automotive portals (jump from 4000 dealers in FY2020 to 11,000 dealers in FY2025) and increase in digital marketing spend by OEMs are to increase fee and advertising income.

Successful track record in M&A with successfully integrating and tapping the growth potential. The company has current investment of Rs 627.44 crore as end of March 2021 and cash and bank balance of Rs 24.479 crore. Against this it has a debt of Rs 54.55 crore as end of March 2021. This gives enough war-chest for M&A going forward.

Weakness

Failure to protect confidential personal information collected by the company from customers could damage its reputation and brands. Its failure to comply with provisions of Personal Data Protection Bill 2019 and IT Act 2000 and other laws, regulations or standards may have an adverse effect on the business, results of operations, cash flows and financial condition of the company.

Unable to keep pace with advances in technology or develop and introduce new and complementary products and services in a timely manner, customers may reduce their use of, or stop using, the services of the company.

The company relies on a mix of trademark and copyright law and contractual restrictions to protect its intellectual property. The company own 75 trademarks and 105 domains which the company use across its operations. Two of its trademark applications have been objected to, while eight of its trademark applications have been rejected. Additionally, it has filed 16 applications for registration pursuant to change in name of its Company to CarTrade Tech Limited, including applications for trade marking CarTrade Tech, which are still pending. Of the 16 recent applications, 11 of them have been objected to and 5 have been accepted and advertised, as of the date of this Red Herring Prospectus.

Increase in competition among automotive digital platforms offering superior customer experience or business model may adversely affect profitability. Entry of OEMs/dealers directly into online marketplace through their own platforms or new entrant can make the market more competitive.

The company is a professionally managed company and does not have an identifiable promoter in terms of the SEBI ICDR Regulations and the Companies Act, 2013. Accordingly, in terms of Regulation 14(1) of the SEBI ICDR Regulations, there is no requirement of minimum promoter's contribution in this Offer and accordingly, none of the Equity Shares will be locked in for a period of three years pursuant to the Offer.

In terms of Regulations 17 of the SEBI ICDR Regulations, the entire pre-Offer equity share capital will be locked-in for a period of one year from the date of Allotment, other than for (i) the Equity Shares sold pursuant to the Offer for Sale; (ii) any Equity Shares allotted to the employees of the company under the ESOP Plans prior to the Offer, as applicable; and (iii) any Equity Shares held by a VCF or Category I AIF or Category II AIF or FVCI, as applicable, provided that such Equity Shares shall be locked in for a period of at least one year from the date of purchase by such shareholders. Following the lock-in period of one year, the pre-Offer shareholders, may sell their shareholding in the Company, depending on market conditions and their investment horizon. So, after one year of locking period, the floating stock after one year will be 100% of the equity share capital of the company.

The aggregate of goodwill and other intangible assets was Rs 923.340 crore as of March 31, 2021, representing 47.84% of its total assets. Any future evaluations requiring an asset impairment charge for goodwill or other intangible assets would adversely affect future reported results of operations and stockholders' equity, although such charges would not affect its cash flow.

Valuation

Consolidated sales of the company for the fiscal ended March 2021 were down 16% to Rs 249.68 crore. But with operating profit margins expand by 250 bps to 15.8%, the operating profit was down by 1% to Rs 39.36 crore. The other income was up 58% to RS 31.84 crore and thus the PBIDT was up 19% to Rs 71.20 crore. With interest cost was up 23% to RS 4.30 crore and depreciation up 15% to Rs 19.93 crore, the PBT was up 21% to Rs 46.98 crore. But the taxation was a write-back of Rs 54.10 crore compared to a provision of Rs 7.62 crore in the corresponding previous period.

The profit for FY2021 was inflated by Initial recognition of deferred tax asset consequent to revision in estimate amounting Rs 59.150 crore. Till March 31, 2020, the Parent Company did not recognise deferred tax asset (DTA) in its standalone financial statements on the timing differences mainly arising from brought forward losses and unabsorbed depreciation due to the absence of reasonable certainty in accordance with Ind-AS 12. Pursuant to the changes in the Finance Bill 2021, goodwill of a business or profession is not to be considered as depreciable asset and no depreciation to be allowed in any situation for assessment years beginning on April 1, 2020. Depreciation on goodwill was one of the larger components contributing to accumulation of losses till foreseeable future for the Company. Given this proposed change in law, the Company has revised its estimate with respect to utilization of certain portion brought forward losses and unabsorbed depreciation relating to earlier years, to the extent it can be offset against future taxable profits and has accordingly recorded a Deferred Tax Asset of Rs 64.55 crore for the year ended in view of reasonable certainty based on revised estimates due to change in law. Further, the Company has also recognised net deferred tax liability of Rs. 5.40 crore which was hitherto not recognised due to the lack of reasonable certainty of realisability of brought forward losses and unabsorbed depreciation.

Thus, the consolidated EPS for FY2021 was Rs 19.9 and the upper price band quotes at a PE of 81.3 times. However, adjusting for initial recognition for deferred tax credit the consolidated EPS was Rs 7, and PE works out to Rs 231 times.

The offer at upper price band is made at 29.8 times of its EV/sales.

There is no comparable listed player available right now. These newage tech companies in ecommerce space always looks at growth and have penchant to take big risks involving large cash burns funded by equity dilutions. However, the recently listed Zomato, a food aggregator is currently traded at a market cap that is about 51.6 times of its FY2021 sales as on Aug 6, 2021. Indiamart Intermesh another ecommerce player in B2B segment currently quotes at a PE of 79.6 times of its consolidated FY2021 EPS. It quotes at EV/Sales of 33.33 times of its FY21 consolidated sales.

As the company is the first autotech company getting listed its price on stock market will be entirely a function of how much and how long it can enjoy the scarcity premium. Here it must be noted that as there is no promoters, the entire equity will be floating stock after the mandatory IPO related lock-in of one year.

Cartrade Tech: Issue Highlights

Sector	ITES
Fresh Issue (in equity share nos.)	0
Offer for sale (in equity share nos.)	18532216
Price band (Rs.)
Upper	1618
Lower	1585
Post-issue equity (Rs crore)	45.83
Post-issue promoter (including promoter group) stake (%) #	0.00
Issue Open Date	09-08-2021
Issue Close Date	11-08-2021
Listing	BSE, NSE
Rating	48/100
# The company is a professionally managed company and does not have an identifiable promoter in terms of the SEBI ICDR Regulations and the Companies Act

CarTrade Tech: Re-stated Consolidated Financials

	1903 (12)	2003 (12)	2103 (12)
Sales	243.28	298.28	249.68
OPM (%)	12.1	13.3	15.8
OP	29.50	39.62	39.36
Other income	23.53	20.16	31.84
PBIDT	53.03	59.79	71.20
Interest	2.38	3.49	4.30
PBDT	50.65	56.30	66.90
Depreciation	15.22	17.38	19.93
PBT	35.43	38.92	46.98
EO Exp	0.00	0.00	0.00
PBT after EO	35.43	38.92	46.98
Tax	9.51	7.62	-54.10
PAT	25.92	31.29	101.07
Minority Interest	9.23	9.42	9.87
Net profit	16.69	21.88	91.21
EPS (Rs)*	3.6	4.8	19.9
*on post IPO equity of Rs 45.834 crore. Face Value: Rs 10 EPS is calculated after excluding EO and relevant tax # EPS can not be annualised due to seasonality in operations Figures in Rs crore Source: Capitaline Corporate database

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