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CarTrade Tech IPO review (May apply)

Review By Dilip Davda on Aug 3, 2021

•    CTTL is a profit-making multi-channel auto platform.
•    It provides buy/sell of new, second-hand vehicles with other related services online.
•    It has been reported robust performance for FY21 with book entries of provisions.
•    The issue is aggressively priced to encase first-mover sentiment.

ABOUT COMPANY:
CarTrade Tech Ltd. (CTTL) is a multi-channel auto platform with coverage and presence across vehicle types and value-added services.  Its platforms 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 Shriram Automall is one of the leading used vehicles auction platforms based on the number of vehicles listed for auction for the FY20. Among key competitors, CTTL is the only profitable automotive digital platform. (Source: Redseer Report).

CTTL's platforms operate under several brands: CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz. Through these platforms, enables new and used automobile customers, vehicle dealerships, vehicle OEMs and other businesses to buy and sell their vehicles in a simple and efficient manner. The company's vision is to create an automotive digital ecosystem that connects automobile customers, OEMs, dealers, banks, insurance companies and other stakeholders.

The automotive ecosystem is highly fragmented and complex. The process of buying vehicles requires buyers to go through several channels and numerous stages. The multiplicity of transactions creates potential inefficiencies and can negatively affect the margins of the seller that can be achieved on the sale of a vehicle. Collectively, the inefficiencies in the ecosystem highlight the opportunity for an online automotive marketplace to bring together and match the right vehicle buyers and vehicle sellers on a single platform.

In the three months ended June 30, 2021, CTTL's consumer platforms, CarWale, CarTrade and BikeWale collectively had an average of 27.11 million unique visitors per month, with 88.14% being organic visitors (i.e., as a result of unpaid searches).

The company has a large data set on vehicles in India. Its websites and apps handled approximately 1.76 million and 2.15 million user sessions per day for the three months ended June 30, 2021, and March 31, 2021, respectively, and directly deliver the relevant data into systems.


ISSUE DETAILS/CAPITAL HISTORY:
To provide an exit to current stakeholders in part/full and unveil listing gains, CTTL is coming out with a maiden IPO of 18532216 equity share of Rs. 10 each via book building issue with a price band of Rs. 1585 - Rs. 1618 per share. Thus CTTL will mobilize around Rs. 2998.51 cr. at the upper price band of the issue. The issue opens for subscription on August 09, 2021, and will close on August 11, 2021. Minimum application is to be made for 9 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 40.43 % of the post issue paid-up capital of the company. The company has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors.

Having issued initial equity at par. CTTL raised further equity in the price range of Rs. 11 to Rs. 1376.80 per share between December 2009 and April 2021.

The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10.00, Rs. 14.29, Rs. 61.54, Rs. 301.71 / Rs. 270.42, Rs. 454.82, Rs. 567.59 and Rs. 604.82 per share.

Book Running Lead Managers (BRLMs) to this offer are Axis Capital Ltd., Citigroup Global Markets India Pvt. Ltd., Kotak Mahindra Capital Co. Ltd., and Nomura Financial Advisory and Securities (India) Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.

This being pure secondary offer, post issue CTTL's paid-up equity capital will remain the same at Rs. 45.83 cr. Based on the upper cap of the IPO, the company is looking for a market cap of Rs. 7415.95 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, the company has (on a consolidated basis) posted turnover/net profits of Rs. 266.81 cr. / Rs. 25.92 cr. (FY19), Rs. 318.45 cr. / Rs. 31.29 cr. (FY20) and Rs. 281.52 cr. / Rs. 101.07 cr. (FY21).

Super earnings for FY21 despite lower top line is attributed to deferred tax credit amounting to Rs. 63.87 cr. However, if we exclude this, then the net profit may be around Rs. 37.20 cr. Thanks to higher other income of Rs. 31.84 cr. against an average of Rs. 21.84 cr. for the previous two fiscals.

For the last three fiscals, the company has posted an average EPS of Rs. 11.93 and an average RoNW of 3.52%. The issue is priced at a P/BV of 4.12 based on its current and post issue NAV of Rs. 392.83 per share.

If we attribute super earnings of FY21 on its equity, then the asking price is at a P/E of around 73.38 and if we exclude accounting adjustments for deferred tax and attribute it on equity, then the asking price is at a P/E of around 199.26. Thus the issue is priced exorbitantly. (at the upper price bands).

DIVIDEND POLICY:
The company has not declared any dividend so far. It will follow a prudent dividend policy post listing based on its earnings and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORDS:
The four BRLMs associated with this offer have handled 36 public issues in the past three years, out of which 9 issues closed below the issue price on the listing date.


Conclusion / Investment Strategy

After seeing the recent madness for lossmaking companies IPOs, this profit-making companyââ‚-â„¢s IPO is set to generate more fancy. The only caution is the exorbitant pricing it is asking for being the first mover in the segment to go for listing. Hence cash surplus/risk seekers may consider investing in this IPO.

Review By Dilip Davda on Aug 3, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

CarTrade Tech IPO FAQs

  1. 1. Why CarTrade Tech IPO?

    The initial public offer (IPO) of CarTrade Tech Limited offers an early investment opportunity in CarTrade Tech Limited. A stock market investor can buy CarTrade Tech IPO shares by applying in IPO before CarTrade Tech Limited shares get listed at the stock exchanges. An investor could invest in CarTrade Tech IPO for short term listing gain or a long term.

  2. 3. CarTrade Tech IPO what should investors do?

    CarTrade Tech IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the CarTrade Tech IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  3. 4. Is CarTrade Tech IPO good?

    Our recommendation for CarTrade Tech IPO is to subscribe for long term.

  4. 5. Is CarTrade Tech IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the CarTrade Tech IPO.

  5. 6. When will CarTrade Tech IPO allotment status?

    The CarTrade Tech IPO allotment status will be available on or around Aug 17, 2021. The allotted shares will be credited in demat account by Aug 20, 2021. Visit CarTrade Tech IPO allotment status to check.

  6. 7. When will CarTrade Tech IPO list?

    The CarTrade Tech IPO will list on Friday, August 20, 2021, at BSE, NSE.