CarTrade Tech

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About the Company

CarTrade Tech Ltd is a multi-channel auto platform provider company with coverage and presence across vehicle types and Value-Added Services. The company operates various brands such as CarWale, CarTrade, Shriram Automall, BikeWale, CarTradeExchange, Adroit Auto, and AutoBiz. The platform connects new and used automobile customers, vehicle dealers, vehicle OEMs, and other businesses to buy and sell different types of vehicles. The company offers a variety of solutions across automotive transactions for buying, selling, marketing, financing, and other activities.

Q2FY23 Updates

Financial Results & Highlights

Detailed Results:

1. The company had a good quarter with consolidated revenue growing by 16% YoY and 10% QoQ and PAT growing 116% YoY and 68% QoQ. The high growth YoY numbers are due to losses in Q2FY22.
2. The company has grown revenues by about 30%, adjusted EBITDA grew by 47%, and the adjusted PAT grew by 80% in H1.
3. The company has now 190 plus physical locations including automalls and abSure outlets. 
4. Consolidated adjusted EBITDA margin is 30% versus 20% the previous quarter.  
5. The car new business in half has grown by 31%.
6. The Used Car business has grown by 160% year-on-year for the first six months, although it’s at a smaller base.
7. OEM dealer has grown by 33%
8. Dealer business has grown by 59%
9. In the company consumer group, the dealer business is about 40% of the business and the OEM is about 60%
10. The average monthly unique visitors stand at 37 million
11. The company auctioned 304,000 vehicles. But the growth rate of auction listings is only 12% in H1 and volume has grown by about 30% in H1
12. OEM grew by about 21% and dealers grew by 47% quarter-on-quarter.  
13. The growth in retail is about 51% in Q2.

Investor Conference Call Highlights 

1. Last quarter, the company recorded 37 million unique visitors on its platforms, which is the highest consumer traffic in a quarter. 86.6% of them still come organically.
2. The dealer business is growing at a faster rate than OEM business and Used is going faster than New.
3. Even though the Group has grown by 31% year-on-year for the first six months, Shriram Automall has had a tough quarter with the growth of only 9% in the last quarter, and that’s been highlighted due one of the company’s segments, which is auction of repossessed vehicles, which has been close to flat for the quarter.
4. For the repossess business, the management stated that if money is lent against vehicles, repossession is going to be required to be done. And the rate of repossession is unlikely to go down in the medium to long term. So, this is a short-term cyclical issue, not a long-term structural issue.
5. The management stated their focus is on the retail side of its business or supply of vehicles for auction, which is a big fast-growing segment for them and it is 30% of its business. 
6. The management stated when there is a shortage of vehicles and customers have to wait, generally, manufacturers spend less money or dealers spend less money on advertising.
7. Giving an update on abSure, the management stated that the company has got about 62 locations now. And the company’s objective has been to keep growing the locations and get to about another, maybe between 100 by the end of the year. Focus had earlier been to roll out locations. Now the focus is really on operational efficiency and customer experience within the location and within the abSure model itself. What is the customer’s experience when they buy a vehicle? And that whole experience of booking it online and picking up the vehicle. So, the focus is on the certification product, the warranty, the money-back guarantees, and all of that. And there we find we made a lot of progress.  
8. The company is now working on franchise viability. How many cars does the company need to sell to break even? How does the company make profits? How does it make sure that franchisees are  having a very healthy business? And then of course, how does the company make a sufficient return from this business? 
9. The objective is to keep growing and get to 100 outlets of abSure by the end of the year, each one doing 15 to 25 cars a month.
10. The management explains the stable marketing expense that with the car industry growing, more and more users come to the company automatically, and 87% of traffic is organic. And that’s reflected in the 37 million users.
11. The company has Rs 1,000 crore cash on a balance sheet, and the intent is to look at investments and acquisitions in the company’s ecosystem. Over the last six months, the company has aggressively looked for acquisitions but has not yet zeroed down on a particular acquisition in the investment area.
12. The management discussed the growth driver for the ad business. Over the years, out of ad spend for OEM or dealers, the digital ad part is growing, and the overall budget of ads is also growing, so two growth drivers.

Analyst’s View

CarTrade’s asset-light model can provide it an edge against its competitors who follow an asset-heavy model. While management believes that the asset-light franchisee model would generate superior unit economics with an ability to scale faster, it would be too soon to pin hopes on it when it has yet to significantly add to the top line. Apart from that, the competition in the segment is intense. Neither the consumer nor the dealers are sticky. Will CarTrade be able to take advantage while its competitors try to optimize their costs and face senior management exits remains to be seen?

Q1FY23 Updates

Financial Results & Highlights

Detailed Results:

1. Consolidated Sales grew by 47% YoY while it declined 12.4% QoQ. 
2. EBITDA margins: 13.4% | Adj EBITDA [excl ESOP]: 20%
3. Avg monthly unique visitors (UV) per quarter stood at 31.1 million out of which 84.7% were organic.
4. Total UV grew 14.7% YoY and 4.3% QoQ.
5. The auction listing for the quarter stood at 272,275 an increase of 28% YoY, while the volume sold increased 92% to 57,710 units. [Lower Base in Q1FY21 due to 2nd Covid Wave]
6. Conversion of listing to sold units: 21.2% [Calculated as  Auction Listing/Volume Sold]
7. Remarketing Business [Shriram Automall] grew 52% to Rs.51 cr YoY and reported a positive PAT of Rs.2.8 cr.
8. CarWale and Bikewale way above their competition on Google Search Trends in relative terms, demonstrates higher brand recall and helps in incoming traffic. 

Investor Conference Call Highlights:

1. There is a little seasonality in the business with Q1 being lower than other quarters.
2. Revenue Breakup – New Vehicle: 33% | Used Vehicle: 67%  [New vehicle business grew 48%]
3. Dealer business grew 76% and contributed 40% to the Standalone [Consumer Group] revenue. 
4.  abSure outlets stand at 57 across 34 cities. Management is heavily focussing on this segment and working with manufacturers, dealers and lenders to complete the customer journey from research to one-click purchase on their platform. These initiatives are driving the expenses higher. 
5. Benefited from lower marketing spends of competition, resulting in better traffic and search trends on Google. 
6. Working on the franchise model of abSure to ensure that the customer experience remain smooth inspite of them not owning the whole experience. Inventory is owned by franchise, moneyback guarantee, quality assurance product owned by CarTrade. Management believes this asset-light model will help them scale faster and provide better unit economics. 
7. Expect semi-conductor-related supply chain issues to ease out over the next couple of quarters. [Impacts new vehicle segment]
8. Expenses have only a small variable component, especially in the Remarketing segment. This leads to steeper operating leverage which cuts both ways and in case of lower revenue results in a sharper drop in margins. 
9. Dealers are on a subscription model. Manufacturers’ revenue can be from fees to generate leads, ad revenue, conversion models and so on.  
10. Targeting 100 abSure outlets and aim to sell 10-20 vehicles per month from each outlet. 
11. Remarketing business expected commission range: Rs.7500 – 8000
12. Supply from single users has higher margins compared to bigger suppliers. Offline has higher margins than online. Commercial vehicles have slightly higher margins. 
13. ESOP expense range for the year: Rs.25-30cr.

Analyst’s View: 

CarTrade’s asset-light model can provide it an edge against its competitors who follow an asset-heavy model. While management believes that the asset-light franchisee model would generate superior unit economics with an ability to scale faster, it would be too soon to pin hopes on it when it has yet to significantly add to the top line. Apart from that, the competition in the segment is intense. Neither the consumer nor the dealers are sticky. Will CarTrade be able to take advantage while its competitors try to optimize their costs and face senior management exits remains to be seen?

Q4FY22 Updates

Financial Results & Highlights

Detailed Results:

1. Sales grew by 15% YoY on a consolidated basis with 4% rise QoQ.
2. Adjusted EBIDTA margins for the quarter stood at 26%.
3. AVG monthly unique visitors (UV) stood at 30 million out of which 84.2% were organic.
4. The auction listing for the quarter stood at 3,23,693 while the number sold stood at 74,603.

Investor Conference Call Highlights:

1. The manpower costs increased by 25% YoY due to a lower base in the previous year due to Covid.
2. The management states that the company’s marketing expenses are relatively lower than its competitors due to higher brand affinity & the ability to generate 30 Million new traffic out of which 84% is organic, leading to lower requirements for spending.
3.  The management believes the presence of physical infrastructure due to its SAMIL biz segment provides it with a clear differentiation Vs its competitors.
4. The management believes that the simplification of GST rules for the used car market will help fuel the industry’s growth in the coming time.
5. The company’s volumes have grown at a higher pace vis-a-vis the revenue due to higher contribution from the non-physical segment due to Covid where commissions are comparatively lower.
6. The company’s abSure biz is a franchisee model where the company is expected to incur higher costs initially, but the management is very bullish about its growth prospects in the long run.
7. The management believes that without increasing traffic it could rapidly grow its revenues if manufacturers give more budgets to go up on digital advertising.
8. The management states that 14% of the OEM spends are digital which amounts to about Rs.850 Cr out of which the company gets a pie of close to Rs.120 Cr.

Analyst’s View: 

CarTrade Tech is one of the biggest auto platform providers in India and the only profitable one to date. The company had a good IPO post which it saw a serious fall in its share price of over 60%. The overall revenue growth has been decent in Q4 with revenues growing 15% YoY. The profits for Q4 and FY22 remain subdued due to a non-cash exceptional item regarding ESOPs issued by the company in 2022. The company has a lot of plans in place for the expansion of its new business segments like the abSure outlets and the fintech loan platform. It has also earmarked Rs 750 Cr for investments in growing new businesses. SAMIL has also added Ashok Leyland to its institutional auto auction business and expects to add more OEMs in the future. It remains to be seen what obstacles the company will face in its expansion into new business segments and how will the whole online vehicle ecosystem develop in the future. Given the brand strength of the company and its status as the only profitable player in this rising segment, CarTrade Tech is a pivotal auto platform stock to watch out for, particularly considering its currently attractive valuation levels.

Q3FY22 Updates

Financial Results & Highlights

Detailed Results:

1. Sales grew by 18% YoY on a consolidated basis with 16% rise QoQ.
2. Adjusted EBIDTA margins for the quarter stood at 32% up 400 Bps on quarterly basis.
3. AVG monthly unique visitors (UV) stood at 31.2 million out of which 86.2% were organic.
4. UVs increased by 1% YoY & decreased by 9% QoQ.
5. Auction listing for the quarter stood at 3,26,319 while the number sold stood at 72,639.
6. The company is geared to scale at 200 outlets in the next 2 years.

Investor Conference Call Highlights:

1. The overall car market was down 15% YoY in Q3.
2. 9M revenues grew 33% YoY while adjusted EBITDA grew 30% YoY.
3. The average monthly visitors to the company’s sites were at 31 million of which 86% came in organically.
4. There was an exceptional non-cash adjustment of Rs 140 Cr in Q3 for ESOPs granted in April 2021.
5. The consumer business of CarWale, CarTrade, and BikeWale grew 47% YoY while adjusted EBITDA grew 56% YoY in these segments.
6. Among the new businesses that the company is looking to launch, the B2C used car franchising is expected to do well. The company has also created a fintech product where customers can get linked to various auto financiers with approval from Cartrade once the customer puts in the requisite data.
7. The Board has earmarked Rs 750 Cr for investment into businesses like car servicing, car repair, car financing, electric vehicles and other avenues.
8. Cartrade is aiming to digitize the entire journey of acquiring a new or used vehicle.
9. The company is also aiming to enhance the online used car buying experience with its CarWale certified or CarWale abSure outlets. Currently 22 outlets are certified abSure. The company aims to bring this number up to 200 in the next 2 years.
10. In Q3, the company tied up with Ashok Leyland for auctioning the exchange vehicles brought to Ashok Leyland dealerships. The company also has such ties with Bharat Benz.
11. Despite the slowdown in the Indian auto sector, investments in online promotion and advertising have gone up and the management expects this to continue going up. There is still room for expansion for digital advertising in the auto space in India which is currently at only 13-14% of total ad spend vs 40% globally.
12. The company includes other income in its EBITDA calculations according to the management.
13. The realization per vehicle for SAMIL has fallen but the management remains confident that of it given that it is still yielding an adjusted EBITDA margin of 35%.
14. The abSure division has a separate CEO and the company is very bullish on developing this business. The main model of monetization here is transaction of sales of vehicles from the franchise stores where Cartrade charges a take rate on the selling price. The company’s cut on the final sales price ranges from 1.5% to 3% depending on the services provided to the specific dealer.
15. The management said that Cartrade has already done tens of thousands of loan approvals through its fintech product already and is one of the largest approvers of loans in this segment in the industry.
16. The management reiterates the company’s target to maintain a 30 30 30 model with growth target of 25-30%, margin of close to 30% and profit growth of 30%.

Analyst’s View:

CarTrade Tech is one of the biggest auto platform providers in India and the only profitable one till date. The company had a good IPO post which it saw a serious fall in its share price of over 60%. The overall revenue growth has been decent in Q3 with revenues growing 19% YoY and the classified businesses of Carwale, Bikewale and CarTrade growing 47% YoY. The profits for Q3 and 9M remains subdued due to a non-cash exceptional item of Rs 140 Cr regarding ESOPs issued by the company in 2021. The company has a lot of plans in place for the expansion of its new business segments like the abSure outlets and the fintech loan platform. It has also earmarked Rs 750 Cr for investments in growing new businesses. SAMIL has also added Ashok Leyland to its institutional auto auction business and expects to add more OEMs in the future. It remains to be seen what obstacles the company will face in its expansion into new business segments and how will the whole online vehicle ecosystem develop in the future. Given the brand strength of the company and its status as the only profitable player in this rising segment, CarTrade Tech is a pivotal auto platform stock to watch out for, particularly considering its currently attractive valuation levels.

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