In 2021, India ranked among the top 5 countries to attract the most amount of VC funding for startups, with 1,715 deals worth US$ 33.8 billion being executed. 2021 also marked the peak of the post-pandemic bull run, with equities doubling up from their March 2020 lows.
Peaks in both private and public markets made for the perfect confluence for relatively mature start-ups to get listed on the stock exchanges. Starting with Zomato, several companies got listed with stellar listing day gains and headlines on oversubscription.
But that fame was short-lived, and most of these internet stocks are down to half or even a fourth of their listing price.
Several reasons form a uniform backdrop for all these stocks to have been beaten down:
Global macroeconomic conditions and geopolitical stress had the markets go through a rough phase
Investors turned risk averse and preferred relatively safer asset classes, and relatively safer pockets within equities
Funding in the VC space dried up, leaving companies struggling to raise more money or be forced to become profitable
Valuations for start-ups saw a steep realignment, with all that froth settling up and prices baking in more realistic assumptions
Yet, in the midst of all this bleeding, the stock that is the “biggest loser” among the lot is the one that is actually profitable, has a good core business and a cash balance that will make other startups jealous - CarTrade Tech!
What is CarTrade?
CarTrade Tech may not be as famous a name as the companies under its banner - Carwale and Bikewale, likely to be among the first few websites to pop up if you ever need to buy or sell a used car, or even get connected to dealers to buy new cars.
Since its inception in 2009, the company’s little know history is that it started off as MotorExchange. It then acquired CarTradeIndia in a matter of weeks, which was then rebranded as CarTrade Exchange as one of the largest used car marketplaces in the country.
The business model mainly revolves around these segments that make up 95% of revenues:
With about 3.4 crore unique visitors on their websites each month (86% of which are acquired without paid ads), they are one of the largest used car marketplaces in the country and the 2nd largest new car marketplace (CarDekho is 1st)
Growth factors for CarTrade
In a country that is considered the 3rd largest automobile market, a few trends are being set in motion to ensure that it continues to grow, and CarTrade seems to be on top of them all!
It’s Profitable, Yes, You Heard That Right
CarTrade’s other USP stands that it is still one of the only profitable players among that dismal list of IPO companies and that remains its focus, unlike companies that tend to go overboard with their “growth at any cost” model.
The company has displayed steady revenue numbers despite COVID, with FY19 recording Rs. 266 crore and FY23 recording Rs. 425 crore, a 10% CAGR across that time frame.
With its asset-light approach to everything, net debt-free status, improvement in margins (EBITDA margins went from 17% in FY19 to 23% in FY23) and actual profit numbers that reflect on its income statement (Rs. 29 crore in FY19 to Rs. 41 crore in FY23), it has proven itself with actions rather than just words.
Cash - the Joker in the Pack
But what’s truly different about CarTrade is the fact that it has Rs. 1,100 crore cash lying in its books. That’s a whopping 55% of its Rs. 2,000 crore market cap. When cash hits this level, usually stocks go ballistic - see what happened with BSE, Mphasis, NIIT, and many more.
However, CarTrade is different. There are multiple dimensions to this cash balance that may make it look positive or negative.
Clearly, the demarcation between good and bad is hinged on cash utilisation. But acquiring may not be that risky a proposition in the case of CarTrade. Acquisitions are in its blood, whether it was the first acquisition it made within weeks of launching in 2009, to the other business in the years to come:
2015 - Acquired CarWale and BikeWale for Rs. 590 crore and made it into one of the most seamless and integrated auto-tech marketplaces in the country
2017 - Acquired Adroit, a vehicle inspection and valuation venture in an all-cash deal. This has added to their offerings for the abSure business
2018 - Acquired 55% of Shriram Automall for Rs. 157 crore, thereby creating the largest used car and auction platform in the country
All these acquisitions have in some way either shaped or improved the CarTrade group and have been mainly transacted in cash - this is what kids these days call a “baller move”!
News reports indicate Go Mechanic is looking to be among the first in this new era, making this a good addition to CarTrade’s overall auto offerings by providing in-house servicing at abSure facilities across the country and hopefully, rewrite the corporate governance wrongs that Go Mechanic engaged in.
From its listing, CarTrade has fallen 75%. But that doesn’t mean much - every other internet stock has fallen in that range. The things that make CarTrade slightly different though are:
If you assumed revenue and EBITDA CAGR of 15% and 20% respectively between 2023-2027 (in line with the industry’s projections), a DCF would lead to a fair value of Rs. 580
Additionally, there’s the huge cash balance, which CarTrade had the option of burning up like its peers, but it has chosen the path of profitability, thereby repurposing the cash to acquisitions, where it has exhibited a decent track record since inception
And if you’re lucky, some of it might just turn into the hands of minority shareholders. While the company and its private investors seem against it for now, who doesn’t like some dividend/buyback-led stock price appreciation?
After being brutally beaten up, it could have been uncalled for and CarTrade might just rise from the ashes to become quite the ignition to the digital auto space of India!
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