CarTrade Tech IPO sails through on last day; retail quota booked nearly 3 times

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The initial public offer (IPO) of CarTrade Tech got oversubscribed on the final day of bidding on Wednesday. The three-day IPO received bids for 1,70,62,245 shares till 11.35 am (IST) against 1,29,72,552 shares on offer, according to data available with the stock exchanges. The category for qualified institutional buyers (QIBs) was subscribed 1.87 times while those for non-institutional investors was subscribed 0.78 times and retail individual investors (RIIs) portion was subscribed 2.86 times.

The company last week said it has raised Rs 900 crore from anchor investors. Founded in 2009, CarTrade is backed by marquee investors — Warburg Pincus, Temasek, JPMorgan, and March Capital.

The CarTrade platform allows customers to buy and sell used cars as well as new cars. The firm is a multi-channel auto platform with coverage and presence across vehicle types and value-added services through its brands — CarWale, CarTrade, Shriram Automall, BikeWale, CarTradeExchange, Adroit Auto, and AutoBiz.

Axis Capital, Citigroup Global Markets India, Kotak Mahindra Capital Company and Nomura Financial Advisory and Securities (India) are the managers to the offer. The company has fixed a price band of Rs 1,585-1,618 per share.

Should you invest?

Angel Broking | Rating: Subscribe

In terms of valuations, the post-issue FY2021 PE (price to earnings) works out to 73.4x (at the upper end of the issue price band). There are no listed peers for comparison. However, the company is doing better compared to unlisted peers in terms of financial.

Angel Broking is of the opinion that the company has a strong brand, better technology platforms, a profitable & scalable business model.

ICICI Securities | Rating: Subscribe

CarTrade Tech enjoys high brand visibility and affinity, as evidenced by around 88% of FY21 unique visitors being organic (unpaid). Pursuant to its asset-light business model (111 out of 114 automalls are leased), controlled employee costs and low balance sheet risk due to minimal carried inventory (unlike some competitors), CTT was the only profitable automotive digital platform among its key peer set as of FY20. That apart the company is a net cash positive company with surplus cash amounting to Rs 650 crore as of FY21. CarTrade Tech offers a unique play on rising digitisation of new and pre-owned vehicle transaction value chain/ecosystem.

However, ICICI Securities is of the opinion that long term wealth generation in CarTrade Tech will be a function of scalability, relevance and journey towards healthier return ratios.

Choice Broking | Rating: Subscribe

CarTrade is an electronic exchange focusing on auto sector and thus there is no peer company having similar business operations. At higher price band of Rs. 1,618, CarTrade Tech is demanding an EV (enterprise value)/Sales multiple of 26.6x, which according to Choice Broking is attractive considering its scalable business model, profitable operations and business growth opportunities in the auto sector value chain.