CarTrade Tech IPO review (May apply)

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Review By Dilip Davda on August 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.

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