Should you invest in CarTrade Tech IPO?

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After the stellar listing of Zomato, online auto classified platform CarTrade Tech will be launching its IPO (initial public offer) on Monday August 09, to raise Rs 2,998.51-crore. The three-day offer closes on August 11 and the price band for the issue has been fixed at Rs 1,585-1,618 per share having a face value of Rs 10 per share.

The issue is a pure offer for sale (OFS) of 18.53 million shares by existing shareholders and promoters. The OFS will see a sale of 2.26 million shares by CMDB II, up to 8.41 million shares by Highdell Investment, up to 5.08 million shares by Macrithie Investments Pte, up to 1.77 million shares by Springfield Venture International, and 1.83 lakh shares by Bina Vinod Sanghi.

Investors can bid for a minimum of 9 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,562 at the higher end of the price band. A retail investor can at max apply for 13 lots or 117 shares for Rs 1,89,306.

Grey market chatter

In the grey market shares of CarTrade Tech are quoting at Rs 1,993 marking a premium of Rs 375 or 23% over its issue price of Rs 1,618 apiece.

According to Abhay Doshi, founder of Unlisted Arena who tracks the grey market the price to sales is almost 30x which is way higher than global listed peers. However, India is an unsaturated market relatively. Being an asset-light model there is high competition from peers like Cars24, Droom, etc.

“The issue looks expensively priced but being a niche company and frenzy for startup IPOs, it may accelerate in short term due to first-mover advantage. From a long term perspective, it would be wise to watch for further performance and decide accordingly,” Doshi said.

Should you apply?

Here is what brokerages are saying about the issue:

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 ~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.

Anand Rathi | Rating: Subscribe

CarTrade Tech has a unique business model with no listed peers in the market. Covid-19 has impacted its FY21 financials. At the upper end of the IPO price band, it is offered at 4.4x P/BV (price to book value) and 29.6x EV/Sales and 73.4x P/E (price to earnings) if we exclude accounting adjustments for deferred tax and attribute it on equity, then the asking price is at a P/E of around 199.26x to its FY21 earnings with a market cap of Rs 7,415.95 crore which shows the issue is priced exorbitantly.

However, considering the future prospect of the company and it is also placed at a sweet spot as the first-mover advantage Anand Rathi has given subscribe rating to the IPO.

Marwadi Shares and Finance | Rating: Subscribe

Considering the FY-21 adjusted EPS (earnings per share) of Rs 22.06 on a post-issue basis, the company is going to list at a P/E of 73.35 with a market cap of Rs.7,416 crore. There are no listed companies in India that engage in a business similar to that of the company. Accordingly, it is not possible to provide an industry comparison in relation to the company.

The brokerage firm has assigned a ‘Subscribe’ rating to this IPO as the company has a profitable and scalable business model with a focus on data science to provide superior solutions and is well-positioned to benefit from the growth of the automotive sector and digitalization.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)