Cartrade Gains As Nomura Sees Online Search For Cars Driving Growth
Nomura has set for Cartrade Tech a target price of Rs 770 apiece, an implied upside of 21%.
Shares of Cartrade Tech Ltd. rose the most in seven weeks in intraday trade after Nomura initiated coverage of the online marketplace for used cars with a ‘buy’.
CarTrade Tech is a leading player in India in classifieds and auction and re-marketing for used vehicles, and it recently entered into franchise-based used car business, the brokerage said in an April 28 report.
Its key growth drivers, according to Nomura, are rising digital spends by original equipment makers and auto dealers as majority of customers are using online medium to search for cars, secular growth in auction business, and high potential in used car business.
CarTrade Tech operates in three leading portals—CarWale, CarTrade and BikeWale—and has 3.1 crore monthly unique visitors. Nomura has set a target price of Rs 770 apiece, an implied upside of 21%.
Shares of the company gained as much as 8% as of 10:00 a.m. on Thursday before closing with gains of nearly 2.76%. The stock’s trading volume was 2.2 times the 30-day average at the time the markets closed. All the four analysts tracking the company suggest a ‘buy’, according to Bloomberg data. The average of the 12-month target price implies an upside of 54.9%.
Key highlights from Nomura's report on Cartrade Tech:
Auto digital spends estimated to record 22% CAGR over FY22-25F and Cartrade Tech will be its key beneficiary.
Growth in Shriram Automall India Ltd. or SAMIL, in which Cartrade has 51% stake, is led by rising organised share, limited competition, tie up with Ashok Leyland and proprietary algorithms driving higher conversions.
Expects SAMIL’s revenue to post a 25% CAGR over FY22-25F, with Ebitda margin at 26%.
Sees high potential for used car business ‘abSure’ as India’s used/new car ratio is 1.4x compared to 2-3x globally, and can continue rising at 12% CAGR over FY21-26F.
Our analysis of business models of new tech players and margins across segments indicates that there is very high growth potential for total addressable market and new tech players to gain share.
Estimates consolidated revenue and Ebitda to record 25% and 37% CAGR over FY22-25F.
Ascribes 9x EV/sales to classifieds (on a par with the average trading multiple of internet companies in India), 10x EV/sales to abSure, a slight premium over classifieds to factor in stronger growth prospects, and 7x to SAMIL, benchmarked to its global peer Copart.
Investment risks cited by Nomura:
Increased competition among automotive platforms.
Failure to maintain or increase customer base.
Decline in individual car ownership.
Limited success of the abSure franchise model.
Any changes in government regulations, such as the government focusing on data protection and social media influences, may affect the company’s marketing strategy to attract new customers.