Rating: sell; Cartrade Tech – Cautious outlook maintained

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Cartrade recently made an announcement regarding its acquisition of Sobek Auto India, formerly known as OLX Autos India, from OLX India BV. The deal involves Cartrade obtaining a 100% stake in Sobek through an all-cash transaction, amounting to a purchase consideration of Rs 5.37 billion ($66 million). OLX Autos India operates a model focused on buying and selling used cars (C2B), competing with prominent nationwide players such as Cars24, Spinny, and Cardekho, as well as various smaller regional and local players, including the unorganized market.

This acquisition represents a departure from Cartrade’s usual strategy of avoiding asset-heavy buy-and-sell models. While specific details of the deal are limited in the public domain, industry discussions suggest that OLX Autos may require additional funding in the coming years. Consequently, we maintain a cautious perspective on Cartrade.

Rating: sell; Cartrade Tech - Cautious outlook maintained 10

Updating our analysis to June, we revise the fair value (FV) of Cartrade to Rs 460 (previously Rs 450). However, due to the recent surge in the stock price, we are downgrading our recommendation to Sell from Reduce.

Cartrade to acquire 100% stake in OLX Autos India for Rs 5.4 bn Sobek Auto, a company currently owned by Prosus, recently made an announcement in March 2023, stating their decision to exit the OLX Autos business unit worldwide. Despite OLX Autos India reporting revenues of Rs 11 bn in FY2022, the deal indicates a trailing price-to-sales multiple of 0.5X. It’s worth noting that the used car buy-and-sell market in India is highly competitive, with several startups like Cars24, Cardekho, Spinny, and other regional players vying for market share alongside OLX Autos.

Cartrade has sufficient cash to fund acquisition

As of March 31, 2023, Cartrade had cash and cash equivalents of Rs 11 bn on its books; it will use this cash to fund the acquisition. The company mentioned earlier that it would use its cash for M&A opportunities and the acquisition, hence, this does not come as a surprise. From the limited financial data that is available, we infer that the OLX Autos business is loss-making, and may hence, require more funding from Cartrade in the future.

OLX Autos may require more funding given asset heavy, loss-making business

Carwale launched the Absure franchise model in FY2022 to enhance the used car buying experience for customers. However, Cartrade adopted an asset light approach, wherein the used car inventory remained on the dealers’ books. Since there are only a limited number of large used car dealers in India, Cartrade’s acquisition of OLX Autos appears to be an effort to secure a consistent supply of used cars. In FY2023, OLX Autos facilitated 50,000 sale and purchase transactions.

This acquisition also signifies Cartrade’s entry into the asset heavy buy-and-sell model, a strategy it had previously avoided. However, due to intense competition and uncertainties surrounding GST registration regulations for small dealers, the value creation from this business for Cartrade might be delayed. Consequently, considering the company’s inflated valuations, we recommend downgrading the stock to SELL.


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