NEW DELHI: Global brokerage Nomura has initiated coverage on CarTrade Tech with ‘buy’ as it believes the company has high growth visibility and will benefit from rising digital spends by auto OEMs (original equipment makers) and dealers. Further, at current levels, it said, the stock is inexpensive given growth prospects.

Nomura has set a target price of Rs 770 on the stock. Interestingly, in order to reach all-time high level of Rs 1,610, the stock will need to more-than-double from the said target. From the last close, it suggests an upside potential of nearly 19 per cent.

CarTrade Tech is a leading player in India classifieds and auction and re-marketing for used vehicles. It operates various platforms like CarWale, CarTrade and BikeWale.

“CarTrade will benefit from rising digital spends by auto OEMs (14 per cent share in FY20) and dealers (6-8 per cent share), as a majority of customers are using the online medium to search for cars. We estimate auto digital spends to record a 22 per cent CAGR over FY22-25,” said Nomura in a note dated April 28.

The brokerage sees secular growth in its auction business Shriram Automall (SAMIL), led by rising organized share, limited competition, tie up with Ashok Leyland and proprietary algorithms driving higher conversions. It said SAMIL revenue could post a 25 per cent CAGR over FY22-25, with EBITDA margin at 26 per cent.

It added that its used car business abSure also has a high potential, as India’s used to new car ratio is 1.4 times vs 2-3 times globally. Nomura says CarTrade can continue rising at 12 per cent CAGR over FY21-26.

“Our analysis of business models of new tech players and margins across segments indicates that there is very high growth potential for the total addressable market and new tech players can continue to gain share as over half of the industry is unorganized. We build in 29,000 volumes in abSure by FY24 (4 per cent of revenue), and see potential for CarTrade to add other services such as financing and insurance,” said the global brokerage.

Nomura said it values ​​CarTrade using SOTP and ascribes 9x EV/sales to its classifieds business at par with the average trading multiple of internet companies in India.

“We arrive at a TP of Rs 770, which is backed by DCF. CarTrade is trading at 5.7x/31 times FY24 EV/Sales and EV/EBITDA, respectively, which we believe is inexpensive given the growth prospects. Hence, we initiate coverage of CarTrade with a Buy rating,” it added.

Key risks to target:

  • Increased competition among automotive platforms
  • Failure to maintain or increase market share
  • Decline in individual car ownership
  • Limited success of the abSure franchise model
  • Regulatory changes, such as the government focusing on data protection and social media influences

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By Dipak

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