CarTrade Tech coming with an IPO to raise upto Rs 2099 crore

CarTrade Tech

• CarTrade Tech is coming out with a 100% book building; initial public offering (IPO) of 1,29,72,552 shares of Rs 10 each in a price band Rs 1585-1618 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on August 09, 2021 and will close on August 11, 2021.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 158.50 times of its face value on the lower side and 161.80 times on the higher side.
• Book running lead manager to the issue are Axis Capital, Citigroup Global Markets India, Kotak Mahindra Capital Company and Nomura Financial Advisory and Securities (India).
• Compliance Officer for the issue is Lalbahadur Pal.

Profile of the company

The company is a multi-channel auto platform with coverage and presence across vehicle types and value-added services. Its platforms operate under several brands: CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz. Through these platforms, it enable new and used automobile customers, vehicle dealerships, vehicle OEMs and other businesses to buy and sell their vehicles in a simple and efficient manner. Its vision is to create an automotive digital ecosystem which connects automobile customers, OEMs, dealers, banks, insurance companies and other stakeholders. It offers a variety of solutions across the automotive transaction value chain for marketing, buying, selling and financing of new and pre-owned cars, two-wheelers as well as pre-owned commercial vehicles and farm and construction equipment.

It has an advanced and sophisticated technology platform. Its data-driven digital platforms operate on an integrated technology infrastructure which is powered by its self-collected data and analytics. It leverage data to increase the effectiveness of its brands, enhance the customer experience, analyse market dynamics at scale, calibrate the search results on its platforms and optimise the inventory management by dealers and OEMs. Its platforms are operated by 221 technology employees working at its three technology centers as of June 30, 2021. Its technology platforms are both scalable and vertically integrated across the entire value chain, which allows it to address each step of the vehicle life cycle.

Proceed is being used for:

• Carrying out an offer for sale.
• Achieving the benefits of listing the equity shares on the stock exchanges.

Industry overview

India became the fifth largest car market in the calendar year 2020. Domestically, the two-wheeler segment dominates the market in terms of volume, owing to a growing middle class and a young population. Moreover, the growing interest of companies in exploring the rural markets further aided the growth of the sector. The entire automotive ecosystem is highly fragmented, complex and riddled with challenges. Vehicles reach end buyers through several channels and after going through multiple intermediaries and exchanges. The multiplicity of transactions creates potential inefficiencies that negatively affect the overall system. Online platforms are present across new and used vehicles. Online platforms are present across new and used vehicles and are helping to streamline this ecosystem.

India is expected to become the world’s third largest automotive market by 2025 in terms of volume, driven by key factors such as digitization, changing consumer behavior and innovative services. The automotive industry in India is a significant driver of macroeconomic growth and technological development, representing 7.1% of India’s GDP in financial year 2020. The automotive sector is expected to have held a similar share of exports in financial year 2021, given that both automobile production units and nominal GDP are estimated to have fallen by approximately 7% to 9% year-on-year.

The automotive sector has been amongst the three largest contributing sectors to the digital advertising market in India in terms of amount spent. Digital marketing spend by OEMs is expected to increase in line with the growth of the digital advertising market in India, which has been growing at a CAGR of approximately 20% from financial year 2018 to 2020. The relatively low share of digital advertising in the total advertising spend of Indian OEMs, compared to that in other countries, also indicates headroom for growth.

Pros and strengths

Leading marketplace for automotive sales with synergistic ecosystem: The company’s 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 vehicle auction platforms based on number of vehicles listed for auction for the financial year 2020. Among its key competitors, it was the only profitable automotive digital platform for the financial year 2020. It is a multi-channel auto platform with coverage and presence across vehicle types and value-added services. Its custom-built platforms provide an intuitive vehicle buying and selling experience. It offer a variety of solutions across the automotive transaction value chain from discovery and research tools, pricing and auto financing information to connecting consumers with dealers and OEMs for both used and new vehicle purchases. It also provides vehicle buyers with dynamic, personalized and real-time financing offers from multiple finance providers digitally through its finance platforms.

End-to-end technology platforms: The end-to-end technology platforms largely developed by its in-house team allows it to offer a seamless solution to its customers. It has a team of 221 technology employees located at its three technology centers as of June 30, 2021. Its agile and flexible technology is capable of supporting new offerings and scale. It also use machine learning and artificial intelligence (AI) to advance its proprietary pricing, marketing and inventory technology for customers to enhance their experience and to keep its systems up to date with technological advancements. It focus on leveraging its proprietary technology platforms and analytics and data frameworks to guide consumers on their vehicle search, enable better price discovery and provide efficient inventory management for used car dealers and institutional sellers. Due to its deep understanding and technology penetration in each of the businesses it run, it offer a suite of products which can be deployed or sold to third parties such as automotive dealers, OEMs, financial institutions or fleet owners.

Focuses on data science to provide superior solutions: The company analyze vehicle sales that happen through its auctions, as well as vehicles offered for sale by dealers on CarWale, CarTrade and BikeWale using data science and proprietary algorithms based on a number of factors, including vehicle-specific information on automotive transactions, vehicle registration records, consumer buying patterns and behaviour, demographic information, and macroeconomic data. 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 its systems. As a result, it has a large data set on vehicles in India. Its statisticians and data scientists have developed complex and proprietary algorithms to leverage this data to provide pricing tools, product reviews and market insights as well as reports to consumers, dealers, financial institutions and OEMs through its web and mobile user interfaces in an engaging and easy to understand way.

Profitable and scalable business model: The company became profitable in financial year 2019, with a restated profit for the year of Rs 259.17 million in the financial year 2019. It was the only profitable automotive digital platform for financial year 2020 among its key competitors in India. It operate on an asset-light business model, operating only 114 automalls, a large majority of which it lease or rent from third parties. It has invested significantly in building technology platforms that can manage considerably increased offerings without requiring sizable additional investments, and its growing scale has resulted in a decrease of the share of fixed costs. Together with its strong brands, longstanding relationships with customers, dealers and other stakeholders, and an expanding suite of offerings, it has created a profitable and scalable business model. Its operating expenses have grown at a lower rate than its revenues, as it is able to leverage its operations, sales and marketing and technology over a broader revenue base.

Risks and concerns

Rely on third-party service providers for many aspects of business: The company rely on third-party lenders to finance customers’ vehicle purchases. It also rely on third parties for technology such as network infrastructure for hosting websites and applications. Because it utilize third-party service providers, it cannot control all of the factors that might affect the quality and fulfilment of these services and products. If the third parties on which it depends are unable to continue to provide their services, experience difficulty meeting its requirements or standards, or revoke or fail to renew its service contracts or license agreements with them, it could have difficulty operating key aspects of its business, which could damage its business and reputation. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption or increase their fees, or if its relationships with these providers were to deteriorate, it could suffer increased costs and delays in its ability to provide its products to customers until an equivalent provider could be found or until it develop replacement technology or operations.

Success depends in large part upon qualified personnel: The company’s operations are dependent on its ability to attract and retain qualified personnel including senior management and key members of its product and technology team. While it currently has adequate qualified personnel, it may not be able to continuously attract or retain such personnel, or retain them on acceptable terms, given the demand for such personnel. It has suffered the attrition of 179, 579, 689 and 704 persons during the three months ended June 30, 2021 and the financial years 2021, 2020 and 2019, respectively. The loss of the services of its qualified personnel may adversely affect its business, results of operations, cash flows and financial condition. It may require a long period of time to hire and train replacement personnel when qualified personnel terminate their employment with the company. It may also be required to increase its levels of employee compensation more rapidly than in the past to remain competitive in attracting the qualified employees that its business requires.

Competition: The market for vehicles is particularly competitive and has been characterized by changes in market shares, increased price competition and the development and introduction of new services and technologies by existing and new competitors. Its key competitors include automobile portals, independent used and new vehicle dealers, branded vehicle dealerships, other online dealers of new and used vehicles, websites and apps for the publication of classified advertisements, and car leasing companies, which directly sell used cars from their fleets to consumers and dealers. Further, new competitors may enter the online market for vehicles or intensify their online efforts, including large automotive manufacturers. Its existing clients such as OEMs or large dealers may also decide to create their own online platforms and compete with it or choose to showcase their vehicles on its competitors’ platforms, and Internet search engines could provide automobile dealer and pricing information directly in search results or develop competing services.

Business depends on culture and attractiveness of platforms: The company allow its website users to list and write reviews of vehicles. Because it does not have full control over the content of such user reviews, website users may post illegal, inappropriate or undesirable content on its website, such as hate speech, adult or discriminatory content or anti-national messages. It may face challenges in promoting a culture of compliance with laws and regulations among website users, and filtering such posts as and when they arise. In addition, it publish reviews and detailed reports written by its editorial team on CarWale, CarTrade and BikeWale. Its editorial team or other employees may also post illegal, inappropriate or undesirable content, which it may be unable to remove or filter in a timely manner.

Outlook

Incorporated in 2000, CarTrade Tech is a multi-channel auto platform provider company. The company operates various brands such as CarWale, CarTrade, Shriram Automall, BikeWale, CarTradeExchange, Adroit Auto, and AutoBiz. The platform connects new and used automobile customers, vehicle dealers, vehicle OEMs, and other businesses to buy and sell different types of vehicles. The company offers a variety of solutions across automotive transactions for buying, selling, marketing, financing, and other activities. The diversity and number of users across all its platforms provides value to its buyers and sellers and creates a network effect in its businesses. Its data-driven digital platforms operate on an integrated technology infrastructure which is powered by its self-collected data and analytics. It leverage data to increase the effectiveness of its brands, enhance the customer experience, analyse market dynamics at scale, calibrate the search results on its platforms and optimize the inventory management by dealers and OEMs. On the concern side, the company has insurance policies that are customary in its industry, such as office package insurance and group mediclaim policy. However, it does not have business interruption insurance. The company may be required to obtain certain approvals, licenses, registrations and permissions for operating its business, some of which may expire in the ordinary course of its business and for which it would have to make an application for obtaining the approval or its renewal.

The issue has been offered in a price band of Rs 1585-1618 per equity share. The aggregate size of the offer is around Rs 2056.14 crore to Rs 2098.96 crore based on lower and upper price band respectively. On the performance front, its total income decreased by 11.59% to Rs 2,815.23 million for the financial year 2021 from Rs 3,184.45 million for the financial year 2020, primarily due to a decrease in revenue from operations. Its restated profit for the year increased to Rs 1,010.74 million for the financial year 2021 from Rs 312.94 million for the financial year 2020. The company intends to increase monetization opportunities by introducing complementary, value-added products and services to improve the experience of buying, selling and owning vehicles. It plan to continue to invest in improving its technology such as its AI and machine learning capabilities in order to provide more relevant and timely information to its customers, and enhance user experience. In addition, it will continue to build advance technology to digitalize offline elements of the customer’s vehicle buying journey to the extent practicable.