CarTrade shares: After losing three-fourth of value, is this troubled stock headed for a 70% rally?

CarTrade Tech, a new age multi-channel auto platform provider, recently announced its earnings for the period ended on March 31, 2023. The company reported a decent set of numbers in the March 2023 quarter and brokerages remain majorly mixed on it. However, some brokerages are not going all guns blazing on the stock, with a few trimming their target price.

On the contrary, analysts, who are positive on the stock, see an upside of up to 70 per cent in the stock, which has wiped out more than 75 per cent of their wealth from the issue price. They believe that its Shriram Automall (SAMIL) business is yet to perform.

CarTrade Tech returned to black and reported a consolidated net profit of Rs 17.49 crore for the quarter ended March 2023. It posted a net loss of Rs 21.39 crore in the same period last year.  Its revenue during the reporting quarter rose 19 per cent to Rs 116.6 crore as against Rs 105.88 crore in the same quarter a year ago. Annual revenue stood at Rs 427.72 crore.

CarTrade Tech operates various brands such as CarWale, CarTrade, Shriram Automall (SAMIL), 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.

CarTrade reported consolidated revenue of Rs 95.9 crore driven by strong performance on a standalone business while remarketing business continues to face headwinds. With new auto sales making record highs in FY23, the company did profit from the return of ad spending. On the contrary, repossessions are down and the management still sees a potential reversal a few quarters away, said JM Financial in its report.

"We believe a sustained growth in the new auto business as supply-demand mismatch ebbs along with a return of repossessions could position CarTrade strongly in FY24. On the profitability front, adjusted EBITDA margin improved by 146bps to 19.9 per cent sequentially, with significant improvement seen in the remarketing business," it said.

Management also highlighted that AbSure has reached 90 outlets and the company looks to scale it further but a lack of operating metrics does not inspire too much confidence, JM Financial added and maintained a 'buy' rating with a target price of Rs 710 on the stock suggesting an upside of over 65 per cent reflecting significant valuation potential and margin expansion.

According to Nomura, Cartrade Tech’s 4QFY23 revenue was below estimates but the Adjusted EBITDA margin at 19.9 per cent was ahead, leading to in-line EBITDA. It expects new car inventory levels to inch up ) as supply constraints ease and demand slows down, which should support advertising growth in FY24F/25F. The rising digital mix should also be positive.

"We lower target EV/sales to 6x for the classified business, in line with the correction at its domestic peers, and that for SAMIL to 4x at the lower end of its likely range of 4-6x, as recovery seems to be taking longer than we had expected. Assigning no premium to AbSure business over classifieds, given the slower ramp-up," said Nomura.

However, the brokerage has trimmed its target price to Rs 569 from Rs 705 earlier but has maintained its buy rating on the stock citing it's attractive financial and valuations, factoring in a 51 per cent stake in SAMIL and has 56 per cent of the market cap as cash on books, and 6 per cent free-cash-flow yield.

CarTrade Tech was listed at the bourses in August 2021, when the company raise about Rs 3,000 crore through its initial stake sale, which was completely an offer-for-sale (OFS). The company sold its shares at Rs 1,618 apiece and received a decent response during the bidding process.

However, the stock has been reeling under severe pressure since its Dalal Street debut, wiping out about three-fourth of its value from the issue price. Even in the last one year, the stock is down 35 per cent, while its down 20 per cent in the last six months. However, it has risen 20 per cent in the last one-month period.

However, Kotak Institutional Equities (KIE) remains negative on the stock suggesting a limited upside in the counter. It believes that it has decent consumer business but its SAMIL platform is beaten down yet again. The brokerage has trimmed its target price for the counter.

Cartrade posted 4QFY23 in-line revenue growth of 3 per cent YoY, driven by 17 per cent YoY in core advertising, offset by an 8 per cent YoY decline in remarketing (SAMIL) business. The EBITDA margin of the standalone business improved sharply YoY, partially offset by weakness in SAMIL.

"Higher standalone business estimates get more than offset by SAMIL, resulting in a 1-2 per cent cut in FY2024-25E EPS forecasts. We remain cautious, given the very slow pace of execution in new verticals such as AbSure/signature," Kotak said while maintaining its 'reduce' rating with a new fair value of Rs 450, lower from Rs 500 earlier.


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