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CarTrade IPO: A look into its business, COVID-19 impact and plans for the future

Online automotive classifieds CarTrade plans to raise Rs 2,000 crore through a initial public offering (IPO) and plans to expand into electric vehicles, ride-sharing, vehicle subscription and vehicle servicing services. According to the draft red herring prospectus (DRHP) filed with the Securities Exchange Board of India (SEBI), CarTrade will issue over 12 million equity shares at a face value of Rs 10, translating to 26.96% of its post-offer paid-up equity share capital.

Highdell, which is the company’s biggest shareholder will be selling the biggest stake— 5,379,055 equity shares —, followed by MacRitchie selling 3,568,217 shares, then CMDB and Springfield. Other shareholders that will sell their shares through the IPO include Bina Vinod Sanghi, Shree Krishna Trust and others. Axis Capital is the lead book-running manager, while Kotak Mahindra Capital Co, Citigroup Capital Markets and Nomura are the investment banks for the IPO.

CarTrade: A background

CarTrade’s platforms operate under several brands: CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade, Exchange, Adroit Auto and Auto Biz. “Through these platforms, we 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,” the DRHP said.

Two platforms, CarWale and BikeWale, are ranked number one on the basis of online search popularity. These companies were incorporated as Kaymo Fastener Company Pvt Ltd back in 2000, and was subsequently changed to MXC Solutions India Pvt Ltd in 2009. In 2021, the company changed to CarTRade Tech Pvt Ltd.

In recent years, the company expanded its business with total income growing at a CAGR of 45.94% between financial years 2018-2020. At the end of FY 2020, the company’s total income stood at Rs 318.5 crore , with a net profit of Rs 85 crore.

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Risk factors

  • Inability to keep pace with advances in technology
  • Failure to protect personal information and other data
  • Disruptions, failures or breaches of technology platforms
  • Uncertainty of the effect of the COVID-19 pandemic on business and operations
  • The decline in individual car ownership or in demand for certain types of vehicles
  • Fraudulent behaviour of sellers or purchasers of used vehicles listed on our platforms
  • Failure to maintain, protect and enhance the recognition and reputation of our brands

Mixed impact of COVID-19

CarTrade said that the impact on its operations will be impossible to predict due to the pandemic, and its related disruptions that will continue based on the efficacy and speed of the rollout of vaccines. “The deterioration of economic conditions in India, which could have an adverse impact on discretionary consumer spending,” it added. CarTrade also said that there has been a rise in buying the used car after the onset of the pandemic.

“We saw a slowdown in vehicle sales immediately following the declaration of pandemic and shutdowns of large parts of the economy; however, according to the RedSeer Report, personal mobility demand rebounded quickly after the “unlock” phase, as consumers preferred self-owned vehicles to ensure social distancing and reduce dependence on a weak public transport system and restrictions on travel and a downward trend in other discretionary spends caused a shift towards spending on vehicle ownership”CarTrade

End-to-end tech platforms and focus on data science boosting visits

The company on its various platforms — CarTrade, CarWale, BikeWale– deploys machine learning and artificial intelligence to advance its pricing, marketing and inventory technology for customers. The company also invests considerably in data by analysing vehicle sales that happen through auctions and that are offered by dealers on CarWale, CarTrade and BikeWale, it said.

“We obtain data through our websites and apps, when for example, a vehicle is listed on CarWale or when data is entered by dealers into CarTrade Exchange, our ERP tool for dealers. Our websites and apps handled approximately 2.05 million user sessions per day for the three months ended December 31, 2020. As a result, we have a large data set,” the company said.

A look into CarTrade’s subsidiaries

  • CarWale and CarTrade: Customers come to CarWale and CarTrade to buy new or used cars or to sell their cars. They can also research their content and use tools such as car reviews, price guides, car specifications, car images, used car inventory, car finance offer and trade-in tools.
  • BikeWale: This is a platform for buying new or used two-wheelers
  • Shriram Automall: Shriram Automall provides retail sellers, automotive dealers, financial institutions, insurance companies, fleet and individual operators, leasing companies, OEMs and other institutional sellers with solutions to sell their used vehicles at scale. CarTrade acquired 55.43% of the outstanding equity interest in Shriram Automall (SAMIL) in 2018.
  • CarTrade Exchange: CarTrade Exchange is an online auction platform and a used vehicle ERP system. Shriram Automall uses CarTrade Exchange to sell vehicles through online auction to CarTrade Exchange’s users
  • Adroit Auto: This provides on-site inspections and evaluations to a wide range of companies within the insurance and banking space. Insurance companies require an inspection of insured automobiles in the event of a breach of the insurance policy.
  • Auto Biz: New vehicle dealers use our cloud-based CRM tool AutoBiz to manage their sales leads and ensure that the dealership executives manage and follow up effectively as well as give dealership management insight into their sales teams’ performance.

Company plans to enter the electric vehicle market in the future

Although in the DRHP’s Offer Document Summary section, CarTrade says the benefits of listing the equity shares on the stock exchange is to enhance the visibility of its brand and provide liquidity to our shareholders, its forward-looking statements provide a deeper insight into its plans.

CarTrade plans to monetise various value-added services and untapped opportunities. “For example, we provide vehicle buyers with.. financing offers from multiple financing providers digitally through our finance platforms. We have engaged with a select group of used car dealers, who form our CarWale franchisee network. In some cases, we buy and sell quality cars to such used car dealers, who then refurbish the used cars to our standards before selling to customers. To help our dealers sell the cars, we promote these used cars on our platforms, thereby allowing us to provide, through the CarWale franchisee network, a curated online-offline buying experience where customers can confidently buy used cars.

We also plan to provide vehicle servicing, automobile accessories and automobile insurance by engaging with product and service providers who will provide these to consumers on our websites. Further, we offer software and technology service to automotive clients domestically and plan to grow that business internationally and invest in new trends such as connected vehicles, electric vehicles, ridesharing and vehicle subscription services. Finally, subject to regulatory approvals, we may consider diversifying into the business of financing the purchase of vehicles on our platform CarTrade

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