MUMBAI : CarTrade Tech Ltd, the multi-channel auto platform, is the latest to join the initial public offering (IPO) bandwagon. It is a pure offer for sale (OFS) issue, which means CarTrade would receive no proceeds from this share sale for business purposes.
What this also means is that the ₹3,000 crore IPO provides a decent exit for large investors such as Warbug Pincus, Temasek, JP Morgan and March Capital Partners. The price band for the issue is ₹1,585–1,618 per share and the average cost of acquisition for these investors ranges between ₹270 per share and ₹605. In other words, returns are as high as 2.7 times to 6 times.
Warburg Pincus and JP Morgan will be selling roughly 51% and 40% of their holding in the firm, but will receive proceeds that are as high as 181% and 236% of their investment, respectively. On the other hand, March Capital is selling a little more than half its holding, but will garner funds that are 148% of its original investment. Temasek would receive 107% of its initial investment by selling about 40% of its holding.
CarTrade’s valuations have doubled in the last one year. In June 2020, in a Series H round from existing investors, CarTrade was valued at $525 million. In its IPO, the company is now asking for a market capitalization of about ₹7,400 crore (or $1 billion).
To be sure, given Zomato Ltd’s recent spectacular listing, the timing of CarTrade’s issue perhaps doesn’t get better than this. Note that the Zomato stock now trades at ₹130 per share, representing about 70% appreciation from its issue price.
Naturally, valuations are not cheap. “At the upper end of the IPO price band, it is offered at 4.4 times price-to-book value and 29.6 times EV/ sales and 73.4 times price-to-earnings," said a report by Anand Rathi Share and Stock Brokers Ltd on 6 August. The broker added, “If we exclude accounting adjustments for deferred tax and attribute it on equity, then the asking price is at a price-to-earnings of around 199.26 times to its FY21 earnings."
Meanwhile, CarTrade’s revenues in financial year 2021 took a beating, owing to the covid-19 pandemic, declining by 16% year-on-year to ₹249 crore. Even as the company has a first-mover advantage in the space it operates in, note that competition remains a big risk. “Going ahead, while the company can be expected to see rapid growth, it is also likely that the pace of growth may not be commensurate with the high valuations," said an analyst requesting anonymity. In FY20, revenue from operations grew by not more than 25%, even if one were to adjust for the disruption in the last week of March on account of the national lockdown.
The fact that large investors are selling large amounts of shares to recoup their investment should also act as a warning bell for public market investors.
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As CarTrade Tech rides tech IPO wave, big investors drive away with big gains - Mint
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