Increasing User Engagement On CarWale And BikeWale Will Drive Future Revenue Opportunities

Key Takeaways

• Strategic expansion and increased platform engagement indicate strong potential for sustained revenue growth, enhanced market presence, and improved profitability across sectors.
  
• Robust financial position supports future growth, strategic investments, and potential shareholder returns, enhancing financial health and profitability prospects.
  
• Over-reliance on organic traffic and marketplace model may introduce revenue volatility amid competitive pressures and integration challenges with acquired businesses.

Catalysts

Operates a multi-channel online automotive platform in India and internationally.

• The integration and continuous growth of OLX India, with margins and profits increasing every consecutive quarter, indicate future potential for enhanced revenue and profitability through strategic synergies and expanded market presence in both auto and non-auto sectors.
  
• The surge in demand and use of CarTrade Tech's platforms (CarWale, BikeWale, OLX) driven by increased consumer and dealer engagement and traffic growth, supported by organic user acquisition, suggests potential for sustained revenue growth and improved net margins.
  
• The company's strategic focus on expanding its remarketing business and capitalizing on increased vehicle auction volumes, including repossession improvements, points towards enhanced revenue opportunities and potential margin improvements due to increased operational efficiency.
  
• Enhanced digital advertising revenue from OEMs and dealers, supported by a growth in consumer platform traffic and increased market share, suggests that CarTrade Tech could continue to increase its advertising revenue, thus positively impacting its net margins and profitability.
  
• The significant cash balance and consolidated strong financial performance, including record-breaking revenues and profits, indicate a robust foundation for future growth initiatives, strategic investments, and potential shareholder returns, which could positively impact earnings and overall financial health.

CarTrade Tech Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CarTrade Tech's revenue will grow by 17.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.4% today to 26.3% in 3 years time.
• Analysts expect earnings to reach ₹2.6 billion (and earnings per share of ₹51.73) by about April 2028, up from ₹1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 47.7x on those 2028 earnings, down from 69.4x today. This future PE is greater than the current PE for the IN Specialty Retail industry at 35.5x.
• Analysts expect the number of shares outstanding to grow by 1.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.45%, as per the Simply Wall St company report.

CarTrade Tech Future Earnings Per Share Growth

Risks

• The announcement that supply is higher than demand in the automotive market could indicate a potential risk for revenue growth if this imbalance leads to pricing pressure on CarTrade Tech's services.
  
• The reliance on a marketplace business model for vehicle auctions may introduce volatility in revenue, particularly if the supply of repossessed vehicles decreases, impacting future earnings.
  
• A significant portion of the traffic driving growth is said to be organic, which could introduce a risk if market conditions change and paid traffic becomes more necessary, affecting net margins.
  
• Integration challenges with acquired businesses like OLX could introduce operational risks that affect both costs and net profitability as continued growth and margin improvements are sought.
  
• Competition with direct consumer interfaces like Spinny and CARS24, alongside OEM advertising shifts, could influence market share, affecting long-term revenue and market positioning.

Valuation

• The analysts have a consensus price target of ₹1689.0 for CarTrade Tech based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1934.0, and the most bearish reporting a price target of just ₹900.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹9.9 billion, earnings will come to ₹2.6 billion, and it would be trading on a PE ratio of 47.7x, assuming you use a discount rate of 14.5%.
• Given the current share price of ₹1659.0, the analyst price target of ₹1689.0 is 1.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.