Surging Organic Traffic Will Enable Future Monetization For CarWale, BikeWale, And OLX India

Key Takeaways

• Strong organic traffic growth across platforms offers opportunities to boost ad revenues and improve financial performance.
  
• The OLX India acquisition shows potential for earnings improvement through integration synergies and cost savings.
  
• CarTrade Tech faces potential revenue instability due to market oversupply, competition, and uncertainties in sustainable growth across its business segments.

Catalysts

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

• CarTrade Tech's consumer business, including CarWale and BikeWale, saw a 38% year-on-year revenue increase due to favorable market conditions where supply exceeded demand, suggesting potential for sustained growth and increased revenue from OEM and dealer ad budgets.
  
• The remarketing business, which had previously faced challenges, experienced a rebound with a 28% growth in revenue, driven by an increase in repossession volumes. This indicates potential for future revenue growth as repossession stabilizes or increases.
  
• The acquisition of OLX India has resulted in continuous quarter-on-quarter growth, with an 80% surge in profits, demonstrating potential for significant improvements in earnings as the integration matures and cost synergies are realized.
  
• Traffic across CarWale, BikeWale, and OLX India reached 79 million monthly active unique visitors, with 95% coming organically. This presents an opportunity to capitalize on increased organic traffic by monetizing higher ad revenues, thus improving net margins.
  
• With a current cash balance of ₹885 crores, CarTrade Tech has the potential to invest in further strategic acquisitions or technological advancements to enhance its platforms, therefore driving future revenue and earnings growth.

CarTrade Tech Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CarTrade Tech's revenue will grow by 17.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.4% today to 25.7% in 3 years time.
• Analysts expect earnings to reach ₹2.6 billion (and earnings per share of ₹51.75) by about February 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 48.1x on those 2028 earnings, down from 64.2x today. This future PE is greater than the current PE for the IN Specialty Retail industry at 42.9x.
• Analysts expect the number of shares outstanding to grow by 1.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.01%, as per the Simply Wall St company report.

CarTrade Tech Future Earnings Per Share Growth

Risks

• The industry is experiencing a minor growth with supply exceeding demand, which could lead to pressure on prices and impact CarTrade Tech’s revenue stability if these conditions change unfavorably.
  
• Even though growth has been achieved, the remarketing business previously faced sluggish quarters, indicating potential instability or unpredictability in this segment that could impact future earnings.
  
• The consumer group has seen strong growth, but this is partly due to favorable market conditions with manufacturers and dealers focusing on digital platforms during excess inventory periods, which may not be sustainable long term and could impact future revenue.
  
• Increased competition from other digital platforms and traditional advertising channels could jeopardize CarTrade Tech’s ability to sustain its market share and revenue growth in the coming years.
  
• Any potential slowdown in the integration and revenue generation from OLX or delays in realizing synergies and growth from other business segments could negatively affect margins and overall profitability.

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 ₹10.1 billion, earnings will come to ₹2.6 billion, and it would be trading on a PE ratio of 48.1x, assuming you use a discount rate of 14.0%.
  
• Given the current share price of ₹1535.05, the analyst price target of ₹1689.0 is 9.1% higher.
  
• 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.