IPO Review: CarTrade

Indian second-hand automobiles marketplaceCarTrade Tech Ltd had released the draft red herring prospectus for its initial public offering (IPO) with SEBI in May. It plans to raise around Rs 2,000 crores. The company had hit near unicorn status after its last fundraising round in April 2021. CarTrade is on its path to become India’s first online auto classifieds marketplace to list on the domestic market. However, it is also aware of the challenges and risks it might face due to numerous reasons, one of them being the severe impact of the pandemic on the automobile sector.

In this article, we take a closer look at the IPO details of the company and provide some insights into India’s automobile eCommerce market.

Terms of the issue

At the moment, the issue will be entirely an offer of sale (OFS) as the company is not looking to raise massive funds from the stock market through its IPO. The OFS will comprise 1.23 crore equity shares. Investors participating in the offer for sale and their shares are:  

CarTrade shareholders

CMDB II (16.07 lakh equity shares), Highdell Investment (53.79 lakh shares), Macritchie Investments (35.68 lakh shares), Springfield Venture International (11.24 lakh shares) and Bina Vinod Sanghi (1.83 lakh shares). The book-running managers include Axis Capital, Citigroup Global Markets India Private Ltd, Kotak Mahindra Capital Company and Nomura Financial Advisory and Securities (India) Private Ltd.

About CarTrade

Founded in 2009 by Vinay Sanghi, CarTrade.com is one of India’s leading online automotive marketplace for buyers and sellers of new and used vehicles. Over 800K vehicles are listed on CarTrade.com for auction in FY 2021. The company has a significant network dealership in over 4000 locations and over 1200 dealers participating in auctions. CarTrade also claims to get 31.9 million unique customers on its website every single month.

Buyers and sellers can find various content on CarTrade’s website and use their tools such as car reviews, price guides, car specifications, car images, used car inventory, car finance offer and trade-in tools. When they inquire about a new or used car, the website will connect them to a new or used car dealer or OEM.

Picture credits: CarTrade draft herring prospectus


CarTrade is backed by Warburg Pincus, Temasek, J.P. Morgan and March Capital Partners. It has raised US$ 307.4M in funding over eight rounds. The IPO will lead to a partial exit for CarTrade backers. JP Morgan will sell 16,08,324 equity shares, Highdell Investment and MacRitchie will sell 35,68,217 shares Springfield Venture International will sell 11,24,700 shares.

CarTrade.com also acquired Carwale, Bikewale and Mobility Outlook to have a broader reach in the automobile market, out of which CarWale and BikeWale ranked number one on relative online search popularity when compared to their competitors during the period from April 2020 to March 2021.
In FY2020, the company reported a revenue of ₹298.28 crores, while it was ₹243.28 crores in FY2019. Net profit for the period was ₹7.62 crore against ₹9.51 crore in FY2019. It is interesting to note that among its competitors, CarTrade was the only profit-making company in FY2020.

 Data Source: CarTrade draft herring prospectus

Reasons behind CarTrade’s profitability

In FY2020, one of the significant improvements in the company’s financials has been in its EBITDA margins and profitability. For the nine months ended 31 December, 2020 and financial years 2020, 2019 and 2018, its profit before tax margin was 14.52%, 12.22%, 13.28% and (1.97)%, respectively, while Adjusted EBITDA margin was 26.46%, 22.71%, 24.42% and 6.00%, respectively. According to the company’s prospectus, the main reasons behind its profitability were:

· Operating on an asset-light business model

· Operating only 114 auto-malls, a large majority of which is leased or rented from third parties. 

· Significant investment in building technology platforms that can manage increased offerings without requiring sizable additional investments, 

· Decrease in the share of fixed costs due to growing scale.

CarTrade is benefiting from economies of scale as its investments in technology has made its platforms and services scalable without significant capital expenditures. Moreover, its asset-light business model allows it to use cash on the balance sheet for acquisitions, one of its key strategies.

In 2020, CarTrade cut its advertisement, marketing, and sales promotion costs, which was 4.11% of the total income from March to December 2020. It focused on its SEO and targeting search keywords through content marketing on Carwale and Bikewale to acquire customers.

Challenges ahead 

Despite its profitability, CarTrade faces several challenges ahead. The company acknowledges the potential threats from changing models of ownership and rentals in the automobile industry.
The risk factors that CarTrade needs to watch out for are:

  • Fall in individual car ownership or demand for certain types of vehicles.
  • The possible negative impact of the COVID-19 pandemic on business and operations.
  • Disruptions, failures or breaches of technology platforms.
  • Fraudulent behaviour of sellers or buyers of used vehicles listed on its platforms.

Apart from the above risks, certain macro-risks might largely affect the entire mobility landscape and thus the company.

  • Future Mobility: The electric vehicles market is growing in India. In front of EVs, connected vehicles and more, older used vehicles might not be something that would appeal to buyers in the long run.
  • Shared Mobility: Ride-hailing, shared mobility and public transportation could intensify after COVID as a vast population will migrate back to major cities. The drain in wealth caused by COVID complications could deter families from buying cars in the near future.

Automotive Sector in India 

India ranked fourth in the largest automotive markets in 2019, with about 3.99 million units sold in the passenger and commercial vehicles categories. The two-wheeler segment dominated the market in terms of volume as a result of the growing young population. India’s automotive market will continue to grow mainly due to the following reasons:

  • Increase in demand: Rise in the middle class and young population
  • Increase in Investment: High inflows of foreign direct investment (FDI)
  • Govt. Policies: ‘Make in India’, FAME (faster adoption and manufacturing of hybrid and electric vehicles) and Production-Linked Incentive (“PLI”) schemes.
  • Online Platforms: Streamlining the fragmented automotive ecosystem through online platforms.
India's automotive sector


 It can be safe to say that CarTrade’s brand strength has significantly improved due to superior customer experience and word-of-mouth. Its targeted communication to consumers, dealers, OEMs have also played an essential role in the same. 

As CarTrade faces tough competition from Droom, Cars24, Quikr, Olx and Mahindra First Choice Wheels, the company with the most efficient and effective customer acquisition strategy will likely succeed. CarTrade cannot rely forever on word-of-mouth or organic customer acquisition. It will have to increase its marketing budget in the coming years. Therefore, according to the company’s strategy, it may either experience lower profit margins in the coming period or lose out on user reach when things get back to normal.

For more extensive analysis and Market Intelligence reports feel free to approach us or visit our website: Venture Capital Market Intelligence Reports | VCBay.

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Komal writes about the startup ecosystem on VCBay. She is an Economics Hons. graduate from Miranda House, Delhi University, and is passionate about the world of entrepreneurship and finance.


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