The Echo-nomist

CarTrade is driving to the public markets… They are the first second-hand car company to go public in India and the only profitable automobile marketplace in India. If they had a theme song, it would be “Come as You Are.”

We talked about the blooming second hand car biz a few weeks ago, when CarTrade had just filed its DRHP. And now their shares are available for subscription!

The price brand for their IPO has been fixed at ₹1,585-1,618 a share and is expected to mobilise around ₹3,000 crore. They have already raised ₹900 crore from anchor investors ahead of their issue.

CarTrade came up with a unique business idea to create a digital ecosystem for new and pre-owned vehicles. While their business has grown over years, there was an unprecedented growth during the pandemic year. Their restated profits for the 9 month period ended December 31, 2021 were 172% more than their restated profit for the entire FY20.

Company	Average Monthly Unique Visitors	App Rating	Gross profit ($)	Used car sales ($)
CarTrade	25.66 million	4.4	4.2 million	40 million
Carvana	8.5 million	4.7	790 million	4.47 billion

Carvana is a second hand car company based in the US. They debuted on NYSE in April, 2017. Upon comparing some of their figures with that of CarTrade, this table was made. CarTrade has more monthly visitors than Carvana. Which means that their sales were probably higher than that of Carvana’s. However, Carvana earned much more than CarTrade in terms of sales. Why so? This can be because of the price of cars sold. CarTrade’s sales are driven by entry level cars, which is not the case for Carvana.

The second hand car industry has seen a significant rise during the pandemic. It’s a more economical option if you need a car and serves the purpose. It’s also perfect for the younger population that doesn’t have a enough savings to afford a car. According to CarTrade’s DRHP, entry level cars (Swift Dzire, i10, Alto, Renault Kwid, Tata Tiago and the likes) account for 50% of the used car market in terms of volume, in India.

Used cars is definitely cost-effective for the buyer, but it is also a benefit to the seller. Anyone who wants to easily sell their car can easily do so now. It also provides banks and insurance companies to liquidate assets they acquire in case of no repayment.

In FY20 in India, there were 8.5 million transactions involving used cars, including exchanges among sellers and dealers for sale to the end buyer. Out of this, it’s estimated that 870,000 were commercial vehicles repossessed and sold by banks and 170,000 “salvaged” cars and commercial vehicles were auctioned by insurers.

A growing market trend has shown a positive impact on CarTrade’s operations. They became more popular- their website and aps handled approximately 2.05 million user sessions per day for the three months ended December 31, 2020. They are focused on building their brand reputation ( to associate CarTrade with trust, quality and reliability) and expand their network. So far, it seems to have worked out well for them. The number of listings on their online and offline auction platforms went from 709,190 in FY19 to 814,316 in FY21.

Another interesting fact about their IPO is that it’s 100% OFS (Offer for Sale). This means that the company is not creating new shares, instead the shares of the existing shareholder’s will be put on sale. The company will not receive any proceeds from OFS and all proceeds will go to the existing shareholder’s, from whom the share is being bought.

They’re not receiving any money for their shares, so why did they choose Offer for Sale? A couple of reasons actually. This way the shareholding of the company isn’t diluted further but the shares are mobilised. There are also added advantages of minimal paperwork and cost effectiveness. In case the IPO consists only of OFS, like in the case of CarTrade, there is no need for monitoring agency, appraising entity, credit rating, IPO grading etc. which saves a lot of time and money for the company.

Remember, they aren’t just selling second-hand cars, they’re selling their brand name. Their biggest strength is their popularity in this industry in India. As of 10th August, 2021, the IPO is fully subscribed and is expected to hit Dalal street later this week. Keep a lookout for their debut. Whether it will go up or down, you never know. So be alert!