Analysts Dub CarTrade’s OLX Acquisition A ‘Steal Deal’ As Shares Climb

Listed used cars marketplace CarTrade continued its climb on the bourses on Wednesday (August 23) after the company explained the rationale behind acquiring OLX India.

The move was initially seen as being a poor fit for the startup’s revenue model and triggered fears of OLX India’s business cannibalising CarTrade’s core business. The listed startup acquired OLX India’s classified and auto transactions business for INR 535.54 Cr.

In an investor call on Monday (August 21), the listed startup said the management plans to continue operating the businesses under the OLX brand and will see limited cannibalisation of CarTrade businesses. The company added that OLX’s C2B transaction business is asset-light, and management will focus on improving profitability over growth.

JM Financial labelled the acquisition a ‘steal deal’, with the analysts at the brokerage attributing this to OLX’s horizontal nature of business. It enables the company to generate higher margins as there is a higher customer lifetime value (CLV) in a horizontal business.

“While a typical user would engage in auto sales and purchases once in four-six years, the same user can still be selling mobile phones, furniture, and electronics, among others, more frequently, thereby improving CLV for the company,” JM Financial said. 

JM placed a ‘buy’ call on the CarTrade stock with a target price of INR 710, an upside of around 46%.

Citi analysts, which also have a ‘buy’ call, suggest that after the acquisition, CarTrade’s classifieds business will double to INR 370 Cr, while transactions business will rise by about 1.5X. The brokerage also set a target price of INR 624, or a 28% upside.

Speaking on the CarTrade-OLX deal, Vinay Sanghi, chairman and founder of CarTrade Group, said, “With this synergistic acquisition of OLX Classifieds and OLX Auto in India, built with cutting-edge technology, we can offer our customers a diversified classifieds portfolio and simplify the way used vehicle buying and selling is done.”

Sanghi added that the transaction brings around 68 Mn average monthly unique visitors and 32 Mn listings annually to CarTrade’s fold. With the acquisition, CarTrade’s employee count will cross 4,000.

CarTrade also reported an over 300% rise in its profit after tax (PAT) at INR 13.5 Cr in the first quarter of the financial year 2023-24 (FY24) from INR 3.3 Cr posted in the corresponding quarter last year.

The startup’s shares traded at INR 509.30 apiece at 11:50 AM on Wednesday, marginally higher than Tuesday’s close but nearly 5% higher than Monday’s close of INR 485.95.

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