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CarTrade reported consolidated revenue of INR 959mn (-1.4%/+2.9% QoQ/YoY) driven by strong performance in Standalone business (+1.9%/28.7% QoQ/YoY) while Remarketing business (-3.9%/-11.4% QoQ/YoY) continues to face headwinds. With new auto sales making record highs in FY23, the company did profit from the return of ad spends. On the contrary, repossessions are down and the management still sees a potential reversal few quarters away. We believe a sustained growth in new auto business as supply-demand mismatch ebbs along with a return of repossessions could position CarTrade strongly in FY24. On the profitability front, adjusted EBITDA margin improved by 146bps to 19.9% sequentially, with significant improvement seen in Remarketing business. PAT margin further improved by ~4pp QoQ as increasing cash balance continues to generate robust interest income. Management also highlighted that abSure has reached 90 outlets and the company looks to scale it further but a lack of operating metrics does not inspire too much confidence. We retain ‘BUY’ rating with Mar’24 TP of INR 710 (~68% upside), reflecting significant valuation potential from continued growth (22% FY23-28E CAGR) and margin expansion (FY28E EBITDA margin of 26.8%).

* New Auto needs to sustain 25%+ YoY growth: We have continued to reiterate that CarTrade’s new auto business has the potential to grow 25%+ YoY for a sustained period. The rise in EBITDA margin in H2FY23 was largely driven by the operating leverage delivered by new auto business’s 29.1% YoY growth during the same period. Considering the fixed cost nature of this business, the company needs to continue sustaining this growth trajectory to deliver rising profitability. This might necessitate the company to build deeper tie-ups with OEMs and dealers and also get wallet share from newer digital advertising avenues.

* Remarketing business needs to continue building retail: Remarketing business accounted for 64% of group revenue in Q4FY22 and that has dropped to 55% in Q4FY23 as repossessions have declined sharply in H2FY23. As repossessions are too dependent on macro environment, diversifying this segment is needed in order to add predictability. While the company is building up retail channel, the growth rate needs to be ramped up considering the higher stickiness of retail customers as well as the competitors lowering their investments in the current funding atmosphere.

* Maintain ‘BUY’, Mar’24 TP stable at INR 710: Considering the in-line company performance in Q4FY23, we have kept our forecasts roughly stable with minor decline in Remarketing business revenue estimates. We arrive at Mar’24 TP of INR 710 using a SoTP valuation approach with 35x/20x FY24 EBITDA multiple for New Auto / Remarketing business and 2x Sales multiple for abSure business.

* Cash needs to leave the bank: As of Q4FY23, CarTrade has INR 11bn+ in cash that is yielding 6.5% roughly. There have been continued questions by investors on the company’ plans to utilise this cash. In Dec 2021, CarTrade announced plans to invest USD 100mn in automotive space and that was followed by the launch of CarTrade Ventures in

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