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CarTrade reported existing business revenue of INR 955mn, a decline of 1.6%/1.8% QoQ/YoY as Remarketing business declined 16.5%/11.0% YoY/QoQ. Standalone business delivered 17.7% YoY growth, marginally lower than expected as festive season failed to deliver the corresponding jump in auto ad budgets. CarTrade’s existing business delivered adjusted EBITDA margin of 20.3% (214/184bps QoQ/YoY), primarily driven by New Auto segment. On OLX Classifieds, we believe Q3FY24 Adj. EBITDA margin of 24.3% can be used to build forecasts on with expectations of 18-20% topline CAGR and sustained margin improvement post Q4FY24. The company recognised INR 455mn of one-off expenses this quarter and there are no further one-offs expected. Considering total loss from discontinued transactions business, company reported a adjusted loss of INR 242mn in 3Q. We retain ‘BUY’ rating with Mar’25 TP of INR 1,000 (~44% upside), as we believe the company to be perfectly positioned to benefit from the long-term secular tailwinds in Indian auto.

* Standalone business continue to gain business mix: At INR 494mn in 3Q, Standalone business now accounts for 52% of existing business revenue. Though, New Auto business is not delivering the expected growth due to supply-demand mismatch in passenger vehiclees, it is still growing healthily and we expect it to deliver 23% FY24-28 CAGR and hence continuing to gain mix. Considering the fixed cost nature of the business, it will be a strong driver of CarTrade’s margin expansion and can reach 35-40% EBITDAM at steady state.

* Repossessions continue to struggle: Remarketing revenue in 3Q stood at INR 461mn (- 16.5% YoY/ -11% QoQ), a miss on JMFe of ~14%. The company did get a supply boost due to floods in certain parts of India but that supply didn’t convert to vehicles sold as conversion dropped by 450bps. Despite healthy growth in retail remarketing busines of ~25-27%, it was not enough to offset slowdown in repossessions. Though management feels that repossessions would be close to bottom but they were not able to convincingly suggest a near-term rebound. Our channel checks suggest that used car prices have risen sharply (20%+) over the past 2 years and are seen plateauing now, raising hope of improvement in repossessions business for CarTrade.

* OLX related one-off impact over: With OLX transactions business shuttered last quarter, company did guide of one-time shutdown expenses of INR 250mn. Company did also expect to pay INR 100mn (USD 1.2mn) per month to Prosus for product and tech expenses. However, the company has completed this tech integration earlier and allocated the cost 50% each to transactions and classifieds business. Along with certain incremental losses, the company recognised a total of INR 455mn as losses from discontinued operations this quarter. Going forward, management will be able to focus on the growth from its profitable businesses without any further distraction.

* OLX classifieds to drive growth with margin expansion: With tech integration done, we expect the management to fine tune the cost structure of Classifieds business over the coming quarter. As we have highlighted previously, India’s used items (including used auto) market is expected to grow strongly with more formalisation. With OLX being the undisputed market leader, we expect this business to deliver 18-20% revenue growth along with sustained market expansion as costs would rise only at 10-12% CAGR.

* Retain ‘BUY’, Mar’25 TP unchanged at INR 1,000: Sustained disappointment in remarketing business results in our revenue estimates cut by 4-5% over FY25-28E. Operating deleverage could lead to lower than expected margins; hence we lower EBITDA margins by 25-30bps over the same period, primarily in Remarketing business. We value CarTrade using a SoTP based valuation to arrive at Mar’25 TP of INR 1,000 (~44% upside) with 20x/15x FY26E EBITDA multiple for New Auto / Remarketing business and 25x FY26E earnings multiple for OLX Classifieds business. On a consolidated basis, our TP implies 26X FY26E PE multiple.

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CIN Number : L67120MH1986PLC038784