Cartrade Tech Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Record quarter, two-speed portfolio: Standalone consumer revenue grew 45% YoY with 128% adjusted EBITDA growth, while remarketing revenue fell 9% and EBITDA dropped 44% on a sharp decline in repossessed vehicle supply.
• Operating leverage is real, both ways: Consumer margins without other income doubled from 11% to 20–22% YoY as costs stayed nearly flat, but remarketing showed the reverse: when revenue degrows, EBITDA falls disproportionately.
• Mix shift underway across both businesses: Repossessed share of remarketing fell from ~70% to 53% YoY while retail supply rose strongly; in consumer, dealer share climbed to ~38% and used-car growth (129% quarterly) far outpaced new-car growth (21%).
• AbSure rollout deliberately slow, still tiny: Reached 73 locations, adding ~20 more by March, but management expects it to remain a very small percentage of total business for the next three to five years and declined to give store-count guidance.
• What to watch next quarter: Whether repossessed vehicle supply bottoms out as hoped, the pace of retail remarketing growth as the base gets larger, and any sign that new-car supply exceeding demand actually triggers higher ad spend.

Consumer Business: The Quarter's Engine

• Standalone performance: Revenue grew 45% YoY and adjusted EBITDA grew 128%, with costs almost flat QoQ, demonstrating the operating leverage inherent in the business model where revenue increases do not drive proportional cost increases.
• Margin expansion: Margins without other income doubled from 11% in Q3 last year to 20–22% this quarter, showing the leverage available when revenue moves up.
• Used-car surge: The used side of the consumer business grew 129% quarterly and 154% over nine months, far outpacing the new side at 21% quarterly and 27% over nine months.
• Dealer shift: Dealer business grew 50% quarterly versus OEM at 22%, and dealer share of the consumer business has risen to ~38% (OEM 62%) over the last year. Management sees this as a longer-term trend.
• Digital headroom: Only 13–14% of dealer money is spent on digital for new and used cars, leaving significant room for growth as OEM and dealer digital adoption has strengthened considerably over the last 18 months.
• New-car conditions improving but not yet ideal: Market conditions are better than a year ago but some products still have supply below demand; most predictions see supply exceeding demand in the next year, which management calls the best condition for the business because it drives advertising spend by dealers and manufacturers.

Sanghi: "We might find the supply is higher than demand and then that becomes a little more favorable for us because then dealers and car manufactures tend to spent heavily on advertising."

Remarketing: The Repossession Hole

• Repo supply collapse: Repossessed vehicle share fell from ~72% to 53% YoY, driven by multiple possible factors: lower loan disbursements during COVID quarters (no loans, no later repossessions), better industry conditions leading to fewer defaults, and higher used-car values making customers more likely to pay rather than let vehicles be repossessed.
• Revenue and profit hit: Remarketing revenue fell 9% and EBITDA fell 44%, showing the operating leverage working in reverse: when revenue degrows, costs do not fall proportionally.
• One-off cost distortion: Other expenses in remarketing grew sequentially despite the revenue decline because of at least ₹2 crores in conformational customer contracts in the low-margin valuation business, triggering corresponding inspection and valuation costs booked in the quarter; not expected to repeat.
• Retail supply as the offset: Retail vehicle supply grew strongly (per an analyst's math, ~60% YoY) due to serious hiring and effort directed at that segment, and margins are better on retail because supply is more fragmented. This helped maintain performance and is expected to help volumes in coming quarters.
• Diversification strategy: Management is focused on growing other verticals within its control: retail vehicles from retail sources, commercial vehicle auctions, and multiple verticals to derisk from repossessed asset dependency.

Sanghi: "It is hard for us to really tell that repossession is going to change or not in the next 3 months or 6 months. I think what we have got to do with a business is really grow other verticals if repossession does come back we are of course there and that will help the company, but it is better than we focus on growing every possible vertical which is within our control, and I think that is where our focus."

AbSure: Slow Build, No Visibility

• Rollout pace: Reached 73 locations, added 10 in the quarter, and expects to add about 20 more by March, reaching ~90–95, below the earlier target of 120. The rollout has been consciously slower than originally predicted a year ago to ensure right locations, franchise model, and customer experience.
• Still immaterial: Management stated AbSure is very insignificant in financials at this point and expects the next three to five years will still be a very small percentage of total business, though they are excited about the asset-light model.
• No guidance: Management declined to provide forward guidance on store count over two to three years, and declined to release metrics on the business, stating it is very early-stage and they are still assessing customer experience and franchise profitability.

Sanghi: "it is very insignificant in our financials at this point. We also feel the next three to five years is still in a very small percentage of our total business although we are very excited about it and we have got a very good asset light model. We are still trying to get full understanding on customer experience, franchise profitability and etcetera. When it becomes a little more stable"

Platform & Audience Metrics

• Unique visitors: Monthly UVs at 3.5 crore versus 3.1 crore last year same quarter; the slight QoQ dip from 3.7 crore was attributed to seasonal buying patterns (heavy September–October) and consumer demand, not marketing spend.
• Revenue decoupled from traffic: Management stressed that media revenues are not correlated to the number of consumers coming to the platform but to the amount manufacturers and dealers spend on digital advertising. Steady-state user growth should track industry-level growth, with the two-wheeler platform potentially adding slightly better growth.
• No consumer monetization planned: There is no plan at this stage to monetize consumers directly on the media business.

Sanghi: "do remember that our revenues are not dependent on number of consumers coming to the platform. It is highly dependent on the amount of money manufactures and car manufactures or vehicle manufactures and dealer spent. Revenue are not completely correlated number of customers coming to the platform."

Costs, Margins & Capital Allocation

• Marketing spend steady: No dramatic change expected in marketing spend over the next year; it is expected to remain in similar proportion to revenue.
• Wage costs: Wage escalation is expected from increments and adjacent hires, but not in proportion to revenue growth; margin growth should continue if revenue grows, consistent with the operating leverage fundamentals of the business.
• ESOP costs: No significant change expected next year versus the current ~₹27 crores annually.
• Balance sheet: The company continues to be debt-free with strong cash balances over ₹1,000 crores. Management declined to comment on inorganic expansion possibilities.

Sanghi: "The fundamentals of the business remain the same where increase in revenue does not have proportional increase in cost just as the nature of the business."

Guidance & Commitments

Key Metrics