Cartrade Tech Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Record quarter, broad-based strength: Revenue grew 20% for the year and adjusted EBITDA grew 28%, with both hitting all-time highs in Q4. The consumer business delivered standout operating leverage.
• Consumer platform is the margin engine: Standalone consumer revenue grew 35% in Q4, driving 101% EBITDA growth; full-year margins expanded from 5% to 15% as marketing costs stayed flat despite 3.4 crore monthly visitors.
• Remarketing is the drag, but bottoming: Shriram AutoMall saw slight revenue degrowth and a margin drop from 24% to 18% as repossessed vehicle supply dried up. Management believes the repo market has bottomed and retail supply is filling the gap.
• Used-car pivot is working: Used-car revenue grew 136% vs 26% for new cars, lifting its share of consumer group revenue from 9% to 16%. Dealer share of the consumer business also improved from 35% to 39%.
• What to watch next quarter: Whether the repo market recovery materializes in the promised three-to-six-month window, the pace of abSure outlet scaling, and any decision on the buyback under Board consideration.

Consumer Business: The Operating Leverage Story

• Organic traffic as a moat: 86% of 3.4 crore monthly unique visitors come organically, keeping customer acquisition costs low and fixed. Marketing spend has been flat for five years, so revenue growth drops disproportionately to EBITDA.
• Brand dominance: CarWale's brand index stands at 83 vs the next competitor's 21; BikeWale at 90 vs 45. This search popularity underpins the organic traffic advantage.
• OEM spending tailwind: OEM business grew 29% for the year as supply-demand conditions improved over the last six to eight months. New car sales are predicted to grow 8-10% in the coming year, shifting toward a demand-exceeds-supply market favorable for advertising.
• Digital ad share runway: Manufacturer and dealer digital ad spend sits at just 13-14% today, vs roughly 40% in most countries. Management expects that to rise to 20-30% over the next three to five years, a structural tailwind for the platform.
• Vertical positioning advantage: CarWale provides the lowest customer acquisition cost for OEMs because it is a verticalized business with deep manufacturer integration and a focused customer set. Management expects to continue as a vertical player.
• Standalone margin ambition: Management believes 25% top-line growth is possible over three years, and if achieved, standalone EBITDA margins should improve from 19% to around 25%.

Vinay Sanghi: "growth revenue leads to a disproportionate growth in EBITDA. And this is typical to businesses like our marketplace business of cars where costs don't increase with proportional to revenues."

Remarketing: Repo Headwinds, Retail Transition

• Repo supply contraction: The repossessed vehicle business dropped from 69% to 55% of Shriram AutoMall's total as an improving economy reduced defaults. This drove slight Q4 degrowth and a full-year EBITDA decline of 13%.
• Retail filling the gap: Retail business grew from 21% to 33% of the mix, and management is actively sourcing supply from other channels to grow Shriram AutoMall. Retail carries higher margins than repo and offers better defensibility through fragmented, hard-to-replicate supply.
• Repo market bottoming: The repo market has been at similar levels for the last two quarters and management believes it has bottomed out, with recovery expected in three to six months.
• Auction volumes flat: Listings and auction volumes were more or less flat, consistent with Shriram AutoMall's financial performance.

Vinay Sanghi: "…the ability to defend and create moats around that business which would be impossible for somebody to breakthrough a little later."

Used-Car Shift & Market Trends

• Mix shift accelerating: Used-car revenue grew 136% vs 26% for new cars, lifting used-car share of consumer group revenue from 9% to 16%. This reflects both platform focus and improving used-car supply as new car availability frees up trade-ins.
• Supply improving: Used-car supply has improved over the last six months because new car market growth of 28% has prompted more owners to sell old cars to buy new ones.
• Inflationary pricing favorable: Average ticket sizes for both new and used cars are rising as customers buy higher variants, a favorable trend for the entire car industry.
• Dealer mix improving: Dealer share of the consumer business improved from 35% to 39%, with the Q4 OEM-to-dealer split at 62:38.

New Initiatives: abSure, Ventures & Future Revenue

• abSure scaling up: The company added a new "signature outlets" range and now has close to 90 abSure/signature outlets. Management is confident the model is tested and wants to scale over the next two to four years, continuing an asset-light approach.
• CarTrade Ventures launched: A dedicated team will use generated cash earnings and retained earnings to add products, services, or technology in the automotive ecosystem. The acquisition threshold remains high; management is prudent and will look at synergistic businesses where current technology can be leveraged, and is not afraid of larger acquisitions if convinced they can make it work.
• Transaction revenue a multi-year journey: Building technology for online purchase (loan approval, car booking, insurance) is a 2-5 year journey. Loans are already online for instant approval, but revenue from these sources will take 2-3 years to become significant. Incremental margins are hard to guide on at this stage; costs would be mostly product development and technology, with customer acquisition already covered.
• Buyback under consideration: Management confirmed the Board discusses a buyback of INR100-150 crores from time to time but has not reached any conclusion.

Vinay Sanghi: "we want to scale up now. We're quite confident that we've tested the model."

Profitability & Cost Structure

• Full-year turnaround: The company turned profitable during the year vs a loss last year, driven by a new ESOP entry. Adjusted PAT grew about 42%.
• Q4 profitability: Profit after tax of INR40.4 crores after INR11 crores deferred tax. ESOP expense was INR7.3 crores in Q4 and INR27.9 crores for the full year.
• Cost stability: Consolidated other expenses increased only marginally from INR24.19 crores to INR25.34 crores QoQ. Management assumes the same cost structure going forward, with some escalation from the April increment cycle that gets adjusted through the year.
• Pricing stability: Pricing for manufacturers and dealers has been stable; management sees potential for gradual inflationary increases but nothing dramatic.

Guidance & Commitments

Key Metrics