Baseless valuation for a `fatherless-motherless’ company with an accumulated deficit of more than four times its equity capital!
Under CCI era, share premiums were fixed based on companies’ historical earnings. But now, under SEBI’s so called `disclosure era’, issuers are fixing IPO price based on premiums collected from the private equity funds! In other words, present day issue pricing is highly skewed in favour of venture capitalists at the cost of investing public.
|
CARTRADE TECH OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | NIL |
| Offer for Sale | 1,85,32,216 shares (Rs 2,998 Cr) |
| Face Value | Rs 10 |
| Price Band | Rs 1,585 – Rs 1,618 |
| Mkt/Bid Lot | 9 Nos. |
| Implied M-Cap | Rs 7,416 cr |
| Implied Equity Cap | Rs 45.83 cr |
| Free Float | 100% |
| Lead Manager | Axis Cap, Citigroup Global, Kotak Mahindra Capital and Nomura Financial. |
| Registrar | Link Intime |
| Listing At | BSE, NSE |
|
INDICATIVE ISSUE SCHEDULE |
|
| Opening :9-Aug-2021 | Closing :11-Aug-2021 |
| Allotment :17-Aug-2021 | Refunding :18-Aug-2021 |
| Demat Credit :20-Aug-2021 | Trading :23-Aug-2021 |
The Offer
Navi Mumbai-based CarTrade Tech Ltd (CTL) is going public with an IPO of around Rs 3,000 cr. There is no fresh issue from the company. The IPO is an offer for sale (OFS) of 1,85,32,216 shares valued at Rs 2,998 cr (at the cap price) from nine existing shareholders. The offer is being made through the book-building route with a price band of Rs 1,585-1618 for Rs 10 paid-up share. The quantum of IPO works out to 40.43% of the company’s equity capital of Rs 45.83 cr.
Applicants should bid for a minimum lot of 9 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on August 23, 2021. Axis Capital, Citigroup Global, Kotak Mahindra Capital and Nomura Financial are acting as managers to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Monday, August 9 and closes on Wednesday, August 11, 2021.
The object of the IPO is to provide liquidity to the existing shareholders besides achieving the benefits of listing on the stock exchanges.
Lineage
CTL claims to have no identifiable promoter, though the signatories to the Memorandum at the time of registration were Gul Asrani, Vivek Asrani and Ritika Asrani. The company was incorporated as Kaymo Fastener Company P Ltd in April 2000. The name was changed to MXC Solutions India P Ltd in July 2009. The present management and some of the current shareholders, including Vinay Vinod Sanghi, reportedly acquired shares in the company in October 2009 and changed the name to ‘CarTrade Tech. Of the original signatories to the MoA, only Vivek Asrani is continuing as an Independent Director.
Until September 2009, CTL’s equity capital was just Rs 1 lakh. In October 2009 the company issued more than 30 lakh shares to various individuals, including key managerial personnel, and some private companies. After this, the company has received more than Rs 1,240 cr funding from ten private equity funds. The largest chunk (Rs 681 cr) came from MacRitchie Investments followed by Highdell Investment (Rs 244 cr), Springfield Venture (Rs 127 cr), MCP3 SPV LLC Rs 107 cr, Tiger Global (Rs 33 cr) Manbro P E (Rs 19 cr), MSF Private Equity (Rs 13 cr), Epiphany Overseas (Rs 11 cr), etc.
Of the company’s present equity capital, Highdell Investment is holding 34.44%, MacRitchie Investments controls 26.48%, CMDB II is having 11.93% and Springfield Venture is holding 7.09%. CTL’s Chairman-cum-Managing Director and Chief Executive Officer, Vinay Vinod Sanghi, is the fifth largest shareholder with 3.56%. Currently, the company has 31 shareholders of which top ten are collectively holding 91% of the equity.
Though more than two decade old, CTL started B2B and C2B auctions only in 2010. The company launched CarTrade.com and CarTradeExchange.com in the year 2012. It acquired Automotive Exchange, owners of brand names CarWale and BikeWale, for a sum of USD 100.07 mln in 2016, and Adroit Inspection Services P Ltd (Adroit) for a sum of Rs 13 cr in 2017. CTL also acquired a majority stake in Shriram Automall India Ltd (SAMIL) for Rs 156.37 cr in 2018.
Key Management
CTL’s Chairman-cum-Managing Director, Vinay Vinod Sanghi (52), B Com., who is the largest individual shareholder of the company, was appointed as the Chief Executive Officer of the Company on September 1, 2009. He had previously been associated with Mahindra First Choice Wheels Ltd and Project Automobiles (Bombay) P Ltd. Currently he is also on the board of Greaves Cotton Ltd. He reportedly has over 30 years of experience in the automobile industry.
The company’s Executive Director and Chief Financial Officer, Aneesha Menon (35), is a chartered accountant previously employed with S. R. Batliboi & Co. She joined Automotive Exchange P Ltd (an erstwhile Subsidiary which was subsequently amalgamated with CTL) as AVP-Finance on December 8, 2015. She was appointed as the Chief Financial Officer of CTL on July 21, 2020.
One of the original signatories to the MoA, Vivek Gul Asrani (53), who claims to have over 25 years of experience in setting up distribution networks, organizational systems, manufacturing systems and overall people and process management, is designated as an Independent Director. He is currently associated with Kamyo Fastener Company and Kamyo Industries (partnership firms).
Victor Anthony Perry (67), who holds a bachelor’s degree of science in civil engineering from the University of Virginia and a master’s degree in business administration from the Harvard University, is designated as Non-Executive Director. He was previously the president and chief executive officer of TrueCar, Inc.
Former banker and deputy governor of RBI, Kishori Jayendra Udeshi (77), is on the board of CTL as an Independent Director. Ex-bureaucrat Lakshminarayanan Subramanian (75), who served as a Secretary to the Government of India, Ministry of Home Affairs has also been roped in as an Independent Director.
Stakeholders
The nine selling shareholders, who currently hold 89.25%, will have 48.81% after the offer for sale at a negative cost of holding. Of this, Highdell will hold 17.76%, MacRitchie 16.69%, CMDB II 7.57%, Springfield 3.58% and Vinay Vinod Sanghi 2.14%. In other words, post-lock-in period, nearly a half of the equity will carry no cost which could decide the future course of the stock price.
Business Track
CTL claims to be India’s number one online auto portal for both cars and two-wheelers, based on relative online search popularity in fiscal 2021. Also, it was one of the leading used vehicle auction platform based on number of vehicles listed for auction in fiscal 2020. Among the key competitors, CTL was claimed to be the only profitable digital auto platform in 2020. CTL is a multi-channel auto platform with coverage and presence across vehicle types and value-added services through its brands CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade Exchange, Adroit Auto and AutoBiz.
Car shoppers can visit CarWale and CarTrade platforms to research and connect with dealers, OEMs and other partners to sell and buy cars from the large variety of new and used cars offered by them. In addition, CTL engages with financing and automotive ancillary companies to offer their products and services on CarWale and CarTrade.
Customers looking for new and used two-wheelers can research and connect with dealers, OEMs and other partners on BikeWale to sell and buy two-wheelers from the large variety of new and used two-wheelers offered by them. CTL’s subsidiary, Shriram Automall, facilitates sales of pre-owned cars, two-wheelers, commercial vehicles, three-wheelers, and farm and construction equipment.
CarTrade Exchange is an online auction platform and a used vehicle enterprise resource planning tool. It is used by consumers, business sellers, dealers and fleet owners to sell vehicles to automotive dealers and fleet owners. Automotive dealers also use CarTrade Exchange to manage their processes for procurement, inventory management and customer relationship management (CRM).
Adroit Auto offers vehicle inspection and valuation services used by insurance companies, banks and other financial institutions. AutoBiz provides new car dealers a CRM solution to manage their customers in an efficient manner.
The company’s revenue primarily comprises of commission and related income which includes commission and fees from remarketing services and inspection and valuation services of used vehicles as well as website services and fees which includes revenues generated from online advertising solutions, lead generation, technology based services and sale of used cars.
Financial Track
During the first decade of its existence the company was virtually dormant. In the second decade, after the infusion of more than Rs 1,500 cr equity funds, CTL achieved a consolidated operating income of Rs 298 cr in fiscal 2020. However, the pandemic pulled the top line back by Rs 50 cr in last fiscal. Interestingly, despite the fall in revenue, EBIDTA margin has jumped from 18.8% in 2020 to 25.3% in 2021. The company has created huge intangible assets (in the form of goodwill) of about Rs 900 cr. Due to deferred tax adjustments, profit at the net level has shot up to Rs 101 cr though the actual pre-tax profit it for the year was at only Rs 46 cr. With the help of tax adjustments, the company was able to reduce the accumulated loss to Rs 156 cr. Of course, the consolidated accumulated deficit to be cleared is still 3.4 times its equity capital.
|
CarTrade Tech Consolidated Financials (in Cr) |
||||
| Period Ended |
Mar-21 |
Mar-20 | Mar-19 |
Mar-18 |
| Months |
12 |
12 | 12 |
12 |
| Revenue |
249.68 |
298.28 | 243.28 |
123.55 |
|
Operating Profit |
39.36 | 39.62 | 29.5 |
-20.49 |
| OPM% |
15.8 |
13.3 | 12.1 |
-16.6 |
| Other Income |
31.84 |
20.16 | 23.53 |
25.98 |
| EBIDTA |
71.20 |
59.79 | 53.03 |
5.49 |
| EBIDTA % |
25.3 |
18.8 | 19.9 |
3.7 |
| Interest |
4.30 |
3.49 | 2.38 |
0.49 |
| Depreciation |
19.93 |
17.38 | 15.22 |
7.94 |
| Net Profit |
101.07 |
31.29 | 25.92 |
-6.88 |
| Accumulated Loss |
155.61 |
248.25 | 271.24 |
287.82 |
| Equity (Implied) |
45.83 |
3.45 | 3.45 |
3.45 |
| Reserves (Implied) |
1793.81 |
1472.13 | 1464.33 |
1457.35 |
| Fixed Assets |
51.6 |
49.9 | 47.6 |
47.6 |
Under the `disclosure era’, while the offer document (RHP) dated July 28, 2021 reveals the consolidated financial statements of the company, it is asking the gullible investing public to visit the company website for referring the company’s standalone financials. Contrary to the claim in the RHP, the company’s website did not contain the standalone financial statements till August 6, 2021. The same was uploaded by the company only on August 7, 2021 that is 10 days after the RHP date! This is how the issuers and their investment bankers respect the regulator SEBI!
When many an issuer has disclosed both consolidated and standalone financials in the RHP, why CTL had to withhold the standalone financial statements? A close scrutiny reveals that, its standalone revenue had slid from Rs 120 cr to Rs 93 cr in fiscal 2021 and the company could post a profit Rs 79.52 cr after a deferred tax adjustment of Rs 59 cr. What’s more, the standalone accumulated deficit was higher at Rs 192 cr!
|
CarTrade Tech Standalone Financials (in Cr) |
|||||
| Year Ended |
Mar-21 |
Mar-20 | Mar-19 | Mar-18 |
Mar-17 |
| Months |
12 |
12 | 12 | 12 |
12 |
| Revenue |
92.79 |
120.44 | 20.89 | 28.74 |
25.05 |
| Operating Profit |
6.82 |
-3.34 | -15.16 | -23.82 |
-39.91 |
| OPM% |
7.4 |
-2.8 | -72.6 | -82.9 |
-159.3 |
| Other Income |
20.45 |
16.67 | 18.89 | 29.88 |
27.35 |
| EBIDTA |
27.28 |
13.33 | 3.74 | 6.07 |
-12.56 |
| EBIDTA % |
24.1 |
9.7 | 9.4 | 10.3 |
-24 |
| Interest |
0.28 |
0.59 | 0 | 0.00 |
0.00 |
| Depreciation |
4.84 |
4.59 | 0.27 | 0.32 |
0.50 |
| Net Profit |
79.52 |
8.15 | 2.67 | 4.64 |
-13.06 |
| Accumulated Loss |
191.75 |
273.76 | 230.93 | 233.72 |
238.57 |
| Equity (Implied) |
45.83 |
3.45 | 3.45 | 3.45 |
3.16 |
| Reserves (Implied) |
1799.56 |
1479.3 | 1470.08 | 1463.10 |
1459.61 |
Valuation
Under the CCI era, such companies would not have dreamt of entering the capital market. But here, a company whose accumulated deficit is still more than 4 times its equity capital even after 10 years of operation is vying for a valuation of more than Rs 7400 cr! Without the hefty deferred tax credit, CTL’s consolidated EPS would have been not more than Rs 10. The IPO cap price (Rs 1,618) discounts this earning more than 157 times which makes mockery of issue pricing. If return on net worth (RoNW) and return on capital employed (RoCE) of a company is abysmally low, how can one justify such an ultra high P/E multiple for its stock?