Equitas Small Finance Bank CARTRADE TECH LIMITED

Equitas Small Finance Bank

IPO NOTE

9-Aug-2120

Equitas Small Finance Bank

IPO NOTE IPO NOTE

CARTRADE TECH LIMITED

Incorporated in April, 2000, Cartrade Tech Limited is a multi-channel auto platform with coverage and presence across vehicle types and

value-added services. They offer a variety of solutions across the automotive transaction value chain for marketing, buying, selling and

financing of new and pre-owned cars, two-wheelers as well as pre-owned commercial vehicles and farm and construction equipment.

Their platforms operate under several brands: CarWale, CarTrade, Shriram Automall, BikeWale, CarTrade Exchange, Adroit Auto and

AutoBiz. They are the only profitable digital auto platform among the key competitors for FY20.

FINANCIAL HIGHLIGHTS ISSUE DETAILS

ISSUE SIZE

OVERVIEW

₹ crore

Total₹2,999 cr

Fresh Issue₹0 cr

Offer For Sale₹2,999 cr

Issue Date 9 Aug’21 to 11 Aug’21

Price Band ₹1585-₹1618

Bid Lot 9 shares

Issue Size ₹2,998.5 cr

No. of Shares (Post Issue) 4.6 cr

Post-Issue Implied Market Cap* ₹7,394.3 cr

Price to Earnings Ratio (FY21)*

73.2x

* At upper price band

FY19 FY20 FY21

Revenue from Operations 243 298 250

EBITDA 65 72 78

Net Profit 26 31 101

ESFB is the largest SFB in India in terms of number of banking outlets, and the 2nd largest SFB in India in terms of Assets underManagement. Their asset products include small business loans, housing loans, and agriculture loans, Vehicle Loan, MSE Loan etc.On the liability side, they offer current accounts, salary accounts, savings accounts, and a variety of deposit accounts to theirclients. In addition, ESFB also provide non-credit offerings comprising ATM-cum-debit cards, third party insurance, mutual fundproducts, and issuance of FASTags.

IPO NOTE

The Bank have a diversified loan book:

• Small Finance Loans like Housing Finance, Agriculture Loans etc

• Micro Finance

• Vehicle Finance- They finance both used and new commercial vehicles

• MSE Finance

• Corporates

• Others

ABOUT THE COMPANY

26%

25%

3%

41%

4%

1%

Product Mix

MFI Vehicle Loans Mortgage Loan

MSME Finance Corporates Others

ABOUT THE COMPANY

16064%

8835%

11%

REVENUE FROM OPERATIONS (FY21)

Commission & related Income

Website Services and Fees

Sale of Used Cars

Total: ₹249.7 cr

The company generates revenue from several business streams primarilycomprising of the following:

• Commission and fees from auction and remarketing services of usedvehicles for retail customers, banks and other financial institutions,insurance companies, OEMs, leasing companies, and fleet andindividual operators.

• Online advertising solutions on CarWale, CarTrade and BikeWale fororiginal equipment manufacturers (OEMs), dealers, banks and otherfinancial institutions.

• Lead generation for OEMs, dealers, banks and other financialinstitutions and insurance companies commercial vehicles and farm andconstruction equipment.

• Technology-based services to OEMs, dealers, banks and other financialinstitutions and insurance companies.

• Inspection and valuation services for banks and other financialinstitutions, insurance companies and OEMs.

ABOUT THE COMPANY

KEY PRODUCT OFFERINGS

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

Customers looking for new and used two-wheelers can research and connect with

dealers, OEMs and other

partners to sell and buy these two wheelers

Its subsidiary, facilitates sales of pre-owned

cars, two-wheelers,

commercial vehicles, three-wheelers and

farm and construction equipment

Online auction platform and a

used vehicle enterprise resource

planning (ERP) tool. Dealers manage their processes for procurement,

inventory management and

CRM using it

Offers vehicle inspection and

valuation services used by

insurance companies,

banks and other financial

institutions

Provides new car dealers a

CRM solution to manage their

customers in an efficient manner

ECOSYSTEM AND NETWORK EFFECT

IPO NOTE

ABOUT THE COMPANY

• The company acquired Automotive Exchange Private Limited (CarWale and BikeWale) in 2015 and 55.43% of the outstanding equityinterest in Shriram Automall India Limited (SAMIL) in 2018 and successfully integrated these businesses.

• In Q1 FY22, the consumer platforms, CarWale, CarTrade and BikeWale collectively had an average of 27.11 million unique visitors permonth, with 88.14% being organic visitors (i.e., as a result of unpaid searches).

• It is a multi-channel auto platform with coverage and presence across vehicle types and value-added services.

• It offers a variety of solutions across the automotive transaction value chain for marketing, buying, selling and financing of new andpre-owned cars, two-wheelers as well as pre-owned commercial vehicles and farm and construction equipment.

• The websites and apps handled ~1.76 million and 2.15 million user sessions per day for the three months ended 30th June, 2021 and31st March, 2021, respectively.

• It provided a dealer management system (DMS) to BMW India to support all BMW dealers in India run their used car businesses inan efficient and digitally-optimized manner. BMW India also uses its DMS to power its consumer interfaces such as websites andapps. It is also building technologies for MG Motor so it can digitally offer a platform for retail finance solutions for new car buyersand additionally support sales and operational processes related to its used car business.

• It operates on an asset-light business model, operating only 114 automalls, a large majority of which it leases or rents from thirdparties.

SECTOR OUTLOOKInternet and smartphone penetration in India has nearly doubled from 2015 to 2020, and is expected to increase further in the future.The value of India’s consumer Internet market is expected to increase further in 2021, driven by the massive growth in consumeradoption and satisfaction in 2020 across sectors. The GMV (Gross Merchandise Value) of India’s consumer Internet market reachedtriple digits for the first time in 2021, eventually it is expected to touch $300 billion in FY26.

INDIA’S CONSUMER INTERNET MARKET

Source: RedSeer analysis

SECTOR OUTLOOK

The entire automotive ecosystem is highly fragmented, complex and riddled with challenges. Vehicles reach end buyers through severalchannels and after going through multiple intermediaries and exchanges. The multiplicity of transactions creates potential inefficienciesthat negatively affect the overall system. Online platforms are present across new and used vehicles and are helping to streamline thisecosystem.

ONLINE VEHICLE PLATFORMS

SECTOR OUTLOOK

• Amidst evolving customer needs and strong digital trends suchas increasing internet penetration, smartphone adoption andgrowth of e-commerce, the Indian automotive industry is ripefor digital disruption.

• The automotive sector has been amongst the three largestcontributing sectors to the digital advertising market in India interms of amount spent.

• Digital marketing spend by OEMs (original equipmentmanufacturers) is expected to increase in line with the growth ofthe digital advertising market in India, which has been growingat a CAGR of ~20% from FY18-FY20.

• The relatively low share of digital advertising in the totaladvertising spend of Indian OEMs, compared to that in othercountries, also indicates headroom for growth.

INDIA’S AUTOMOTIVE SECTOR

COMPETITIVE LANDSCAPECarWale and BikeWale, both platforms owned by CarTrade Tech, ranked number one on relative online search popularity whencompared to their key competitors over the period from April 2020 to March 2021 (Google Trends).

COMPETITIVE LANDSCAPEC

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ITED •Total Revenue:

₹3,065 cr

•EBITDA: ₹(267) cr

•PAT: ₹(285) cr

•EBITDA Margin: (8.7)%

•PAT Margin: (9.3)%

•A&P Expense: ₹142 cr

GIR

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•Total Revenue: ₹755 cr


•PAT: ₹(327) cr




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•EBITDA: ₹0.5 cr

•PAT: ₹(7) cr

•EBITDA Margin: 0.1%


•A&P Expense: ₹15 cr D

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•PAT: ₹(83) cr




CA

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H L

IMIT

ED •Total Revenue: ₹318 cr

•EBITDA: ₹59 cr

•PAT: ₹29 cr

•EBITDA Margin: 18.6%

•PAT Margin: 9.2%


Figures are for FY20

MANAGEMENT AND SHAREHOLDING The company is professionally managed and does not have anidentifiable promoter. However, two of the investor sellingshareholders hold 63.88% shareholding in the company, namely:

• Highdell Investment Ltd. (36.11%)

• A subsidiary of Warburg Pincus & Company US LLC, is acompany headquartered in Port Louis, Mauritius.

• MacRitchie Investments Pte. Ltd. (27.77%)

• A subsidiary of Temasek Holdings (Private) Limited, is aninvestment holding company.

The founder, Vinay Vinod Sanghi is also the Chairman, ManagingDirector and CEO.

Shareholding Pre IPO Post IPO

Investor Selling Shareholders 83.8% 45.6%

Other Selling Shareholders 16.2% 54.4%

Total 100% 100%

Allocation of offer Share in Issue (₹ crore)

% of Issue

QIB 1,499 50%

NIB 450 15%

Retail 1,050 35%

Total 2,999 100%

Selling Shareholders % Pre IPO Shareholding

% Post IPO Shareholding

Share in Issue (₹ crore)

% of OFS Issue

Highdell Investment 36.1 17.8 1,360.6 45.4

MacRitchie Investments 27.8 16.7 821.4 27.4

CMDB II (PE Fund JP Morgan) 12.5 7.6 366.4 12.2

Springfield Venture International 7.4 3.6 285.6 9.5

Other Selling Shareholders 2.3 1.1 164.6 5.5

RISK FACTORS• In the past, some of the vehicles sold through company’s websites and apps turned out to be stolen. Given the large number of listings,

the company does not check publicly available registers for all of these vehicles. Consequently, its reputation and value of its brandsmay suffer adversely as a result of such listings and transactions.

• The company had filed 16 applications for registration, pursuant to its change in name to CarTrade Tech Limited, including applicationsfor trade marking “CarTrade Tech” which are still pending. Of the 16 recent applications, 11 of them have been objected to and 5 havebeen accepted and advertised, as of the date of this Red Herring Prospectus.

• The aggregate of company’s goodwill and other intangible assets was ₹923.3 crore, as of 31st March, 2021 representing 47.8% of itstotal assets. Any future evaluations requiring an asset impairment charge for goodwill or other intangible assets would adversely affectfuture reported results of operations and shareholders’ equity.

• The company may be adversely affected by a general decline in individual car ownership as growing share of younger people areopting for ride-hailing services, ride-sharing services, car rental services and public transportation. Further, demand for certain types ofused cars may decline due to the introduction of innovative technologies for new cars, such as autonomous driving systems.

• New regulations or actions by government authorities may lead to a sudden decline for certain types of vehicles. Such suddendevelopments may prevent sellers from successfully selling affected vehicles, adversely affecting the company’s revenue.

• The market for vehicles is particularly competitive and has been characterized by changes in market shares, increased pricecompetition and the development and introduction of new services and technologies by competitors. Increase in competition amongautomotive digital platforms might impact the profitability of the company adversely.

STATEMENT OF PROFIT AND LOSSParticulars Data as on 31st March (₹ crore)

2019 2020 2021

Revenue From Operations 243.3 298.3 249.7

Other Income 23.5 20.2 31.8

Total Income (I) 266.8 318.5 281.5

Employee Benefits Expense 127.6 133.1 130.1

Finance Costs 2.4 3.5 4.3

Depreciation and Amortization Expense 15.2 17.4 19.9

Advertisement, Marketing & Sales Promotion Expense 20.3 24.1 13.2

Security Charges 3.5 18.8 15.0

Other Expenses 62.4 82.7 52.0

Total Expenses (II) 231.4 279.6 234.5

Profit Before Tax (III) = (I-II) 35.4 38.9 47.0

Total Tax Expense (IV) 9.5 7.6 (54.1)

Net Profit for the Period (III-IV) 25.9 31.3 101.1

STATEMENT OF ASSETS AND LIABILITIESParticulars Data as on 31st March (₹ crore)

2019 2020 2021

Property, plant and equipment 47.6 50.0 51.1

Goodwill 897.7 898.0 898.0

Investments (Current & Non-current) 287.1 294.8 645.5

Trade Receivables 36.0 46.7 47.3

Cash & Cash Equivalents 21.6 21.6 24.5

Other Assets 137.1 159.4 263.8

Total Assets 1,427.1 1,470.5 1,930.2

Total Equity 1,287.1 1,332.5 1,762.4

Lease Liabilities (Current and Non-Current) 33.5 42.1 54.6

Other Non-Current Liabilities 13.3 12.2 11.0

Trade Payables 18.1 19.6 22.2

Other Current Financial Liabilities 60.3 49.3 58.7

Other Current Liabilities 14.8 14.8 21.3

Total Liabilities and Equity 1,427.1 1,470.5 1,930.2

STATEMENT OF CASH FLOW Particulars Data as on 31st March (₹ crore)

2019 2020 2021

Net cash generated from / (used in) operating activities (A) 35.2 17.2 35.2

Net cash generated from / (used in) investing activities (B) (18.0) (8.2) (340.8)

Net cash generated from / (used in) financing activities (C) (7.8) (11.1) 308.1

Net increase / (decrease) in cash and cash equivalents (A+B+C) 9.4 (2.1) 2.5

Particulars Data as on 31st March

2019 2020 2021

EPS (Basic) (₹) 4.31 5.65 22.06

EPS (Diluted) (₹) 3.87 5.07 19.19

Net Worth (₹ crore) 1,231.4 1,262.2 1,680.6

Return on Net Worth 1.4% 1.7% 5.4%

Net Asset Value per Share (₹) 317.8 325.8 406.5

Adjusted EBITDA (₹ crore) 65.2 72.3 77.8

Adjusted EBITDA Margin 24.4% 22.7% 27.6%

Average Monthly Unique Visitors (including on apps) (crore) 1.9 2.1 2.6

Average Monthly Unique Organic Visitors (crore) 1.3 1.5 2.3

Organic Unique Visitors 64.7% 66.7% 88.4%

No. of Vehicles Listed for Auctions 7,09,190 8,09,428 8,14,316

No. of Vehicles Sold by Auctions 1,99,529 1,97,986 1,56,689

KEY METRICS

KEY TAKEAWAYS

• Revenue from operations decreased by 16.3% to ₹249.7 crore for FY21, on account of a decrease of 11.8% YoY in commission andrelated income to ₹160.2 crore, a decrease in website services and fees by 11% YoY to ₹88.2 crore and a decrease in revenue fromsale of used cars to ₹1.3 crore from ₹17.5 crore in FY20.

• The company’s total tax credit was ₹54.1 crore for FY21, compared to a total tax expense of ₹7.6 crore for FY20. This was primarily onaccount of an increase in deferred tax credit to ₹63.9 crore for FY21 from ₹3.7 crore for FY20, as well as a decrease of 13.4% in currenttax expenses.

• Other current financial liabilities of ₹58.7 crore constitutes ₹44.1 crore security deposit received from customers and ₹14.6 crore ofemployee related liabilities in FY21.

• During FY21, net purchase of current investments amounted to ₹330.6 crore. Also, it recorded net gain on investment of ₹20.2 crorecarried at fair value through profit and loss for FY21.

• Net cash generated from financing activities was ₹308.1 crore for FY21, primarily consisting of proceeds from issue of instruments inthe nature of equity (including premium) of ₹321.6 crore. During FY21, the company issued 3,897,225 preference shares at a premiumof ₹815.13 per share and 85,000 equity shares at a premium of ₹1 per share.

• Capital expenditure stood at ₹2.4 crore, ₹5.8 crore and ₹5.1 crore in FY19, FY20 and FY21, respectively, Additionally the company doesnot expect to incur any material capital expenditure in FY22.

StrengthsMulti-channel auto

platform

Asset-light business model

OpportunitiesGrowth in online

automotive marketplace

ThreatsCompetition from

peers

Cyclical nature of automotive industry

Weakness

Highly fragmented and complex industry

SWOT ANALYSIS

• The company has a vision to create an automotive digital ecosystemwhich connects automobile customers, OEMs, dealers, banks, insurancecompanies and other stakeholders.

• The inefficiencies in the automotive ecosystem highlight theopportunity for an online automotive marketplace to bring together andmatch the right vehicle buyers and sellers.

• The rich valuation is driven by strong investor appetite and long termgrowth visibility. Investors having high risk appetite may consider thesame.

Disclaimer:

This document is published for learning purposes only and nothing contained herein shall beconstrued as a recommendation on any stock or sector.

IPO NOTE

Issue Opens

Issue closes

Finalization of basis of allotment

Initiation of refunds

Credit of shares to

depository

IPO Listing Date

9 Aug

17Aug

18Aug

20Aug

23Aug

11Aug

TIMELINES

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DISCLOSURES

Documents

Equitas Small Finance Bank CARTRADE TECH LIMITED