Indian automobile marketplace CarTrade raises $403m in IPO

Indian automobile marketplace CarTrade made a weak debut on the Indian stock exchanges on Friday. The shares of the Mumbai-headquartered firm listed with a 1.1% discount to the issue price of 1,618 rupees (US$21.74) per share.

Photo credit: Pxhere

The stock opened at 1,600 rupees (US$21.50) on the BSE (formerly Bombay Stock Exchange) and 1,599.80 rupees on the National Stock Exchange. At 5:40 pm Singapore time, the stock was down around 5.7% on both exchanges.

The company opened its public offering on August 6, which was met with a weak response from investors initially, but gradually picked up momentum. By the end of the final day of bidding, the offer was oversubscribed 20.29x, with the retail portion being overbooked 2.74x. Overall, the company has garnered bids for 263 million equity shares against an IPO size of 12.9 million equity shares. The company set a price band for the offer at 1,585 rupees (US$21.30) to 1,618 rupees (US$21.75) a share.

The company raised US$403 million through its IPO, which was a pure offer for sale by existing investors and shareholders. The backers who sold their stake include marquee investors Warburg Pincus, Temasek, JP Morgan, and March Capital. CarTrade’s founder and promoter, Vinay Sanghi, and his family members also offloaded a portion of their stakes.

While the company, CarTrade Tech, was originally incorporated in 200o, the online vehicle marketplace CarTrade.com was launched in 2009. Over the last decade, it has grown to become one of the leading players in the space and the only profitable one.

The firm lets consumers buy and sell old two-wheelers and cars, as well as purchase new vehicles. Apart from this, it also allows users to participate in online auctions of used vehicles. It works directly with OEMs (original equipment manufacturers) and other stakeholders in the auto industry to let them sell vehicle spare parts.

It operates separate platforms for each offering, including CarWale, BikeWale, CarTrade, Shriram Automall, CarTrade Exchange, Adroit Auto, and AutoBiz.

Its rivals include CarDekho, BikeDekho, Droom, and Mahindra First Choice Wheels, as well as Cars24, which reportedly is in talks to raise US$300 million to US$ 350 million funding round at a valuation of US$2 billion.

Many brokerage firms were positive about the issue, as CarTrade is the first company in its sector to list.

“With a war-chest of US$89.7 million in the balance sheet, CarTrade is well-positioned and plans to capture adjacent business opportunities such as insurance, financing, servicing of vehicles, accessories, and refurbishment-cum-sale of cars. We believe CarTrade offers an attractive opportunity to participate in a new age business with a leading vehicle platform company,” noted brokerage firm Nirmal Bang, recommending investors subscribe to the issue two weeks back.

Similarly, BP Equities, which also gave a green signal on the company’s issue, said in a note earlier this month that CarTrade’s “comprehensive range of services, ie, automotive buying, selling, financing, marketing, etc. and profitable and scalable business model, provide for further growth visibility.”

Prateek Singh, founder and CEO of LearnApp, a trading learning platform, said that generally, if shares of a company list for less than the issue price, it simply signifies that the IPO is not in demand.

“But that was not the case with Car Trade’s IPO, which was in strong demand during the three-day initial public offering that ended on August 11,” said Singh, who is a seasoned trader. “The fact that CarTrade’s shares slid as much as 8.3% from their issue price in intraday trading, hitting an intraday low of 1,476 rupees (US$19.84) [on BSE], implies that all the retail traders are subscribing to profit from a listing gain and are planning to subsequently exit.”