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CarTrade may be onto something

CarTrade may be onto something

pre-owned vehicle market has a long way to go in India. especially now
August 3, 2021
2 min read
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CarTrade may be onto something

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CarTrade may be onto something

excitement in the public market, especially during IPO season, is gauged by how many times it was oversubscribed. Zomato scored a 40x subscription while CarTrade was subscribed 20 times over. although retail interest was slightly on the lower side at 2.75x the quota, HNIs and Institutional investors applied for shares equalling 41x and 35.45x their respective quotas.

what does CarTrade do?

CarTrade is a used car platform, which operates both online and offline. it has also made acquisitions of competitors CarWale and Shriram Automall, alongside vehicle inspection firm Adroit. the successful issue gives it a Rs 7,416 crore valuation, just about enough to qualify as a ‘unicorn’.

what’s exciting about used cars?

it’s always more exciting to produce new cars but things are changing. there’s a ‘perfect storm’ brewing, which could fuel it forwards.

the CarTrade IPO’s quota-wise subscription sizes perhaps signify the industry’s prospects. it’s a long-term bet, with those that have large resources happy to get in on the ground floor and wait out the slow ascent until it picks up pace.

the two CarTrade investors mentioned above have also received CCI approval for their investment in Ola, which has recently forayed into the pre-owned vehicles business. other players such as Cars24 — India’s first pre-owned vehicle unicorn, Droom, OLX, Mahindra, as well as many startups are also in the fray.

kickstarting the journey

on August 13, India launched its Voluntary Vehicle-Fleet Modernization Program (VVMP) aka the vehicle scrappage policy. this was a followup to budget-speech announcements on the same. it offers some incentives for owners choosing to send their vehicles for scrappage as well as disincentives in the form of steep taxes for those renewing permissions for very old vehicles.

the nuts and bolts of it

as per the policy, private and commercial vehicles older than 20 and 15 years, respectively, will have to undergo a fitness test, estimated to cost ₹40,000. those that fail the test will naturally be disqualified from plying on roads. those that pass will need to shell out an additional 10-25% of their road tax as ‘green tax’, depending on the city.

the policy comes into effect on April 1, 2022, and will immediately impact around 51 lakh private and commercial vehicles that are over 20 years old.

now, the owners of those old vehicles are likely to be on the market for a replacement. given the steep rise in automobile prices over the past 18 months or so, thanks to supply chain traffic jams, they are likely to at least consider pre-owned vehicles. of course, the Electric Vehicles industry is likely to profit from the situation as well. but at present, EVs typically cost more than their equivalent gas guzzlers — a hurdle to be overcome.

long trip ahead

however, CarTrade’s revenue for FY21 was ~₹190 crore which, assuming a commission rate of 10% per vehicle translates to ~₹1,900 crore worth of vehicles sold on the platform. assuming vehicles sold at a rate of ~33% of their original value, we arrive at a figure of ₹6,000 crore. this is a fraction of the new vehicle industry where, for example, Maruti Suzuki had a revenue of ~₹73,000 crore in FY21. 

so there’s a long way to go, but also a lot of room for growth.