Target: ₹1,120
CMP: ₹807
New Auto in India witnessed an unprecedented supply-demand mismatch due to Covid. This was induced by demand for cars rising sharply due to safety concerns as buyers shunned public transport while supply got disrupted by a labour shortage first, followed by a chip shortage. With chip shortages easing in FY24 and automakers fulfilling the pent-up demand, we seem to finally be reaching a normalised state with reported inventory of around 45-50 days, similar to pre-Covid levels.
As highlighted in our reports earlier, OEMs did lower their ad budgets due to their inability to service the existing demand. With supply normalising, we expect OEM ad budgets as well as dealer lead buying to grow faster than auto industry revenue growth in FY25. Furthermore, we reiterate expectations of a sustained rebound in the remarketing segment, while OLX would benefit from picking low-hanging fruits such as ad integration, price hikes, and integration with Carwale classifieds.
We roll forward to Jun’25 while valuing CarTrade using a SoTP-based valuation to arrive at a TP of ₹1,120 with a 22x/14x/25x Jun’26 EBITDA multiple for the New Auto/Remarketing/OLX Classifieds business. These multiples compare favourably to companies with similar business models but lower growth.