CarTrade Tech Limited (CARTRADE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the CarTrade Tech Limited Q3 and 9 Months FY '26 Earnings Conference Call, organized by MUFG Intime India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aryan Sumra from MUFG Intime. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I welcome you all to the Q3 and 9 months FY '26 Earnings Conference Call for CarTrade Tech Limited. To discuss this quarter's financial and business performance, we have from the management, Mr. Vinay Sanghi, Chairman and Managing Director; Ms. Aneesha Bhandary, Executive Director and CFO. Before we proceed with the call, I would like to mention that some of the statements made in today's call may be forward-looking and may involve risks and uncertainties. For more details, kindly refer to the investor presentation and other filings that can be found on the company's website. Without further ado, I would like to hand over the call to the management for the opening remarks, and then we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you, and good afternoon to everybody, and welcome to the Q3 FY '26 Earnings Call. I'd like to start by Slide 3, which has been shared on the investment deck, which talks about the company over the last 3 years. As you can see here, over the last 3 years from FY '23 to FY '26, if you look at the company, the revenue CAGR has been 32%, EBITDA CAGR has been 112% and the profit CAGR has been 83% over 3 years. So you can see the consistency in performance and that's why we want to bring it out. Quarter after quarter, 3 years almost 12 quarters, and you can see the consistency in the company's delivery and performance and the execution capability. If you look at the center block, it shows that our cash reserves have gone back to INR 1,145 crores. And the first time you can also see the return on equity reached double digits, which is very, very strong business performance from the company from where it was. And if we look at the last block where the shareholder value, if you see the EPS CAGR has been 92% over the last 3 years. And of course, the share price is up 94% in the last 3 years during this phase. So the numbers to look for are the PAT CAGR 83%, EPS CAGR of 92% and the share price CAGR for 94% over the last 3 years. If you look at -- and we move to the quarter or the Q3 results and you go to Slide 4, you'll see CarTrade has achieved its highest ever revenues at INR 228 crores in any quarter ever in our history. EBITDA has gone up by 56% to INR 78 crores. It's by far our highest ever EBITDA. Not only highest EBITDA by far, it's also almost INR 15 crores more than the previous quarter. EBITDA is up 23% even sequentially from the previous year -- previous quarter, right? So 56% year-on-year growth, 23% sequential Q-on-Q growth to INR 78 crores. We've been talking about margins for many quarters with you. And you can see now margins have gone up to 37%, which is getting best-in-class in the country now, and it shows the unit economics and the leverage we have in our business. If you go to the revenue, EBITDA, exponential growth in profit after tax has come at INR 62 crores, which is up 35% year-on-year, and this is primarily due to an extraordinary item of the labor court provision as per the new regulation being provided INR 6.5 crores during the quarter. Otherwise, profits will, of course, be up by 49% if you look at after you include the Labor Code impact. We continue to have, as I said, 150 million users, yearly users in all our 3 platforms. The consumer group has grown by 27%. EBITDA is up 55%. And of course, we achieved a 43% margin on EBITDA in the Consumer Group, which is, of course, now getting at a very, very high rate of margins. And we've talked about how we have the unit economics and the leverage in this business over the quarter -- last few quarters. The remarketing business profit is up by 68%, revenue is up by 12%. EBITDA is up 23% and as well, our margins in the remarketing group 30% now. OLX has reached the highest ever revenue in the history in this quarter. It's up 18%. PAT is up 37% in OLX. And OLX also now reached a 37% EBITDA margin ratio. If you look at Slide 5, we can obviously continue to be the #1 automotive platform, used platform, vehicle auction platform in the country. Traffic is up to 85 million MAUs during the quarter, 95% organic traffic continues. Vehicles auctioned at a rate of 1.9 million vehicles a year. We talked about the revenue at INR 228 crores, it's highest ever in our history. Adjusted EBITDA is INR 101 crores. It's a cash proxy. It's the first time it's crossed INR 100 crores in the quarter. So you can say INR 101 crores of cash generation during the quarter. PAT is INR 62 crores. As I said, the PAT would be at INR 68 crores, if not for the Labor Code. And our cash balance continues to be about INR 1,145 crores as we've talked earlier. If we go to Slide 6 and look at the consolidated results of the company, revenue is up 18%. Operating revenue is up 19%. EBITDA is up 56%. Margin out here on a consol basis at 37%, up from 33% last quarter sequentially. I mean, if you see 400 basis point increase in margins sequentially, just quarter-on-quarter. And from last year's margin of 28%, we have landed up at 37%. PBT is up 58% before exceptional items. PBT post exceptional items is up 46% and PAT is up 35%. If you look at the 9-month results of the company, revenue is up 24%, EBITDA up 77%. The 9-month margins come at 32% and the PAT is at 74% up. PBT is 87% up for the 9 months. So you see the growth in both margins, profitability, of course, and the revenues over a 9-month period, which shows the consistency in the performance of the company. If you go to Slide 7, look at the Consumer Group. For the quarter, revenue is up 27%. We spoke about EBITDA at 55%. EBITDA margin has reached 43%. And even sequentially, if you look at EBITDA is up INR 6 crores just in this one business. And margins have gone from 40% to 43% sequentially. Over last year, margins has gone from 35% to 43%. PBT, as I said, is up 43%. And if you look at the 9-month numbers, the Consumer Group has done extremely well with a 32% growth in revenue, 106% growth in EBITDA and a 74% growth in PBT, with a 51% growth in PAT. If you look at the Remarketing business, there's a 12% revenue growth and a 68% profit growth during the quarter. Margins for the first time crossed 30% in the Remarketing business. And if you look at the 9-month figures, 22% up in revenue, 57% increase in EBITDA and an 80% growth in PAT for the year. So the Remarketing business had a very good year in the first 9 months of the year. If you look at OLX, OLX has had its highest ever revenue in any quarter. It's crossed INR 61.7 crores -- INR 58 crores in operating revenue, which is up 18%. Profitability or EBITDA is up 70%. OLX margins reached 37% now and PAT is up 37%. And PBT is up 73%. There is a tax now, OLX has exhausted its carryforward tax shelters. And of course, now in this quarter, tax has been paid in OLX as well. But yes, PBT is up 73%. If you look at the 9-month data, OLX's EBITDA is up 63% and profit after tax is up 92%. So this is a very -- it's been a very strong quarter for us. We feel very, very optimistic about all the 3 businesses. Just to highlight, all 3 businesses achieved the highest ever revenue. All 3 businesses achieved the highest ever margin. So we feel very, very optimistic. Business has been very strong in all the 3 businesses. We are even more optimistic about the current quarter, Jan to March and feel very optimistic that obviously, our numbers will get better and better from here. The business or the market seems to be in -- especially the new car industry or the used car industry or the used product industry seems to be growing. And naturally, we feel optimistic about the current quarter and the quarters coming ahead. This is what I have to say. I'm happy to take any questions now and clarify all your questions and doubts.

[Operator Instructions] The first question is from the line of Sachin Dixit from JM Financial.

My first question is with regards to this EU FTA, right? So there is obviously some chatter about how it can potentially impact Indian auto industry. Do you have any views on that? If anything, like how does it impact CarTrade's consumer business, if at all?

Yes, are you talking about the EU 40% tariff on vehicles? Is that the question?

No, no, no. This mother of all trade deals that we have signed with EU in terms of free trade agreement?

I've not obviously studied in great detail. It's only been a day old. But the one thing which might affect or help the consumer group are 2 things. One is if tariffs or duties on imported European vehicles comes down, it could lead to further demand in the new car industry, which, of course, could benefit the consumer group. And the other could be -- there could be opportunities to bring other such vehicles in, directly even by -- it could be a business opportunity for the consumer group considering the reach of consumers and the distribution of CarTrade Tech as a group. So obviously, we'll try to examine if there are opportunities where consumers here wanting cars from the EU could use platforms like CarWale or others for that need. So it's something we'll have to watch and see what the potential of this is, but it's too early to say at this point.

My second question is on OLX business side. Obviously, you did highlight in the previous earnings call that momentum is picking. We saw that we improved growth rate by roughly 150 basis points. If I look on a Q-on-Q basis, 16.6% gone to 18.1%. Do you see further momentum here? And on the same line, on cost side, we saw that actually both employee and other costs declined Q-o-Q. What is resulting in this decline, if you can highlight?

Yes. You're talking about OLX cost or overall cost?

Overall cost.

Yes, we definitely see the growth rate of OLX going up from the current growth rate in this quarter. So we do feel that -- you will see that even further, and more amplified, the growth rates going up in OLX, number one. We feel very strong about the business, both the automotive and the non-automotive side of it. So yes, you will see, in our opinion, a higher growth rate on OLX, the revenue side. Costs are, I would just say, stable. There may be some minor fluctuations on manpower and other costs, but generally stable. We don't see any real serious decrease in costs or we don't see any increase in costs either. They're just stable, I would say, in OLX.

Understood. Just one final question on the new auto side, if I can take that, right?

Sure, go ahead.

Last quarter, obviously, we had, I believe, 37-odd percent growth on this business. This quarter, that has dropped to 27%, but still very, very healthy, no doubt. There must have also been some base effect that would have played out compared to 3Q FY '25. How do we look at this ahead, right? Do we still believe this is roughly a mid-20s to maybe 30 sort of a growth? Or there is potential for this to maybe inch down further by, let's say, a few percentage points?

The growth rate actually in the first 9 months is 32%, right, in this business.

Right.

There is a bit of base effect of last year to Q3 to Q3 the previous year. But generally, it's 32% over a 9-month period. We see no reason why that -- we feel quite confident. Actually, the new car industry in the last 2 months has done extremely well. And like we said, we are obviously beneficiaries of the car industry itself. So we do see that definitely sustaining the growth rate. I'm not able to give guidance whether it's higher or lower. But yes, generally, we don't see any reason for the growth rate to come down at all. I mean we feel very optimistic about the new car business.

The next question is from the line of Siddhartha Bera from Nomura.

Sir, first question is again on the OLX side. I mean, we had talked about multiple initiatives on the growth side, which we had taken in quarter 3 across Elite Buyer and 2 or 3 more product initiatives getting rolled out. So can you just talk about how has been the acceptance? What percentage of our user base have accepted that? Just to understand sort of how the growth momentum should pick up in the coming quarters, some more details on that?

Yes. The Elite Buyer actually done extremely well in the last quarter. It was really commercially fully launched in the last quarter, and we feel very good about the adoption of the Elite Buyer program. We also feel that this will become a very large revenue opportunity for OLX in the many coming quarters and years. We're already seen very high traction in the last 30, 40 days of the Elite Buyer program. And it will, in our opinion, as I said, in the coming quarters, impact the revenues very favorably, number one. Other products like Verification, like we said, is likely to be launched in the next 30 days or so, which are -- it is completely a new product to further enhance customer experience on trust and safety on the platform. So that will get launched sometime in the next 30 days. So we feel optimistic about that as well. But the growth rate continues also to be in existing products on B2C charges for dealers or C2C consumer charges, et cetera, et cetera. So overall, we feel very optimistic about the revenue potential of OLX and the growth rates, which are going to come in the quarters there.

Got it, sir. But sir, if I look at the visitors -- monthly visitors for OLX, it sort of has seen some softness compared to last quarter. Is it something more seasonal? Or anything more here to look at?

There was a very slight seasonality, I would say, in September and a little bit of end of December. But generally, traffic has been stable of OLX. User engagement has been stable, traffic has been stable, very, very stable.

Got it, sir. And sir, lastly, on this margin profile for the OLX, I mean, we have seen sort of a lot of cost benefits also coming in, in the current quarter. So is there any onetime cost thing which has come? Or do you think this 35%, 36% margins which we have done for the quarter, I mean, as we see a pickup in growth...

Yes, we think the margins will probably improve, honestly. I mean, like in all our businesses, the leverage is higher, right? I don't think cost increasing. So if revenue goes up, margins will improve, as we've said quarter after quarter in all our businesses.

The next question is from the line of Diya Brijwani from White Whale Partners.

Hi, can you hear me?

Yes, I can hear you.

Yes. Sir, this is Hardik here. Just a couple of questions. First one was on -- during the quarter, we were pursuing the CarDekho deal and then kind of did not pan out. So can you just maybe spend a few minutes just explaining the rationale and thought process and how we walked away from it?

Yes. I think we did announce that we were pursuing the transaction, and we then -- towards -- after studying it, at that point, decided that -- for that specific period, decided to put on hold. I think the reasons mostly were around understanding, obviously, the potential in our own business seems so high that we said, listen, this is the right time for that or not. We continue to be very optimistic about the new car industry, which is what the acquisition was about. And we obviously continue to be optimistic about OLX and all other businesses. So the amount of opportunities within the company itself, we felt it is better to hold any inorganic opportunity at that point. And yes, that's one of the reasons why we studied it and then we said it's better to put around wait at that point of time. I just want to also highlight to the -- in the earnings call that also in our results, we have provided some diligence cost, which is also factored into the quarter 3 results, which you've seen. The results and the margins are after some diligence costs which got incurred. It's in the expenses of the company already accounted so, yes.

Yes. Okay. Got it. And then just on the previous question in terms of the consumer growth, I think you maintained -- I mean, you spoke that you expect to sustain this kind of growth level that you've seen over the 9 months. I just wanted to understand a little better in terms of the drivers of this growth. I mean, when there's a slowdown, I guess, the OEMs and the dealers need to kind of push more and so the increase in marketing expense. But when the industry is going through a better phase, I mean, would that kind of marketing expenses sustain? And so to that extent, can we still maintain this kind of growth or not?

So the industry has gone through a very good phase in October to December 1. And also the entire last 3 months, industry has grown rapidly. It's had unprecedented growth and volumes in the car industry. I'd just like to highlight that we're beneficials of growth in car sales. Obviously, we will benefit. We're also beneficial when manufacturing dealers spend more money on digital, which has been a long secular trend. We also benefit in car ARPU when prices go up in terms of ARPUs, which means people move towards a bigger vehicle like an SUV. So we benefit multiple, multiple ways. We also gain market share because we're the most cost-effective way for a dealer, a manufacturer to sell a car. We have, as I said, also a large, large number of almost all car buyers in the country coming to our platforms. So clearly, there's a dependence and high relevance the industry has towards platforms like CarWale and BikeWale or OLX for that matter for used cars. So in any situation, whether the industry is down, which we've seen over the last 1.5 years or when the industry is growing rapidly as in the last quarter, our growth rates have been maintained and grown further even. So we've also shown and disclosed in the previous quarter, the last 3-year trend of growth where the industry goes up and down, and we found that irrespective of that, CarWale out of the consumer group growth rates have stayed extremely, extremely robust during all those phases.

Got it. So I guess this is more of a structural shift from like maybe offline to digital spend and then within that away from, let's say, Google towards platform related sites.

It is offline to digital spend. It is growth in the industry. It is growth of ARPUs in cars. It is different kinds of cars being sold, like if you see today, 50 -- more than 50% of cars sold SUVs. So it's many, many things altogether. But by and large, there's a big shift to spending on platforms like CarWale, where the relevance for manufacturers and dealers who spend is very, very high.

Understood. Just one last question was on the operating leverage. So now if I were to just look at our consumer and OLX, I mean, I think we average around 40% plus margins. How are you seeing like if you continue with this 25%, 30%, let's say, growth rate, I mean, your expenses have pretty much not grown for the 9 months. Is there any kind of areas you need to invest into? Or will expenses remain at similar levels in terms of...

We think expenses are stable. They're not likely to see any fluctuation or any incremental change at all. So they're not likely to change. We've always said that our margins will keep growing, right? And I think we've reached 37% as a group, 43% as a consumer group. We think they'll go further.

Got it. So essentially, all the growth that comes through a very large part of it will continue to pass through, as a clarity?

That is correct. That's just the nature of the business.

The next question is from the line of Nishit Jalan from Axis Capital.

Congrats on good set of numbers. My question is, obviously, industry tailwinds are there. And now that you have studied CarDekho also, just wanted to understand on consumer side of the business, do you think a part of the growth is also driven by market share side of the things, right? How is it kind of panning out, right? And while operating leverage will be there in our business for sure, globally, there are companies which makes 50% plus margins also. So is it -- will it be incorrect to assume that in the next 2, 3 years, if the growth continues, you could also be a 50% plus kind of a margin business?

Sorry, what's the last part? I didn't get the last part.

Basically, what I was saying was that if the growth rate continues over the next 2, 3 years, these margins could expand from 40-odd percent to 50% plus. Basically, what should we look at as the incremental EBITDA margin on the revenues, right? Because your incremental costs are lower in a way, right? So how should we look at especially the OLX and the consumer business because that's where the benefits will be much more substantial?

Yes, two parts. One is the first part, which is the growth in the car industry itself. After since reduction of the GST, we've seen the car industry grow. Our growth rates, if you see 32% were even before the GST reduction took place. So clearly, we're beneficiaries of car growth rates. We also benefit when growth rates have been more muted for the car industry itself, right? So because our growth rates have been high in both cases. So we see that the reason that is the case is because consumers come to a platform like CarWale or others to fulfill a need of buying a car or finding a car, et cetera, et cetera. And because of the number of consumers and the relevance to consumers, which a platform that CarWale has, manufacturers and dealers need to be obviously spending more on platforms like ours compared to others. That could be offline advertising, that could be Google, it could be Facebook or other horizontal platforms and also direct vertical competitors because we feel we are far more efficient than our competitors are. So I think you're seeing a fact of that, that we are gaining market share, number one. Number two, you've also seen a factor of industry level growth and move towards digital. And like I said, number three, it's also a product mix where, as you've seen in the last 3, 4 years in India, there's a huge shift towards SUVs by itself, right? So the ARPUs of cars have basically gone up as well. All these factors do matter. And clearly, our job is to make sure that the consumer coming on our platform, our product and improvements or development cycle continues so that consumers keep coming and growing on the platform, and that's what we are focused on. So that's the first part of the question. The second was, of course, I mean, over the last 10, 12 quarters, we've demonstrated to you that costs in companies like this are stable. We see no reason for that to change in the coming quarters. And therefore, yes, margins as increased revenue, a lot of that -- a lot of that revenue will go to margin. And I think if you see the last 3 years, margins has gone from 9% to 37% as a company -- as a consolidated company. So I don't see a reason for that. I think the trend will just continue. Margins will continue to grow.

Yes. Maybe just one follow-up. You did talk about the ARPU going up, right? So ARPU going up, the benefit is indirect as in the industry revenues goes up and the ability of OEMs to spend more on A&P goes up. Is that the indirect benefit that comes to you or there's something else which is there?

It does benefit where the car prices, yes -- suppose the average rather than small cars or sedans, SUVs, which are higher price sell, it benefits all stakeholders, right? Anybody in the chain, it benefits.

It benefits because the industry revenue goes up and the ability of the industry...

And the industry spend goes up, I would say, yes, absolutely.

Yes. And sorry, I think you answered it, but I missed out. On the OLX side, right, you have started to take a lot of initiatives to monetize the Elite buyer and seller and all sort of things. Sorry, if you have commented earlier, I missed out, but where are we in...

No. Actually Elite buyers has done extremely well in the last quarter for us. We feel very, very optimistic that this will become one of our flagship revenue earners in the coming quarters and years ahead, number one. Number two, even existing revenue drivers have gone up or improved. UX has improved. Customer engagement has improved. The growth rates, of course, of revenue have grown, we will see the highest revenues. But on top of it, we feel the growth of revenue go even up further. I mean -- and margins in OLX will also increase further. We feel pretty confident of that.

And on the used car side of the business, right now, you are monetizing more from dealer subscription and now very recently Elite buyer, Elite seller program. Any plans to get into more value-added services also like a financing or an insurance or a service or some warranty? Whatsoever, right, because that also...

Financing is something we're working very closely on, on a fintech perspective. But like I said, we'll be a marketplace company. We're not likely to take any risk, balance sheet risk or lending risk ever. So this is like a marketplace model where we're working very closely with a couple of very big banks and NBFCs on launching products, on used car financing. I think in the next few quarters, you'll see products like that launched for used cars where our relevance is very, very high. If you see data which we've disclosed in the past, where 65% of all used cars sold in India are listed on OLX. More than 1.5 million used car buyers come to every month -- more than 1.5 million used car buyers come to OLX and CarWale together. In the last quarter, we also -- actually earlier this month and we publicly disclosed that as well. We, for the first time, combined the CarWale OLX offering for all dealers in India. So we launched a subscription for dealers, which is combined of OLX and CarWale to increase the base for both companies. So there are many, many used car initiatives going on, and you'll see a lot of the results coming in the next few quarters around the used car side of the business, both in fintech side as well as in the core used car business.

The next question is from the line of Amit Agicha from H.G. Hawa.

Am I audible? Congratulations on a good set of numbers.

Thank you.

Sir, with INR 1,145 crores of cash on the balance sheet, like how should investors think about capital allocation priorities in the next 2 years?

Yes, it's a good question. At this point, the only -- we are also generating, like you've seen, INR 100 crores a quarter, right? I mean we showed you the adjusted EBITDA number. So it's INR 1,145 crores in the bank plus INR 100-odd crores of cash every quarter at this rate, as profitability grows, even the cash generated would grow. We have almost no CapEx in the company and almost no need from an investment standpoint in our current business, all our businesses are high-margin businesses. So the intent would be, of course, to look at whether any inorganic opportunities come in the future. And we've been very good at acquisitions in the past. We've done multiple successful acquisitions. So part of the use, if at all, we come across an opportunity would be that. And obviously, the long-term intent would be to return money to shareholders.

And sir, one more question, connected would be employees, like are there any talent constraints in data science, AI pricing models or data analytics that could require higher future investments?

We've actually made a lot of investments. It goes in our operating cost. A large part of our manpower cost is product engineering, design, AI talent, et cetera, et cetera. So a lot of investments are being made. These margins and these costs are after making those investments. We every -- we are first a technology company before everything else. So this is part of what we do every day. A large part of our team is product engineering, design and AI talent. So we're building products for OLX, CarWale, SAMIL every single day and new products as well. We also created CarTrade Laboratories, which builds only new cutting-edge products few months ago. So these investments are done, and they're part of the operating cost in the company.

The next question is from the line of Siddhartha Bera from Nomura.

Sir, a quick question on the Remarketing business. If I look at the volumes for CarTrade and the auctions, seems that the conversion has dropped a bit compared to the last quarter. Any particular reason what is happening here?

No, no, it is only in the last quarter. And I'll tell you, specific in the used car industry or the used vehicle industry, new vehicle prices came down in September with the GST reduction. Used vehicle pricing took some time to correct itself. I think it took 2, 3 months to correct because those are more subjective by nature. So a lot of the sellers tend to be waiting back and saying, listen, am I going to get a better price? And when they realize that used car pricing has changed forever, then they start selling. So it's a bit of a delayed process, and maybe that's why you're seeing a slight conversion difference. That's primarily due to price reduction on the new car side, which affects and impacts the used car industry as well.

So this conversion then, I mean, normal scenario should pick up in the coming quarters?

Yes, absolutely. It's already better. So yes, that's better.

Okay. And on the growth side for the remarketing also, I think the last few quarters, we had seen a very strong growth, obviously, with the low base. But now going ahead, do you think there can be further acceleration to this? Or this is a run rate we should assume for this business?

No, I think we should continue to grow. We feel strong about the business. And we do believe that normally, Q4 is much better than Q3 for this business. So we do feel the growth rates and the absolute numbers should get better.

Understood. And sir, last clarification, I think you have mentioned about INR 1.8 crores of due diligence cost in the stand-alone consumer business.

That's correct.

So that should be there in the consol numbers as well, right?

It's in both numbers.