CarTrade Explores Acquisition of CarDekho's Classified Business in Potential $1.2 Billion Deal

## CarTrade Explores CarDekho Acquisition: A Strategic Move Amidst Valuation Concerns

News: CarTrade is reportedly in advanced negotiations to acquire CarDekho's classified business for a valuation reportedly around $1.2 billion. This potential merger could significantly reshape India's digital automotive marketplace.

CarTrade's Strategy: CarTrade has a well-established history of growth through Mergers and Acquisitions (M&A). It has previously acquired entities like Automotive Exchange Private Limited (which owns CarWale and BikeWale) and OLX India's classified and auto transactions business. The company focuses on an asset-light model, operating primarily as a listings and auction platform rather than holding inventory. This strategy allows for greater scalability and flexibility. Its remarketing segment is a significant revenue driver.

CarDekho's Pivot: CarDekho, co-founded by Amit Jain, has recently pivoted away from its capital-intensive used car inventory business to focus more on new car sales and its fintech verticals, InsuranceDekho and Ruppy. CarTrade is reportedly not interested in these fintech arms. CarDekho has strong OEM (Original Equipment Manufacturer) relationships and a substantial user base, which CarTrade aims to leverage.

Impact: The acquisition would bolster CarTrade's position in the consumer segment, particularly in new cars, an area identified as its next growth frontier. It would consolidate the online auto classifieds market.

Rating: 7/10

Valuation Concerns: Industry analysts are questioning the reported $1.2 billion valuation for CarDekho's classified business, especially given CarDekho's reported FY24 loss of INR 340 crore on revenue of INR 2,250 crore. Some experts suggest a more realistic valuation range should be between INR 1,000 crore and INR 2,000 crore. CarTrade's own cash reserves of INR 1,080 crore may not be sufficient for a full cash acquisition, suggesting a potential part-cash, part-stock deal.

Integration Challenges: If the deal proceeds, integrating CarDekho's classifieds business could present challenges for CarTrade's financial performance in the short term, similar to other past acquisitions.

Impact: This news directly impacts the Indian stock market by potentially influencing the valuations and strategies of companies in the online automotive and classifieds sectors. Investors will be closely watching the outcome and its financial implications for CarTrade.

Difficult Terms:

• M&A: Stands for Mergers and Acquisitions. It means one company buying out another or combining with it.
• Classifieds Business: Refers to a part of a company that lists products or services (like cars) for sale or exchange.
• Consumer Business Vertical: A specific area within a company that deals directly with individual customers.
• Valuation: The estimated worth of a company or a part of it.
• Asset-light model: A business strategy where a company owns very few physical assets (like inventory or factories), allowing for lower operational costs and greater flexibility.
• Remarketing: The process of selling used goods or assets that a company previously owned or managed.
• B2B: Business-to-Business, transactions between companies.
• C2B: Consumer-to-Business, where consumers offer services or products to businesses.
• IPO: Initial Public Offering, when a company first sells shares to the public.
• OEM: Original Equipment Manufacturer, a company that makes parts or products that are then sold by another company under its brand name.
• Fintech: Financial Technology, companies that use technology to provide financial services.
• FY24: Fiscal Year 2024, the 12-month period used for financial reporting, typically ending March 31, 2024, in India.
• YoY: Year-over-Year, a comparison of financial performance from one year to the next.
• Capex-heavy: A business model that requires significant investment in capital expenditures (like buying property, plant, and equipment).
• Bottom line: A company's net profit or loss after all expenses are accounted for.