UBS initiates coverage on CarTrade Tech with Buy rating, sees 42% upside. 4 reasons why

International brokerage firm UBS has initiated coverage on Car Trade Tech with a Buy rating and a target price of Rs 4,000, forecasting a 42% upside from current market levels, citing robust growth levers ahead.

UBS believes CarTrade Tech's asset-light business model offers significant operating leverage and expects its EBITDA margin to expand to 47% by FY30 from 33% in FY26 and 9% in FY23, approaching the 50-60% margin range seen among global peers.

1.) Strong growth to drive margins

The brokerage expects the margin expansion to be driven by strong revenue growth, noting that the company's current revenue across its platforms represents only 3-4% of its total addressable market, indicating substantial room for expansion. UBS also highlighted significant growth potential for OLX, CarTrade's dominant consumer-to-consumer (C2C) used-vehicle platform, saying the opportunity remains underappreciated by the market. Overall, the brokerage sees scope for a 15-20% upside to consensus earnings estimates for FY27-FY29.


Also read: CarTrade Tech shares rocket 6% as Nomura raises target price. Here are 3 reasons why

2.) Scaling network effects, hidden value

UBS believes CarTrade Tech has built a dominant digital automotive marketplace backed by strong network effects. The brokerage noted that 95% of the company's traffic is organic, despite it spending just 4% of revenue on marketing, compared with 4-10% for global peers and significantly higher levels for other Indian platforms.

According to UBS, CarTrade's platforms create value across the entire customer journey, from vehicle discovery to the final transaction, covering both new and used cars. It also believes the company has yet to fully monetise several meaningful revenue opportunities, including financing referrals, fee-based services and transaction fees.

Read more: Silent winners! 43 stocks turned multibaggers even as Nifty went nowhere in 2 years

The brokerage expects CarTrade to deliver a revenue CAGR of 24% over FY26-FY30, ahead of consensus estimates. It also believes the market is underestimating the company's operating leverage, with consensus factoring in an incremental EBITDA flow-through of only 50% for FY27-FY28, compared with UBS' estimate of 60%.

3.) OLX: A growth engine

OLX – India's largest online classifieds platform for pre-owned goods and accounting for 28% of revenue – is well positioned to expand monetisation off a low ARPU base, leveraging its large base of 180m annual users, the brokerage said in a note. Subscription offerings, like Elite Buyer/Seller, support two-sided revenue streams, while trust layers, fintech and logistics integration should enhance take rates. “We expect strong revenue growth and margin expansion, as ARPU improves from Rs 12 now to Rs 30 by FY30.”

4.) AI impact overstated?

UBS said concerns over artificial intelligence disrupting online marketplace businesses have not yet translated into any meaningful impact on CarTrade Tech's operating metrics. The brokerage noted that commentary from global peers indicates AI has had only a limited effect on core business metrics so far, with many platforms reporting stable or even rising traffic, suggesting AI is acting more as an enabler than a disruptor.

While UBS acknowledged that AI could influence top-of-the-funnel discovery, it said the key monetisation opportunities remain deeper in the transaction funnel, where marketplace platforms continue to maintain a strong competitive position.

CarTrade Tech shares rose as much as 2.3% to Rs 2,973.55 before paring gains to trade marginally lower on Monday. In the last one year, the stock has risen over 40% and about 240% in the last two years, delivering multibagger returns to investors.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)