CarTrade Tech share price target raised on bullish outlook; analysts see 45% upside

CarTrade Tech share price jumped by more than 6% on Friday as domestic brokerage JM Financial raised its target price by 10% to ₹1,120 from ₹1,020, citing a potential upside of 45% for the firm. The firm has retained its 'buy' recommendation for the used vehicle dealers company shares. CarTrade Tech share price today opened at ₹774.65 apiece on BSE, the stock touched an intraday high of ₹823.55 and an intraday low of ₹771.55.

“The stock has seen good volumes during recent upmove. The volumes are low on corrections and has good support around 775 which is the 89 DEMA support. Thus downside seems to be limited for the short term,” said Ruchit Jain, Lead Research Analyst at 5paisa.

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According to the brokerage's analysis, with chip shortages improving in FY24 and automakers meeting pent-up demand, we appear to be returning to normal, with reported inventories of roughly 45-50 days, comparable to pre-COVID levels. As previously stated in their reports, original equipment manufacturers (OEMs) reduced their advertising spending owing to their inability to meet current demand. As supply normalises, the brokerage house estimate OEM ad spending and dealer lead buying to outpace auto sector revenue growth in FY25.

“Furthermore, we reiterate expectations of sustained rebound in Remarketing segment while OLX would benefit from picking low-hanging fruits such as ads integration, price hikes and integration with Carwale classifieds,” the brokerage said in its report. 

Dealer level inventory at pre-COVID levels

Based on statistics supplied by the Federation of Automotive Dealers Associations (FADA), dealers had an average passenger vehicle (PV) inventory of 50-55 days as of February 24.

According to the brokerage's analysis of retail sales against wholesale sales data, dealers had around 50 days of inventory as of May 24. This is comparable to pre-COVID levels of 45 days, reflecting a more balanced supply-demand dynamic. Retail sales in YTDFY25 increased by ~8% YoY, indicating strong demand and premature concerns about a recession in the Indian car sector.

“Such a scenario with normalised inventory level along with unrelenting demand will result in OEMs spending more on advertising, helping stronger growth in CarTrade’s new auto segment,” the brokerage said. 

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OEM ad spends to revert to 2.5% of revenue

Due to supply restrictions, the auto sector reduced its advertising expenditure (as a percentage of revenue) to around 2% in FY22. This was significantly lower than the pre-COVID steady state rate of 2.5%.

“Our industry checks suggest FY24 ad spends have increased slightly to 2.1% but an upsurge is anticipated with ad budgets rising sharply in comparison to the new auto value growth in FY25-26,” said JM Financial in its report. 

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.