Multibagger stock CarTrade Tech, which delivered a solid 196 per cent return in the past one year, has been downgraded to ‘Sell’ by JM Financial as the brokerage feels that recent valuation spike on GST and OLX news was too much, too soon.
JM Financial suggested a target price of Rs 2,350, suggesting a potential 14 per cent downside for the stock. It vales New Auto, OLX and remarketing businesses at 40 times, 35 times and 20 times September 2027E Ebitda multiple.
JM Financial said while the likes of Carwale and Cardekho have managed to capture significant share of OEM digital advertising spends on the back of substantial auto-related traffic, adoption of Gen AI tools could result in a decline in this traffic itself. Google Search drives a majority of the traffic to these portals.
“However, our consumer surveys suggest a significant rise in the use of Generative AI tools such as ChatGPT and Perplexity at the cost of Google Search, creating a substantial tail risk,” it said.
CarTrade’s share currently trades at 43 times estimated FY27 Ebitda, too rich for a company that still generates almost the entirety of its revenue from B2B clients, JM Financial said.
“While the company does operate B2C platforms, that doesn’t insulate it from the cyclical nature of B2B spends. Moreover, as demonstrated in the company’s New Auto segment performance post Covid, a demand boost (driven by GST cuts) does not necessarily result in a linear rise in the segment’s revenue,” JM Financial said.
JM Financial said OLX recovery – a guidance of 15 per cent YoY revenue growth in 2QFY26, sounds positive. That said, it was expected and does not result in an upgrade to its forecasts.
“Finally, our consumer surveys suggest a significant rise in the use of Generative AI tools such as ChatGPT and Perplexity at the cost of Google Search, creating a substantial tail risk,” it said.
JM said CarTrade’s New Auto segment has seen a sharp uptick in YoY growth rate (average of 32.9 per cent) in the past three quarters as demand dipped while OEMs were able to deliver vehicles consistently. This growth was substantially better compared to the period when demand growth was significantly better. It expects New Auto segment revenue growth would return to the normalised early-twenties levels over the coming quarters.
“We raise this segment’s multiple to 40x (vs. 35x earlier) 2-yr forward EBITDA in light of the sustained growth trajectory,” JM said.
CarTrade highlighted that OLX is likely to deliver 15 per cent YoY revenue growth. However, it still needs to improve to 17 per cent-plus YoY growth in 2HFY26 in order to deliver a respectable 13 per cent growth for the full fiscal year, JM said.