Stocks To Buy: Elara sees 50% upside for this underperforming turned outperforming new-age share

Shares of Cartrade Tech Ltd. can rise another 50% as per brokerage firm Elara Capital, which initiated coverage on the stock earlier this week.

In its note on September 24, Elara initiated coverage on the stock with a "buy" rating and a price target of ₹3,590. Based on the closing price of September 22, the price target implies a potential upside of 50%.

This is also the highest price target for Cartrade Tech on the street.

Cartrade Tech was a major underperformer in the first ear of its listing, falling as much as 80% to an all-time low of ₹340 in March 2023. Since then, the stock has seen a sharp recovery, not only doubling in value in 2024, but also crossing its IPO price. The stock made an intraday high of ₹2,755 on September 9 this year, which is 70% above its IPO price, and 8x from its all-time low of March 2023.

Elara believes that Cartrade is cash-rich, debt-free and can fund its growth internally.

The brokerage has estimated the company's revenue, EBITDA and profit after tax (PAT) to grow at a compounded annual growth rate (CAGR) of 25.1%, 36.7% and 25.4% to ₹1,260 crore, ₹380 crore and ₹280 crore, respectively by financial year 2028.

Platform-led auto ecosystem scaling rapidly

Elara Capital said Cartrade is well set to compound its scale without increasing its customer acquisition cost (CAC) further. It expects monthly unique visitors (MUV) CAGR of 8.6% between FY25-28.

For OLX India, it has forecast gross merchandise value (GMV) CAGR of 11.9%, led by market-share gains of 330 basis points in used cars from 63.2% to 66.5%, and 200 basis points in overall used goods from 36.8% to 38.8% over the next three years.

Elara believes that with traffic being predominantly organic,

the Customer Acquisition Cost (CAC) is low. Therefore, margins for the company can expand by 710 basis points by financial year 2028 to 30.6% from 23.5% last year.

Cartrade acquired OLX India in August 2023 for ₹530 crore and the latter refocused on its profitable classifieds core, exiting the car transaction business, doubed its reach to 75 million MUVs with 95% organic traffic and kept CAC minimal, Elara Capital said.

Elara Capital expects classified revenue and EBITDA CAGR of 18.8% and 28.7% between FY25-28, respectively, thereby lifting the overall margin. Long-term growth will be aided by non-auto categories and a broader shift to digital ads, Elara's note stated.

Cartrade is likely to generate ₹210 crore between FY25-28 in cumulative free cashflow, supporting continued investment in technology, EV adjacencies and expansion, while preserving capital efficiency and balance-sheet strength, Elara wrote in its note.

Key risks include slower monetisation at OLX., execution challenges in integration and auction cyclicality.

Of the nine analysts that have coverage on the stock, five have a "buy" rating, one has a "hold" raitng and three have "sell" ratings.

Cartrade Tech shares were down 1.2% at ₹2,462.6 apiece around 12.10 pm on Wednesday. The stock has declined 46.3% in the last six months.

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