Shares of CarTrade Tech Ltd. rose nearly 8% on Monday, October 12, after UBS reiterated a bullish view on the stock, setting a target price of ₹4,000 and highlighting the growth potential of its OLX India business.
Based on UBS’ price target, CarTrade Tech shares have an upside potential of around 36% from Friday’s closing of ₹2,951.
UBS has a “Buy” rating on the stock, arguing that the market may be underestimating OLX’s growth opportunity and the size of its addressable market.
The brokerage said OLX India struggled under its previous ownership with cost inefficiencies, a broken inventory model, ghost buyers and unreliable sellers. Since acquiring the business, CarTrade’s management has addressed most of these issues, improved the user experience and significantly strengthened profitability, UBS said.
The brokerage highlighted OLX’s operating margin of more than 30% as evidence of the improvement.
OLX growth could drive re-rating
UBS believes OLX has multiple revenue drivers beyond its core business, including buyer and seller subscriptions, dealer partnerships, financing, escrow services, logistics and advertising.
The brokerage estimates that OLX could grow its revenue fivefold over five years in an optimistic scenario, with its base case projecting 3.8 times growth over the same period.
UBS believes successful execution of this opportunity could act as a major re-rating catalyst for CarTrade, as the market begins to recognise the growth potential of the OLX business.
The brokerage’s bullish view rests on the scope for further monetisation of OLX’s platform, alongside the operational improvements already delivered under CarTrade’s ownership.
Street view and stock reaction
10 analysts have coverage on CarTrade Tech, of which eight have a “buy” rating and two have a “sell” recommendation on the stock. The consensus estimate of price targets implies an upside potential of 8.9% from Friday’s closing.
The stock has delivered a return of 25.9% over the last 12 months. UBS’s target price of ₹4,000 is significantly above the consensus target, pointing to a more bullish view on CarTrade’s growth prospects.
Shares of CarTrade Tech have jumped to the day’s high, now trading 7.7% higher at ₹3,178. The stock has turned positive on a year-to-date basis, now trading 12% higher.
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