Why Did CarTrade Shut Down The Acquired OLX Autos Business?

OLX Autos Shut Down

Last year Car Trade had beaten Spinny and Cars24 to acquire OLX India’s automotive business i.e. Sobek Auto India Pvt Ltd for Rs.537 crore. This acquisition was done with high hopes for a bright future in C2B (consumer-to-business) operations.

Two months later, the public received a huge shock with Olx Autos shut down! Wasn’t the acquisition of Olx Autos business a huge blunder?

OLX Autos Shut Down

From a superficial perspective, it may seem so. But running the auto business wasn’t that smooth for Car Trade either.

In this article, we will discuss why Car Trade shut down the acquired OLX Autos business and its impact on the industry.

Stay tuned!

(A) CarTrade’s Strategic Shift: The Story So Far

In October 2023, CarTrade made a significant move by announcing the shutdown of OLX Autos. This decision, detailed in an official exchange filing, came as a strategic response to challenges in the unit economics of their Consumer-to-Business (C2B) auto transaction operations. The news of shutting down OLX Autos was quite unexpected given this recent expansion.

(A.1) Focus on Classifieds

Despite shutting down the auto sales division, Sobek Auto India will continue to develop its classifieds business. This move is expected to lead to some job reductions. CarTrade emphasized that the OLX classifieds platform, which includes both auto and non-auto categories, has demonstrated profitability and substantial growth potential. The company stated that Sobek will now concentrate its resources on enhancing this segment, recognizing its long-term value.

(A.2) Impressive Numbers

The OLX Classifieds platform boasts over 100 million downloads. It offers a variety of services across 12 categories, including automobiles, real estate, and electronics. The platform attracts nearly 35 million unique visitors each month and hosts more than 30 million listings annually.

(A.3) Financial Health

When CarTrade acquired OLX India, it was highlighted that the auto business was debt-free and had a cash reserve of INR 100 crore. By July 2023, OLX India reported a consolidated annualized gross revenue of INR 1,837 crore, showcasing its strong financial position.

(A.4) Market Reaction

Following the announcement of the shutdown, CarTrade’s shares increased by over 3%, trading at INR 635.45 on the BSE at 2:10 PM IST following their announcement. This uptick reflects positive investor sentiment, possibly driven by the strategic realignment.

(A.5) Competing in a Tough Market

CarTrade operates in a competitive market, facing rivals like Cars24, Spinny, CarDekho, and Droom. Despite the competition, CarTrade reported a substantial year-on-year increase in profit after tax (PAT) by over 300%, reaching INR 13.5 crore in the first quarter of FY24.

Despite all these, the question remains- Why did Car Trade shut down the acquired OLX Autos Business?

Go through the next section, and you’ll find out!

(B) Reasons behind Olx Autos shutdown

OLX autos shutting down

Suppose, you’re the CEO of a large company. You just bought a promising business, but soon after, you decide to shut down a significant part of it. Why would you do that? This is exactly what CarTrade did with OLX Autos, and the reasons behind this decision are quite insightful.

Let’s go through them one by one-

(B.1) Facing unit economics challenges

First and foremost, CarTrade encountered significant “unit economics challenges” with OLX Autos. What does this mean? In simple terms, the cost of acquiring, maintaining, and selling each car through OLX Autos was not adding up to a profitable equation. If every transaction costs more than it earns, the business becomes unsustainable. This was the primary reason CarTrade decided to close the C2B (Consumer-to-Business) auto transaction operations.

(B.2) Strategic Refocus on Classifieds

While OLX Autos was struggling, the OLX classifieds platform was thriving. This part of the business, which includes listings for everything from cars to electronics to real estate, showed strong profitability and growth potential. By focusing on the classifieds segment, CarTrade aims to concentrate its resources on the more promising and profitable part of its acquisition. 

(B.3) The Numbers Game

Let’s talk numbers to understand why this decision was strategic. OLX Classifieds has been downloaded over 100 million times and boasts nearly 35 million unique visitors each month. It offers services across 12 diverse categories, not just autos, but also real estate, electronics, and more. With over 30 million listings annually, this segment has proven to be a significant traffic and revenue generator.

(B.4) Financial Health and Market Position

When CarTrade acquired OLX India, it was in a strong financial position: debt-free with a cash reserve of INR 100 crore and a consolidated annualized gross revenue of INR 1,837 crore as of July 2023. Despite these strengths, continuing to support an unprofitable auto sales division would drain resources that could be better utilized elsewhere.

Here is CarTrade’s financials summary from Entrakr

MetricQ3 FY24Q2 FY24Q3 FY23Nine Months (Apr-Dec 2024)
Revenue from Operations  Rs.138.6 croreRs.120 croreRs.97.2 crore  Rs.344.7 crore 
Revenue Growth(Quarter-over-Quarter)+15.5% 
Revenue Growth (Year-over-Year)+42.6% 
Consumer Segment Revenue Rs.49.42 crore  
Remarketing Revenue Rs.46 crore
Classifieds Revenue Rs.43.1 crore  
Total Revenue (Including Non-Operating)Rs.151.85 crore  
Employee Benefits Expenses Rs.67.56 crore
Share-Based ExpensesRs.4.56 crore     
Total ExpensesRs.125 crore Rs.110 crore
Net Profit/(Loss)Loss of Rs.23.55 croreProfit of Rs.5.04 croreProfit of Rs.14.04 croreLoss of Rs.5 crore
Loss from Discontinued OLX OperationsRs.45.51 crore
Adjusted Profit Excluding OLX Loss Rs.21.96 crore  
Unit Economics (Cost to Earn INR 1)Rs.0.9
CarTrade’s Financial Summary

In short, CarTrade Technologies prioritized the profitable classified business and addressed unit economics challenges by discontinuing the auto sales division of OLX.

(C) Impact and Consequences of OLX Autos Shut Down

Just a couple of months before the shutdown announcement, CarTrade had acquired Sobek Auto India for a whopping INR 535.54 crore. This acquisition included OLX Autos’ C2B operations and the OLX classifieds business. Now, shutting down a part of a recently acquired business might seem drastic, but it makes sense when you look deeply at its impact and consequences.

(C.1) Investor Confidence

Following the announcement to shut down OLX Autos, CarTrade’s stock prices rose by over 3%. This positive market reaction indicates investor confidence in CarTrade’s strategic realignment. Focusing on the profitable classifieds business reassures investors that CarTrade is making smart, sustainable decisions.

(C.2) Overcoming the competition in a tough market

Remember, CarTrade operates in a highly competitive market with rivals like Cars24, Spinny, CarDekho, and Droom. In such a landscape, it’s crucial to focus on areas that guarantee growth and profitability. By shutting down OLX Autos and doubling down on classifieds, CarTrade positions itself better against its competitors.

(C.3) The Bigger Picture

CarTrade’s decision to close OLX Autos shows it is committed to focusing on parts of the business that make money and have lots of potential to grow. By putting more effort into the classifieds section, CarTrade wants to use its strengths to keep growing and stay competitive in the market.

(D) Takeaway

So, why did CarTrade shut down OLX Autos? It’s about making tough but smart business decisions. They recognized that the auto sales division was not financially viable and decided to prioritize the more successful classifieds business. This strategic pivot allows CarTrade to focus on growth areas, ensuring a more robust and profitable future. 

It’s a classic case of knowing when to cut losses and double down on strengths, a lesson in business agility and strategic focus!

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Published By: Supti Nandi
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