Hot Vehicle IPO Reviews – GMP, Finance & More
Top Vehicle IPO Reviews: Popular Vehicles & Services is facing an IPO issue of Rs. 601.55 Cr opens on March 12, 2024. The issue closes on March 14 and will be listed on the exchange on March 19, 2024. In this article, we will analyze the strengths and weaknesses of Popular Vehicles & Services Limited IPO Review 2024. Read on. to find out!
Hot Vehicle IPO Review – About Us
Popular Vehicles is a diverse automobile dealership that operates on a fully integrated business model. They provide products and services for the entire life cycle of vehicle ownership, including new vehicle sales, service and spare parts distribution.
In addition to selling new cars, Popular Vehicles also operates a used car business, operates a driving school, and sells third-party financial products such as insurance.
Popular Vehicles’ primary business operates in three segments:
- car: Under this business, the company operates dealerships of Maruti Suzuki, Jaguar Land Rover and Honda Cars.
- Commercial vehicles: In the commercial vehicle segment, Popular operates dealerships for Tata Motors and Daimler India (BharatBenz).
- Electric vehicles: The company operates two-wheeler dealerships for Ather Energy and electric three-wheeler dealerships for Piaggio.
As of December 31, 2023, the Company operated a network of 61 showrooms, 133 dealerships and 32 used vehicle showrooms. Popular Vehicle also operates 139 authorized service stations, 43 retail stores and 24 warehouses across Kerala, Karnataka, Tamil Nadu and Maharashtra.
New car dealerships are the most popular segment by revenue, selling approximately 47,820 units in FY23 and 23,993 units in the first half of FY24. The company earns 68% of its revenue from this segment, which has led to a 43% increase in revenue.
The fastest growing segment is spare parts, which has expanded by 46% and now accounts for 14% of the company’s revenue. Used cars are the third largest segment (7.6%), and services are the fourth largest segment (6%).
Popular Vehicle IPO Review – Industry Introduction
The automobile industry is a key contributor to the Indian economy, currently accounting for 7.1% of GDP. According to the 2023 Ministry of Information and Broadcasting report, the industry directly and indirectly employs more than 1.9 million people.
India is one of the world’s largest automobile markets, with annual domestic sales exceeding $2 million. Domestic sales hit a record high of $2.7 billion in FY19, driven by good macroeconomic growth, increased consumption, favorable rural demand and healthy demand from end-use sectors.
However, domestic sales in FY19 declined by 17.7% due to slower GDP growth and inventory adjustments following the Bharat Stage-VI (BS-VI) upgrade. The COVID-19 pandemic has also dealt a heavy blow to the automotive industry, with sales down 12% in fiscal 2020 to an already low level of Rs 1.9Cr in fiscal 2021.
In the domestic automobile industry, two-wheeled vehicles account for more than 70% of the entire industry. However, after the pandemic, sales of personal vehicles, commercial vehicles and three-wheelers recovered much faster than those of two-wheelers.
Some of the key trends shaping the automotive industry are premiumization. Car buyers are willing to spend more on premium cars and premium features and are increasingly concerned about safety in the future. There is also a shift towards the use of more profitable CNG and electric vehicles through government FAME subsidies.
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Hot Vehicle IPO Review – Finance
In FY23, Popular Vehicles & Services reported revenue of Rs. 4,875 Cr, up 46% from Rs. 3465 Cr in FY22. The sales growth was driven by strong growth in the new vehicles and spare parts segment, which accounted for 82% of total sales. Operating revenues have grown at a CAGR of 31% since FY21.
Because they are vehicle dealers, companies like Popular have extremely tight margins. Cost of goods sold is almost 85%-86% of sales. EBITDA margin was around 4.8% in FY23, down from 5.13% in FY22. The company is barely profitable, with a net profit margin of 1.31% in FY23, up from 0.97% in FY22.
Driven by a 34 basis point increase in net profit margin, the company’s net profit increased by 90% from Rs. 34 Cr in FY22 to Rs. 64Cr in FY23. Since FY21, these profits have grown at a CAGR of 40.5%.
The company’s debt-to-equity ratio is 1.47 times. The high debt is due to exposure to long-term lease liabilities as well as short-term borrowings that serve as working capital for the dealership.
Hot Vehicle IPO Review – Key Players
The dealer stock market on Indian exchanges is a very new market. Therefore, we have only one company. Landmark Automobile Co., Ltd. Peer is a dealer for Mercedes Benz, Honda, Jeep, Volkswagen and Renault in the passenger vehicle segment and Ashok Leyland in the commercial vehicle segment.
In terms of revenue, Popular Vehicles is a bigger business and slightly outperforms Landmark Automobiles in terms of net worth revenue. The company went public on December 22 at a 5% discount to its IPO floor price limit. However, the stock price has since risen to a rate of return of 15%.
As of March 1, 2024, the company traded at 35 times price-to-earnings. It is a popular vehicle priced in the 500,000 won range. 295, the company has an EPS of Rs. 10.22 is evaluated at a PER of 28.86 times.
strength
- Long standing in the automotive industry: Kuttukaran Group (parent company of Popular Vehicles) has been in the automotive industry since 1953. They first set up their Maruti Suzuki dealership in 1984 and have since partnered with various OEMs to set up and run dealerships for the brand.
- Deep penetration into semi-urban and rural markets: The company has a deep understanding of India’s cities and towns. that hub and spoke City showrooms act as hubs, while dealerships and booking offices are located deep in towns and villages. They provide a source of vehicles for the country’s underdeveloped markets.
- Fully integrated business model: The company took on the challenge of providing an end-to-end service for vehicle ownership rather than just operating two dealerships. This allows you to leverage your brand to generate recurring revenue when customers require vehicle maintenance.
- Proven track record in inorganic growth: As part of its business diversification, the company entered the spare parts business by acquiring a spare parts distributor in Karnataka. This form of inorganic growth has made the spare parts business a major revenue segment, generating 14% of the company’s revenue.
- Consistent record of financial performance: The company has continued to expand its revenues through organic or inorganic growth. Starting off as a dealer for Maruti Suzuki, it has now branched out into several other car brands to increase its profits.
Weakness
- The cyclical nature of the automotive industry: The automotive industry operates on a highly cyclical basis, and its cycles are highly sensitive to economic changes such as fuel prices, credit availability, interest rates and levels of discretionary spending. This makes stable sales growth impossible during an economic downturn.
- Significant impact from OEMs: Brands like Tata Motors, Maruti Suzuki and Jaguar Land Rover have a huge impact on what inventory to keep and what car models to display. Apart from this, the company does not have exclusive rights over any particular region.
- Potential termination of agency agreement: Popular Vehicles operates by entering into dealership agreements with OEMs to sell its vehicles. However, failure to comply with the agreement can result in termination of your sales license, which can have a serious impact on your company’s bottom line.
- Negative operating cash flow: As of September 2023, the company reported a negative cash flow of Rs. 161Cr. This is due to a sharp increase of 500 billion won in inventory assets and accounts receivable. 240Cr & Rs. 76 Cr each.
- Geographically concentrated risk: Based in Kochi, Kerala, 71% of the company’s revenue comes from the state and 99% of its FY23 revenue came from Kerala, Karnataka and Tamil Nadu.
Popular Vehicle IPO Review – GMP
As of the date of writing this article, the gray market premium for Popular Vehicles & Services Ltd stock has not yet been disclosed. We will update the article with our respective expectations as soon as GMP is updated.
Hot Vehicle IPO Review – Key IPO Information
promoter: John K. Paul, Francis K. Paul, Naveen Philip
Book Operations Lead Manager: ICICI Securities Ltd, Nuvama Wealth Management Ltd and Centrum Capital Ltd
Proposal registered by: Link Intime Pvt Ltd
purpose of the problem
- Rs 192 Cr will be utilized for repayment of borrowings provided by the company or its subsidiaries.
- The remaining amount will be used for general corporate purposes.
conclusion
Popular Vehicles & Services Ltd is a leading multi-brand automobile dealership company with a strong presence in the relatively under-penetrated semi-urban and rural markets of South India. The company’s longstanding presence, geographic penetration, and proven track record of inorganic growth are some of the company’s biggest positive factors.
However, the cyclical nature of the automotive industry and its heavy reliance on OEM brands make it difficult for dealerships to have a good reputation. In addition to this, cash flow in the first half of FY24 was negative due to inventory accumulation. These are some of the risks associated with business.
Nonetheless, the automotive industry performed significantly in FY23 and is currently having a successful FY24. So do you think it’s worth it to apply to a company at a 29x earnings premium? Please let us know in the comments below..
Written by Nasir Hussein
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