Popular Vehicles IPO Analysis: The IPO of Popular Vehicles & Services is set to open on March 12, 2024, with a total issue size of Rs. 601.55 Cr. The closing date for the issue is March 14, and it is scheduled to be listed on the exchange on March 19, 2024. Stay tuned as we delve into the strengths and weaknesses of the Popular Vehicles & Services Limited IPO Review 2024. Keep reading for more details!
About Popular Vehicles
Popular Vehicles is a versatile automotive dealership operating on a fully integrated business model. They provide products and services covering the entire vehicle ownership life cycle, encompassing the sale of new vehicles, servicing, and spare parts distribution.
In addition to new car sales, Popular Vehicles also engages in pre-owned car sales, operates driving schools, and offers third-party financial products such as insurance.
Popular Vehicles’ primary business is divided into three segments:
- Passenger Vehicles: Within this segment, the company runs dealerships for 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 dealerships for Ather Energy’s 2-wheelers and Piaggio’s electric three-wheeler vehicles.
As of December 31, 2023, Popular Vehicles had a network comprising 61 showrooms, 133 sales outlets, and 32 pre-owned vehicle showrooms. Additionally, the company operated 139 authorized service stations, 43 retail outlets, and 24 warehouses across Kerala, Karnataka, Tamil Nadu, and Maharashtra.
The new vehicle dealership segment is the primary revenue generator for Popular Vehicles, having sold approximately 47,820 cars as of FY23 and 23,993 cars in the first half of FY24. This segment contributes 68% to the company’s revenue, experiencing a 43% revenue growth.
The spare parts segment is experiencing the fastest growth, with a 46% increase, now contributing to 14% of the company’s revenue. Pre-owned vehicles represent the third largest segment at 7.6%, followed by services at 6%.
Industry Overview
The automotive sector plays a vital role in the Indian economy, accounting for 7.1% of the GDP. According to the Ministry of Information and Broadcasting report of 2023, the industry provides employment to over 19 million individuals directly and indirectly.
India stands as one of the world’s largest automobile markets, boasting annual domestic sales exceeding 20 million units. In FY19, domestic sales surged to a peak of 27 million units, buoyed by favorable macroeconomic growth, increasing consumption, robust rural demand, and healthy demand from various end-use sectors.
Yet, domestic sales experienced a 17.7% decline in FY19 due to a slowdown in GDP growth and inventory adjustments for the Bharat Stage-VI (BS-VI) upgrade. Additionally, the COVID-19 pandemic exacerbated the automotive industry’s challenges, leading to a 12% drop in sales in FY21 to 19 million units, further compounding the effects of the already low fiscal 2020 base.
The domestic automotive sector is primarily led by two-wheelers, comprising over 70% of the market. Nevertheless, following the pandemic, sales of personal vehicles, commercial vehicles, and three-wheelers have rebounded more swiftly than those of two-wheelers.
Several notable trends are influencing the automotive sector. Firstly, there’s a trend towards premiumization, where consumers are willing to invest more in premium vehicles or features. Additionally, there’s a growing emphasis on safety in future automotive designs. Moreover, there’s a shift towards the adoption of CNG and electric vehicles, supported by government subsidies under FAME schemes.
Financial Highlights
In FY23, Popular Vehicles & Services recorded a revenue of Rs. 4,875 Cr, marking a 46% increase from Rs. 3,465 Cr in FY22. This growth was primarily driven by robust performance in the New Vehicles and spare parts segments, accounting for 82% of the revenue. Since FY21, the company has achieved a revenue growth rate of 31% CAGR.
As a vehicle dealer, companies such as Popular face significant margin pressures, with the cost of goods sold accounting for approximately 85%-86% of revenue. Consequently, its EBITDA margin decreased to 4.8% in FY23 from 5.13% in FY22. Despite this, the company remains marginally profitable, with net profit margins rising to 1.31% in FY23 from 0.97% in FY22.
With a 34-basis point rise in net profit margins, the company witnessed a 90% growth in net profits, climbing from Rs. 34 Cr in FY22 to Rs. 64 Cr in FY23. These profits have surged at a compound annual growth rate (CAGR) of 40.5% since FY21. The company’s debt-to-equity ratio stands at 1.47x, primarily due to its long-term lease liabilities and short-term borrowings used as working capital for its dealerships.
| Sr. No. | Metric | Unit | Six-month period ended September 30, 2023 | Financial Year ended 2023 | Financial Year ended 2022 | Financial Year ended 2021 |
| 1. | Sales Volumes | |||||
| -Number of new vehicles sold | # | 23,993 | 47,820 | 37,871 | 35,105 | |
| -Number of pre-owned vehicles sold | # | 5,611 | 11,806 | 10,594 | 10,098 | |
| -Number of vehicles serviced | # | 5,27,846 | 957,148 | 721,400 | 646,280 | |
| 2. | Revenue from operations | Rs million | 28,349.97 | 48,750.02 | 34,658.79 | 28,935.25 |
| -Sales of new vehicles | Rs million | 19,411.07 | 33,305.06 | 23,222.61 | 19,395.41 | |
| -Sale of spare parts & accessories | Rs million | 4,115.54 | 6,820.19 | 4,687.13 | 3,783.64 | |
| -Sale of pre-owned vehicles | Rs million | 1,938.74 | 3,705.97 | 2,872.81 | 2,473.08 | |
| -Sale of services | Rs million | 1,605.84 | 2,872.91 | 2,183.97 | 1,803.63 | |
| -Other Operating income | Rs million | 1,278.78 | 2,045.89 | 1,692.27 | 1,479.49 | |
| 3. | Total Income | Rs million | 28,482.08 | 48,926.28 | 34,841.99 | 29,192.52 |
| 4 | Profit for the period/year | Rs million | 400.44 | 640.74 | 336.69 | 324.55 |
| 5. | Earnings Per Share | |||||
| Basic | Rs | 6.38** | 10.22 | 5.37 | 5.17 | |
| Diluted | Rs | 6.38** | 10.22 | 5.37 | 5.17 | |
| 6. | Inventory turnover days | Days | 103** | 38 | 45 | 47 |
| 7. | Working capital days | Days | 95** | 34 | 37 | 35 |
| 8. | Net cash generated from operating activities | Rs million | (1,611.02) | 1,088.93 | 696.92 | 951.74 |
| 9. | Gross Profit | Rs million | 4,334.04 | 7,324.03 | 5,491.10 | 4,604.97 |
| 10. | Gross Margin | % | 15.29% | 15.02% | 15.84% | 15.91% |
| 11. | EBITDA | Rs million | 1,459.09 | 2,348.46 | 1,786.63 | 1,748.53 |
| 12. | Adjusted EBITDA | Rs million | 1,443.04 | 2,348.46 | 1,786.63 | 1,748.53 |
| 13. | EBITDA Margin | % | 5.12% | 4.80% | 5.13% | 5.99% |
| 14. | PAT Margin | % | 1.41% | 1.31% | 0.97% | 1.11% |
| 15. | RoE | % | 10.42%** | 18.68% | 12.03% | 13.19% |
| 16. | RoCE | % | 8.83%** | 18.32% | 16.79% | 17.09% |
| 17. | Net Debt / EBITDA | Times | 5.00** | 2.03 | 1.97 | 1.68 |
| 18. | Debt to Equity | Times | 1.99 | 1.47 | 1.33 | 1.44 |
| 19. | Net Worth | Rs million | 3,842.11 | 3,430.44 | 2,798.86 | 2,460.02 |
Competitors
The market for dealership stocks on the Indian exchange is relatively nascent, with Landmark Cars Ltd. being the sole company in this sector. Landmark Cars Ltd. serves as a dealer for Mercedes Benz, Honda, Jeep, Volkswagen, and Renault for passenger vehicles, and for Ashok Leyland for commercial vehicles.
Popular Vehicles surpasses Landmark Cars in revenue and slightly edges ahead in return on net worth. Although it initially debuted at a 5% discount from its IPO price, the stock has since surged, delivering a 15% return.
As of March 1st, 2024, the company’s Price-to-Earnings ratio stood at 35x. If Popular Vehicles is priced at the upper end of the band at Rs. 295, with an EPS of Rs. 10.22, its PE ratio would be 28.86x.
| Name of the Company | Face Value (Rs per share) | Revenue from Operations (in Rs million) | EPS (Rs per share) | NAV (Rs per share) | P/E as on March 1, 2024 | Return on Net Worth (%) | |
| Basic | Diluted | ||||||
| Popular Vehicles and Services Limited | 2 | 48,750.02 | 10.22 | 10.22 | 54.69* | NA | 18.68% |
| Landmark Cars Limited | 5 | 33,823.51 | 22.56 | 21.74 | 118.55 | 34.84 | 18.04% |
Strengths
- Established Presence in Automobile Industry: The Kuttukaran Group, parent of Popular Vehicles, has operated in the automobile sector since 1953. They initiated their journey by establishing a Maruti Suzuki dealership in 1984 and have since expanded to partner with various OEMs for dealership operations.
- Extensive Reach in Semi-Urban & Rural Markets: Popular Vehicles possesses in-depth knowledge of India’s towns and villages, implementing a hub-and-spoke model. Showrooms in urban areas serve as hubs, while sales outlets and booking offices in rural areas act as spokes, catering to underpenetrated markets.
- Comprehensive Business Model Integration: The company offers comprehensive vehicle ownership services beyond dealership operations. This includes maintenance services, leveraging their brand to generate recurring revenue.
- Successful Inorganic Growth Strategy: Popular Vehicles has pursued inorganic growth by acquiring a spare parts distributor in Karnataka. This strategic move has propelled the spare parts business to become a significant revenue contributor, constituting 14% of the company’s total revenue.
- Steady Financial Performance: The company has consistently expanded its revenue through organic and inorganic means. Starting as a Maruti Suzuki dealer, Popular Vehicles has diversified into multiple car brands, resulting in revenue growth.
Weaknesses
- Automotive Industry’s Cyclical Nature: The industry’s fortunes fluctuate with economic changes like fuel prices, credit availability, and consumer spending.
- Influence from OEMs: Brands like Tata Motors and Maruti Suzuki dictate inventory and model selection, limiting dealership autonomy.
- Risk of Agreement Termination: Violating dealership agreements with OEMs can lead to license termination, impacting revenue.
- Negative Cash Flow: Recent reports show a negative cash flow, attributed to increased inventories and trade receivables.
- Geographical Concentration: Majority of revenue (71%) is derived from Kerala, posing a risk due to regional dependence.
GMP
As of the article’s publication, the Grey Market Premium for Popular Vehicles & Services Ltd shares remains undisclosed. We’ll provide updates on the expected premium once available.
Key IPO Information
| Particulars | Details |
| IPO Size | Rs. 601.55 Cr |
| Fresh Issue | Rs. 250 Cr |
| Offer for sale (OFS) | Rs. 351.55 Cr |
| Opening date | 12 March 2024 |
| Closing date | 14 March 2024 |
| Face value | Rs. 2 |
| Price band | Rs. 289 – 295 |
| Lot size | 50 Shares |
| Minimum Lot Size | 1 Lot (50 Shares) |
| Maximum Lot Size | 13 Lots (650 Shares) |
| Minimum Investment | Rs. 14,750 |
| Listing date | 19 March 2024 |
Promoters: John K. Paul, Francis K. Paul and Naveen Philip
Book Running Lead Manager: ICICI Securities Ltd, Nuvama Wealth Management Ltd and Centrum Capital Ltd
Registrar to the Offer: Link Intime Pvt Ltd
Conclusion
Popular Vehicles & Services Ltd stands out as a prominent multi-brand automobile dealership firm, particularly excelling in the less explored semi-urban and rural sectors of South India. Its enduring presence, regional reach, and history of expansion through acquisitions are notable strengths.
Yet, the industry’s cyclicality and the necessity for OEM brands to uphold strong reputations pose challenges. Additionally, the company faced negative cash flows in the first half of FY24 due to inventory buildup, presenting risks.
Despite these challenges, the automotive sector demonstrated resilience in FY23 and is currently showing promise in FY24.
