Popular Vehicles and Services Ltd. (Subscribe)

Highlights

Popular Vehicles and Services Limited (PVSL) incorporated in 1983, is diversified automobile dealership in India in terms of sales as of FY23, they cater to the complete life cycle of vehicle ownership, right from the sale of new vehicles, servicing and repairing vehicles, distributing spare parts and accessories, to facilitating sale and exchange of pre-owned vehicles, operating driving schools and facilitating the sale of third-party financial and insurance products.

They categorise their automobile dealership business into three key segments, namely, (i) passenger vehicles (PV) including luxury vehicles, (ii) commercial vehicles (CV) and (iii) electric two-wheeler (E2W) and three-wheeler vehicles (E3W)

PVSL operate CV, PV, EV2W and EV3W passenger vehicle dealerships across its dealerships for the OEMs: (i) Maruti Suzuki for both Arena and Nexa, through Company, (ii) Honda through its Subsidiary VMPL (iii) JLR through its Subsidiary, PAWL. Commercial vehicle dealerships of (i) Tata Motors Commercial, through its Subsidiary, PMMIL and (ii) BharatBenz, through its Subsidiary, PMPL; and (c) EV3W vehicle dealership of Piaggio, through its Subsidiary, KGPL and EV2W vehicle dealership of Ather, through its Subsidiary, KCPL.

As of December 31, 2023, the company operated through its network of 61 showrooms, 133 sales outlets and booking offices, 32 preowned vehicle showrooms and outlets, 139 authorised service centres, 43 retail outlets, and 24 warehouses located across 14 districts of Kerala, 8 districts in Karnataka, 12 districts in Tamil Nadu and 9 districts in Maharashtra.

Out of the total proceeds of Rs. 6,015 mn, Rs. 1,920 mn would go towards Repayment and/or pre-payment, in full or part, of certain borrowings, availed by the Company and certain of their subsidiaries, namely, PAWL, PMMIL, KGPL, KCPL and PMPL, Rs. 3,515 would go towards existing selling shareholders of the company and Rs. 580 mn would go towards general corporate purpose.

Key Highlights

• The automobile industry contribution to India’s GDP has increased from 2.80 pct in FY93 to approximately 7.10 pct currently. India is one of the largest auto markets in the world, with annual domestic sales of over 20 mn vehicles. Currently, there are only a handful of very large dealerships in India with more than 100 outlets and a presence across 4-5 states. Compared with global dealership giants, Indian dealerships are still in the development stages with significant room for expansion.
• Under the service and repairs vertical of the company offers running repair and collision repair services. As of H1FY24 the company served 419,729 PV including 2,762 luxury vehicles, 103,116 CV, 4,118 E2W vehicles and 883 E3V through their network of 137 authorised service centres across its dealerships.
• In FY23, the company entered into an arrangement with Kochi Metro Rail Limited, a joint venture of the Government of India and the Government of Kerala, for the sale of electric three-wheeler vehicles for convenient transportation of their employees within the state.
• PVSL’s key strategies includes (i) To sustained growth of their higher margin services and repair business, sale of pre-owned passenger vehicles and facilitation of sale of third-party financial products. (ii) Continue to increase sales at existing dealerships (iii) Expansion of their network and diversification of their product portfolio. (iv) Grow through strategic acquisitions (v) Invest in technology and increase its digital presence.
• The company intend to continue to increase penetration in semi urban and rural areas by the addition of newer showrooms and sales outlets and booking offices. Further, they intend to expand its Maruti Suzuki business in Karnataka starting with Bangalore.
• The company prefers to not own land, historically company owned 7-8 properties but currently other properties are leased. ~75 pct of the company borrowing goes to its inventory part. Rs. 1,920 would go towards debt repayment which will help company to reduce its finance cost.
• Sales of the company has grown by ~29.8 pct CAGR during the period FY21-23 while EBITDA and profit grew ~15.87 pct and ~40.5 pct CAGR over the same period respectively. During FY23, company reported sales of Rs. 48,750 mn which increased by ~40.7 pct YoY, while EBITDA increased by 76.1 pct YoY to Rs. 2,348 mn as EBITDA margin declined from 5.15 pct in FY22 to 4.82 pct in FY23. As of FY23 the company reported profit of Rs. 336 mn which was increased by ~90.4 pct YoY. During H1FY24 the Sales/EBITDA/Profit came at Rs. 28,350 mn/Rs. 1459 mn/Rs. 400 mn.

Key Risk

• The automotive industry is sensitive to changing economic conditions and various other factors. Any decline in demand for vehicles may adversely impact PVSL business.
• Influence of OEMs and restrictions imposed by them and non-renewal, termination by them may adversely impact business of the company.

Financial Performance and KPI’s

Peer Comparison

Valuation

At the upper end of the price band, the issue quotes at PE of 26.2x its FY24 annualised earnings, thus appearing to be fully priced. Considering it has over 400 touch points and is shifting its product mix to improve its bottom lines, one can Subscribe from a longer-term perspective.

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