Popular Vehicles & Services Limited IPO – Get Date, Price, Review and Details

In this article, we will discuss:

• About the company
• Objects of the Offer
• Key Strengths and Opportunities
• Risks
• Financial Snapshot
• Comparison with Peers
• Conclusion

About the company:

Popular Vehicles and Services Limited was Incorporated in 1983. It is headquartered in Kerala. It is in the automobile dealership business. Company offers diversified products and services ranging from sale of new vehicles, sale of auto spare parts and accessories, servicing and repairing vehicles, facilitating sale of pre-owned vehicles and third-party insurance products to running the motor driving school.

The company has categorised its automobile dealership business into three key segments -

(a) passenger vehicles including luxury vehicles (OEMs - Maruti Suzuki, Honda, JLR)

(b) commercial vehicles (OEMs -Tata Motors (Commercial), BharatBenz)

(c) electric two-wheeler and three-wheeler vehicles (OEMs - Piaggio, Ather)

In the six-month period ending September 30, 2023, revenue from operations amounted to ₹16,918.51 million, ₹9,616.33 million, and ₹450.41 million, from passenger vehicles, commercial vehicles and electric two-wheeler and three-wheeler vehicles respectively, contributing 59.68%, 33.92%, and 1.59% of the total revenue from operations respectively.

As of December 31, 2023, company operated through network of 61 showrooms, 133 sales outlets and booking offices, 32 pre-owned vehicle showrooms and outlets, 139 authorised service centres, 43 retail outlets, and 24 warehouses located across Kerala, Karnataka, Tamil Nadu and Maharashtra. John K. Paul, Francis K. Paul, Naveen Philip are promotors of the company who collectively hold 69.45% of the pre-issue equity share capital.

Objects of the Offer:

The company intends to utilize the net proceeds towards the following objects:

• Repayment and/or pre-payment, in full or part, of certain borrowings, availed by the Company and certain of its Subsidiaries, namely, PAWL, PMMIL, KGPL, KCPL and PMPL; and
• General corporate purposes

Key Strengths and Opportunities:

• Experienced player in the industry with dealership of key auto brands of the country -

The founders of the company entered into the industry in 1953. In this seventy-years long journey valuable experience has been gained by the top leadership team. Tie-ups have been made with leading automobile brands like Maruti Suzuki and Honda, which represent 41% and 2% of the passenger vehicles market share in India in Fiscal 2023, respectively. The group received the ‘Top Dealer of the Year – South’ award from ET Auto in 2023.

• Strong network of outlets to penetrate in semi-urban and rural areas -

With a robust network of showrooms, sales outlets, and booking offices, the company can penetrate deeply into semi-urban and rural areas. It employs an innovative "hub and spoke" model for Maruti Suzuki and Tata Motors (Commercial) dealerships in Kerala, where showrooms serve as hubs for sales outlets and booking offices located in small towns and rural areas. With extensive touchpoints and innovative marketing, the company has tapped into underserved geographies.

• Business stability with fully integrated business model -

Company offers various auto-industry products and services under different verticals which provide the synergy gains at the organisation level. Diversified income streams also contribute to higher profitability margins. Company offers integrated service through authorised service centres helping to maintain higher margin in dealership and help to mitigate cyclicality. With emphasis on selling extended service contracts, company retains customer relationship beyond the warranty period.

• Increasing growth track record -

Company has consistently increased revenues and nearly doubled the PAT in FY 23. Its growth is driven by the growth of the OEMs, addition of new OEMs like BharatBenz, Piaggio and Ather to portfolio has contributed in that. Company can increase its reach to new states to further expand its operations, as successfully done via inorganic way in Karnataka in FY 19.

Risks

• Performance dependent on the demand in Auto industry -

The automobile industry is sensitive to the changes in economic conditions. Higher interest rate can pull back the discretionary spending on new vehicles, which can in turn affect the business of the company. Increasing fuel prices, rise of ride-sharing platforms, pollution concerns, improvement in public transport infrastructure etc factors may adversely affect the future growth prospects.

• Subject to significant influence of OEMs -

The company has accounted more than 80% of revenues in six months ended Sept 23 and in each of past three years from two OEMs - Maruti Suzuki and Tata Motors (commercial). It has lower voice in negotiating any terms or margins with such OEMs. Moreover, any restriction, non-renewal or termination imposed by them with respect to dealership agreement may bring in question the sustainability of the business.

• Company had negative cashflows and losses in some subsidiaries in the past -

For six months period ended September 30, 2023, cashflows from operating activities were negative Rs. 1,611.02 million. Company might continue to have negative cashflows in future as well. This indicates higher working capital requirement on account of holding inventory of vehicles. Although nominal, two of the subsidiaries, Kuttukaran Cars Private Limited (“KCPL”) and Kuttukaran Green Private Limited (“KGPL”) had losses and negative net worth in past three years.

• Cases against company, its subsidiaries promotors -

The company is involved in several outstanding litigations viz. 7 criminal proceedings, 72 tax proceedings, 23 statutory or regulatory proceedings, 1 material civil litigation making and aggregate amount of Rs. 305.93 million. Similarly, litigations involving Rs. 2,474.75 million and Rs. 21.70 million are also outstanding against subsidiary companies and promoters, respectively. There is a risk of prosecution or arrest as well against promoters, which may adversely affect image and operations of the business.

Financial Snapshot:

**Not annualised

Comparison with Peers:

Conclusion:

The automobile dealership business is completely dependent on the demand of vehicles, which remains cyclical and discretionary in nature. Although, automobile market is going to grow in coming years as result of expected increase in per capita income, there were around 20,000 dealerships last year of which dealerships for PVs account for approximately 15% and for CVs 8-10%. So, there is a stiff competition in this business with the local players. The company doesn’t have any MOAT like its peer Landmark Cars which operates in a premium segment and earns higher margin. Although profit growth is there, cashflows of the company from operating activities were negative for six months period ending September 30, 2023. OEM concentration risk in total revenue is also a concern. Moreover, any adverse outcome from outstanding litigations for which provision has not been made can hit the bottom line and could be detrimental to company’s brand value. Therefore, even though on the basis of valuation the company looks reasonably fair, considering the qualitative factors involved.

We recommend to avoid the IPO.