02/08/2013
The automotive sector in India is a dynamic and rapidly growing industry, and within it, dealership networks play a crucial role in connecting manufacturers with consumers. Popular Vehicles and Services Ltd, part of the well-established Kuttukaran Group, is a prominent player in this space. With a history stretching back over 70 years, the company has built a reputation as a diversified automobile dealer, boasting a fully integrated business model. This article delves into the intricacies of their Initial Public Offering (IPO), examining the company's operations, strategic advantages, financial health, and the potential implications for investors.
Understanding Popular Vehicles and Services Ltd
Established as a diversified automobile dealership in India based on revenue in Fiscal 2023, Popular Vehicles and Services Ltd operates under the umbrella of the Kuttukaran Group. The group's journey in the automotive world began in 1953 with the sale of spare parts and accessories. Over the decades, it strategically expanded into vehicle dealerships, forging partnerships with leading Original Equipment Manufacturers (OEMs). The company marked its significant entry into the dealership business in 1984 by establishing the first Maruti Suzuki showroom in Trivandrum, Kerala, under the "Popular" brand. Since then, it has systematically grown its network, catering to a broad spectrum of the market, from economy to premium and luxury vehicle segments.
The company's business model is designed to cover the entire vehicle ownership lifecycle. This comprehensive approach includes the sale of new vehicles, after-sales servicing and repairs, distribution of genuine spare parts and accessories, facilitating the sale and exchange of pre-owned vehicles, operating driving schools, and offering third-party financial and insurance products. This integrated strategy allows Popular Vehicles and Services to capture value at multiple touchpoints with the customer.
Extensive Dealer Network and Segmented Operations
A cornerstone of Popular Vehicles and Services' success is its expansive dealership network. As of the information provided, the company operates across a significant geographical footprint, spanning 14 districts in Kerala, 8 districts in Karnataka, 12 districts in Tamil Nadu, and 9 districts in Maharashtra. This network comprises:
- 61 showrooms
- 133 sales outlets and booking offices
- 32 pre-owned vehicle showrooms and outlets
- 139 authorised service centres
- 43 retail outlets
- 24 warehouses
The company's automobile dealership business is strategically divided into three key segments:
1. Passenger Vehicles Segment
This segment forms a significant part of the company's operations, with dealerships for Maruti Suzuki, Honda, and Jaguar Land Rover (JLR). The company offers a wide range of passenger vehicles, from budget-friendly options to high-end luxury models, including electric vehicles. During the six months ending September 30, 2023, Popular Vehicles sold approximately 16,476 passenger vehicles. Its Maruti Suzuki dealerships, operating under the "Popular" brand, serve both the economy ('Arena') and premium ('Nexa') segments. In Fiscal 2023, the company was recognized as the seventh largest Maruti Suzuki dealer in India under the Arena network and the ninth largest under the Nexa network by volume, highlighting its strong performance with this key OEM.
2. Commercial Vehicles Segment
In the commercial vehicle space, Popular Vehicles and Services partners with Tata Motors (Commercial) and BharatBenz. The Tata Motors (Commercial) dealership network is substantial, with 13 showrooms, 32 sales outlets, and 27 authorised service centres across Kerala and Tamil Nadu. The company achieved a notable position, ranking as the fourth-largest commercial vehicle dealership for Tata Motors (Commercial) in terms of sales volumes in Fiscal 2023. Its contribution to Tata Motors' sales in Kerala and Tamil Nadu was significant, accounting for 76.73% and 48.02% of total sales in these states, respectively, as of September 30, 2023. The BharatBenz dealership, operating under the 'Prabal Trucking' brand, caters to various commercial vehicle needs across Maharashtra and Tamil Nadu.
3. Electric Two-Wheeler and Three-Wheeler Vehicles Segment
Recognizing the growing trend towards electric mobility, the company ventured into this segment in 2021. It holds dealerships for Ather Energy (electric two-wheelers) and Piaggio (electric three-wheelers), both operating under the 'Ecomarq' brand. The Piaggio dealership has shown strong performance, making Popular Vehicles the largest dealer of Piaggio electric three-wheelers in Kerala and the fifth largest nationwide as of September 25, 2023. The Ather dealership further strengthens its presence in the burgeoning electric vehicle market.
Driving Schools Segment
Adding another dimension to its integrated model, the company established its first driving school in Ernakulam in 2006 and has since expanded to operate a total of 7 driving schools across Kerala. This segment contributes to customer engagement and offers a ancillary revenue stream.
IPO Details and Objectives
Popular Vehicles and Services Ltd is launching its IPO with the objective of raising capital for growth and strengthening its financial position. The IPO comprises both a Fresh Issue and an Offer For Sale (OFS).
- Offer For Sale: Rs. 351.5 crore. The proceeds from the OFS will go to the selling shareholders, and the company will not receive any funds from this portion.
- Fresh Issue: Rs. 250 crore. The company plans to utilise these funds primarily for the repayment and/or pre-payment of certain borrowings availed by the company and its subsidiaries. A portion will also be allocated for general corporate purposes.
The IPO details are as follows:
| Detail | Information |
|---|---|
| Issue Opens On | 12th March 2024 |
| Issue Closes On | 14th March 2024 |
| Issue Price | Rs. 280 - 295 |
| Face Value | Rs. 2 |
| Retail Category Allocation | 35% |
| Minimum Lot | 50 Shares |
| Minimum Investment | Rs. 14,750 |
| Issue Constitutes | 28.64% |
| Issue Size | Rs. 601.55 cr ($ 73 million) |
| Market Cap (at issue price) | Rs. 2100 cr ($ 253 million) |
| Listing At | NSE & BSE |
| Equity Shares Offered (Fresh) | 84,74,577 (Rs. 250 cr) |
| Equity Shares Offered (OFS) | 1,19,17,075 (Rs. 351.5 cr) |
| Total Equity Shares Offered | 2,03,91,652 (Rs. 601.55 cr) |
Important Dates:
- Finalization of Basis of Allotment: On or Before 15th March 2024
- Initiation of Refunds: On or Before 18th March 2024
- Credit of Equity Shares: On or Before 18th March 2024
- Listing Date: On or Before 19th March 2024
Positives for the Company
Popular Vehicles and Services possesses several key strengths that position it favourably in the market:
- Network Expansion and Diversification: The company has a proven track record of expanding its network and diversifying its product portfolio across various vehicle segments and OEMs.
- Early-Mover Advantage: It has an early-mover advantage in reaching semi-urban and rural areas through its extensive network of sales outlets and booking offices. The company plans to further enhance its penetration in these regions.
- Strategic Growth Plans: Popular Vehicles intends to expand its Maruti Suzuki business in Karnataka, starting with Bangalore. Furthermore, it aims for growth through strategic acquisitions, targeting dealerships of high-growth brands in concentrated or growing demographic areas, as well as smaller, single-location dealerships that can be integrated into its existing operations.
- Inorganic Growth Success: The company has successfully achieved inorganic growth through past acquisitions, such as acquiring Maruti Suzuki service centres and showrooms, and BharatBenz dealerships, demonstrating its capability to integrate and leverage acquired assets.
Financial Performance
The company's financial performance over the last few fiscal years and the initial part of the current fiscal year shows a positive trend in revenue and profitability.
| Period | Revenue (Rs. in Crores) | Net Profit (Rs. in Crores) |
|---|---|---|
| FY 21 | 2919.2 | 32.4 |
| FY 22 | 3484.2 | 33.6 |
| FY 23 | 4892.6 | 64.0 |
| Up to 30th Sept 23 | 2848.2 | 40.0 |
The financials indicate a steady increase in revenue and a significant jump in net profit in FY23, with strong performance continuing into the first half of FY24.
IPO Valuation Parameters
The IPO valuation parameters provide insight into how the company is priced relative to its earnings and assets:
- Earnings Per Share (EPS): 10.22
- Price To Earnings (PE) Ratio: 28.86
- Return on Net Worth (RoNW): 18.68%
- Net Asset Value (NAV): 54.69
Comparing these with peer group companies like Landmark Cars Ltd, Popular Vehicles and Services appears to be valued competitively, with a slightly lower PE ratio and a comparable RoNW, suggesting a potentially attractive entry point for investors.
Frequently Asked Questions (FAQs)
Q1: What is the primary business of Popular Vehicles and Services Ltd?
A1: Popular Vehicles and Services Ltd is a diversified automobile dealership with a fully integrated business model, involved in selling new and pre-owned vehicles, servicing, spare parts distribution, and operating driving schools.
Q2: Which OEMs does Popular Vehicles and Services represent?
A2: They represent major OEMs such as Maruti Suzuki, Honda, Jaguar Land Rover, Tata Motors (Commercial), BharatBenz, Ather Energy, and Piaggio Vehicles.
Q3: What is the main purpose of the IPO?
A3: The IPO aims to raise funds primarily for repaying and pre-paying certain borrowings and for general corporate purposes. An Offer For Sale component also allows existing shareholders to divest their stakes.
Q4: What is the issue price and lot size for the IPO?
A4: The issue price is between Rs. 280 to Rs. 295 per share, with a minimum lot size of 50 shares.
Q5: What are the company's expansion plans?
A5: The company plans to expand its Maruti Suzuki business in Karnataka and aims for further growth through strategic acquisitions of dealerships.
Conclusion
Popular Vehicles and Services Ltd presents a compelling investment opportunity within India's robust automotive retail sector. Its extensive, integrated business model, strong relationships with leading OEMs, significant geographical presence, and clear growth strategies, including expansion and strategic acquisitions, are notable strengths. The company's financial performance indicates a positive trajectory. As with any IPO, potential investors should conduct thorough due diligence, considering market conditions, competitive landscape, and their own investment objectives. The successful listing of Popular Vehicles and Services on the stock exchanges will be closely watched as an indicator of investor sentiment towards automotive dealership businesses.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors are advised to consult with a qualified financial advisor before making any investment decisions.
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