Popular Vehicles and Sevices sets a price band of Rs 280–295 per share for its upcoming #IPO.
Watch MD Naveen Philip and CFO John Varghese in conversation with Sajeet Manghat discussing the #ipo.
Also Read: https://bit.ly/3V1kR9o
Watch MD Naveen Philip and CFO John Varghese in conversation with Sajeet Manghat discussing the #ipo.
Also Read: https://bit.ly/3V1kR9o
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TVTranscript
00:00 Hello and welcome to NDTV Profit. You are watching IPO at Da and the company which is
00:05 in focus today is Popular Vehicles and Services. It is a dealership company with a large share
00:12 in the Southern market. Its IPO is opening on March 12th, closes on March 14th. Price
00:18 between 280 to 295 rupees a share. Total IPO size of 600 odd crores which includes a fresh
00:24 issue of 250 crores and the OFS of 351 crores where Bannery is exiting through the OFS route.
00:32 And joining me today is Navin Philip who is the MD of the company and John Verges who
00:37 is the CF of the company. Gentlemen, thank you very much for joining us on NDTV Profit.
00:42 Navin, let me start with you. Give me a perspective of the kind of business that you have and
00:49 which are the segments that you mainly cater to and which are the big OEMs that you work
00:54 with? So Popular has been there in the automobile business for close to 70 years and the OEMs
01:05 that we cater to is Maruti in the passenger car space, Jaguar, Land Rover in the premium
01:10 or the luxury car space and we have Tata Motors commercial vehicles, we have Ather electric
01:15 scooters, PIGO three wheelers both in the electric space, we have Honda cars and Bharat
01:21 Benz commercial vehicles. We spread across four states, starting state being Kerala,
01:27 then moved into Tamil Nadu, Karnataka and now in Maharashtra also. Our focus has always
01:32 been in the terms of service industry. So last year we serviced a million vehicles and
01:37 that's by far probably one of the largest in the country. Whereas we sold about close
01:42 to about 48,000 new vehicles and about 12,000 used cars as such. So our focus going forward
01:48 is also in terms of the service industry in the passenger car vehicle area. John, you
01:55 are raising 250 odd crores in fresh capital, what are you going to use that for? So primarily
02:05 about 192 crores will go for repaying of our debts. The balance is for general purpose
02:10 of corporate purposes. So as you know in our industry the vehicles that we purchase from
02:17 the OEMs are kept in our inventory. So we carry debt in our books. In September we carried
02:24 about more than 750 crores. So primarily about 75% of that pertains to vehicle funding. So
02:30 which translates into sales of vehicles in the subsequent months. So the purpose of this
02:36 is to repay some part of those debt. How do you look at the inventory thing because the
02:42 biggest cost for you is inventory of vehicles. So what is the kind of inventory that you
02:46 carry across OEMs? So typically what we carry about 25 to 30 days of vehicle stock and plus
02:58 the debtors on another net of about 10-11 days. So reducing the creditors and advances
03:03 that we have. So typically we carry about 30 days of working capital in our books. So
03:11 interest cost of course is on the inventory funding that we have. So that amounts to less
03:19 than about 0.4% of our revenue. Give me a sense Navin, we recently heard the Maruti
03:28 management talking about this as well that inventory at dealerships is almost at 30 days
03:36 and that would mean that they may not be able to produce more vehicles if destocking doesn't
03:43 happen at the dealerships. What is the situation currently at your level because you are directly
03:50 linked to the OEMs and the sales which is happening in the auto industry. So where are
03:57 we on that with respect to demand and supply? So if you look at the period of probably take
04:06 the last 10 years or 15 years or decades. If you look at inventory it usually moves
04:10 between about other than the COVID period when it came down to about 10 days and 8 days
04:15 and all that. But usually it hovers between about 20 days to about 40-42 days depending
04:21 on pre-festival season, post-festival season. So pre-festival season most auto dealers would
04:27 build up inventory looking at what the sales would happen during the festival season. I
04:32 mean December there would be a build up of inventory because December is a great month
04:35 to have. March there would be a. So in between so if you look at average inventory across
04:40 over the last 8-10 years or even more than that you would look at it a little bit hover
04:43 between 20 to 40 days as such. So that's per se not a very alarming situation as such.
04:49 That is part and parcel of the business that we have. And what about the demand I mean
04:53 is there enough demand coming in for the vehicles given the fact that inventory you know it's
04:59 hitting 30 days. Yeah, yeah. So there is enough demand in the vehicles. There is a slight
05:07 lowering of demand. I would say tepid demand for probably the vehicles are sub 8 to 9 lakhs
05:13 in terms of pricing. But there is demand in the SUV space in the and lot of these vehicles
05:19 are actually in shortage. So if you look at vehicle wise then the inventory ratios would
05:24 look very different. But overall it's the demand is quite robust for us. John you have
05:32 a total indebtedness of around 3, 6, 30 odd crores. You are going to pay 192 crores in
05:38 loans to which you which you carry from ICICI bank. What will be the other route to deleverage
05:46 further your balance sheet? So as I said in our industry we do carry vehicle and as Navin
05:59 was mentioning typically about 30 to 35 days of inventory. That we will be that we will
06:04 continue to incur during as we go ahead. But more importantly when you look at the business
06:08 as a whole from the investor point of view. The return on equity that we generate for
06:14 last year we generated about 18% and this year for half year it's over 10% it's improved
06:19 to 10% for 6 months. So that is finally what I think what an investor can would be interested.
06:26 So this inventory is a part of the industry per se of the dealership industry which we
06:31 continue to incur. And on the margins front you have been hovering around 4.5, 4.6% margin
06:39 on EBITDA level. Is there enough room for you to push those margins higher or is this
06:46 industry normal for you? No, this will be obviously push higher and
06:56 we have been enhancing this in the past also. The focus has been primarily on a service
07:03 piece. As you know in our dealership there are two major pies. One is the sales of vehicles
07:07 and pre-owned cars and the other one is the service portion. So typically for service
07:12 portion the entire EBITDA of the group nearly about 55% of EBITDA comes from the service
07:18 portion even though service contributes to hardly 14 or 15% of the top line. When it
07:23 comes to EBITDA it's the service pie which gives us the most of the profitability. So
07:27 our focus has been on enhancing the service pie of it. So for the last few years both
07:33 the organic and inorganic growth that we have had, our focus is on enhancing the service
07:40 centers. So normally if you have one showroom that we procure or we install, maybe about
07:46 7 or 6 or 7 service workshop is what we put across to cover the market. Because that is
07:54 where our focus has been and more importantly since we have been in this business for so
08:00 many years and as you know we were the first dealership for Maruti way back in 84. So we
08:06 have built up a moat in terms of providing the service in terms of the skills that we
08:12 require to service vehicles. So whether it's a painter, tinker, mechanic or service advisors.
08:18 So we do have a training institute which builds up this technical skill which cannot be replicated
08:24 by other dealerships. In fact in most of the OEMs when they do have these skill competitions
08:29 most of more often than not it's our people who get the awards for these skill competitions.
08:36 So our focus is on enhancing the service pie of it and which will enhance our margins as
08:43 we move forward. I will just add to that in terms of your EBITDA margins where we are
08:48 on 5% dot and 5.2, 5.3 as such. If you look at the sale of the vehicle and the turnover
08:55 that comes in that skews the EBITDA. But if you look at actual PAT, so FI 22 we were at
09:00 34 crore PAT, FI 23 we were at 64 crore PAT and this year first half we are already at
09:06 a 40 crore PAT. So I think in the automobile dealership thing you should probably, the
09:12 more focus should be in terms of profit after tax rather than EBITDA numbers which gets
09:16 a bit skewed in terms of because the bottom line being the vehicles that we sell and the
09:20 turnover of the vehicles which skews it a little bit.
09:24 Just to add to what Naveen said as you are aware that there is lot of premiumization
09:27 happening in this industry both in terms of the vehicle sales where you have the Nexa
09:31 vehicles, the SUVs being predominant compared to the earlier period. Similarly when it comes
09:37 to service these also percolate down to the service where the service per car also the
09:41 premiumization is happening. So that is why you find that the last few years the net asset
09:47 value per share, the NAV per share of us which is hovering around 5 rupees per share about
09:53 a year in FY 22 has come over to nearly move at 10.22 per share in FY 23 and in the middle
10:02 of the year that is half way in September that has further increased to 6 rupees, 6.38
10:08 rupees as we speak in September. So this is how we are improving our profitability as
10:13 we move along.
10:14 Naveen, my point to you is that your service revenues is 14.8% of total revenue it contributes
10:26 but it has an EBITDA margin of 46.6%. So how do you plan to increase your service centers
10:32 and service after sales service which is there. Is there a, you have a concrete plan of how
10:40 you scale up your service centers and how many service centers you plan to do in the
10:44 next couple of years?
10:46 So, I wouldn't give the entire future expansion plans per se but if you look at the last 3-4
10:54 years from a service would have contributed about 10% probably about 4-5 years ago and
10:59 today it is contributing closer to 15% of our revenue. Just close to in terms of CAGR
11:04 it would be about 17 to 16 to 17% CAGR and this is what we would like to maintain. In
11:09 fact we would like to maintain a slightly higher CAGR but this is the least possible
11:13 CAGR that we will do in terms of the servicing and if you look at in terms of, so we were
11:18 at around 430 crores in terms of service top line probably about 3-4 years back which is
11:24 currently at about 750 crores as of last year and this is what the growth that we continue
11:29 to have and we will focus on in terms of across the year and the expansion is, so as I said
11:34 we do approximately 1 million vehicles. The total car sales in India is about 4 million
11:39 vehicles. If you multiply that with an average of 10 in terms of service to sales ratio there
11:44 is a scope of about 40 million across the country and that is a growth that we would
11:48 perceive in terms of where we can head towards. I am not saying in terms of 40 million but
11:52 in terms of the growth possibility that is there.
11:55 Just to add what Naveen said whether it is organic or inorganic growth. Sorry.
12:00 Yeah, continue. You were talking about.
12:01 So it is our focus on service, so when we typically when we go for a new service centre
12:08 so the finance function and the operations sit together and make a financial feasibility.
12:14 So typically what we get is a project IRR of over 35% which percolates to about within
12:20 3 years payback. So this is again put in the to the management and then this is an important
12:24 factor when we decide to whether to go ahead with the new service centre. Even in inorganic
12:28 actually the IRR is even better. So these are factors that we keep in mind when we go
12:35 for expansion.
12:36 Sir, one small correction earlier when I quoted the figures of 10 rupees those were
12:41 earnings per share not net asset value. Just one correction.
12:44 Okay. Noted that.
12:45 Of course net asset value from 54 rupees per share in March 23 we have increased it to
12:51 61 rupees in September 23.
12:54 Naveen, how you manage multiple OEMs because are there any restrictions that prevent you
13:00 from you know adding more OEMs to your portfolio?
13:08 No I am saying in terms of we have a clear cut management structure. So if you look at
13:12 John who is sitting here with me, John is the group CFO and he was earlier with Rani,
13:19 Raj who is a CEO but unfortunately he is not there for the interview but he was from Airtel.
13:25 So in terms of and he heads the Maruti division of ours. So each of our divisions have a clear
13:29 cut management thing and that doesn't have any conflicts with each other and it's only
13:33 the back end in terms of group HR or group finance and some of the IT work that is in
13:39 terms of common areas as such. So as of now we and lot of areas we operate in different
13:43 markets, different sizes, different things. So there is as of now there is hardly any
13:48 conflict in terms of the markets that we operate or in terms of the vehicles that we do. So
13:52 we are doing Maruti, we do Jaguar, Land Rover, we do Honda, we do Tata Motors. So there is
13:57 hardly any commercial vehicles, there is not much of a conflict. Going forward as I said
14:01 since our focus is on service, we would like to continue to grow with Maruti in a big way
14:07 because the car park is always in skew in terms of Maruti. So that's one area of our
14:12 focus as such. And my question was on you know with respect to expansion to geography
14:19 as well because you are currently in the top four states which is there, western certain
14:25 states which is Kerala, Tamil Nadu, Karnataka and Maharashtra. How do you, do you have plan
14:29 to move up to Telangana, Andhra and upward to North India as well?
14:36 Absolutely. So if you look at the skew, so lot of people ask us when I mean though we
14:44 started from Kerala, why we expanded in Kerala so much. The fact is that the sales of vehicles
14:49 of Kerala and the number of cars per thousand in Kerala is one of the highest in the country.
14:54 I mean just a shade less than in terms of NCR or Bombay area as such. So we are looking
14:59 at the high growth markets and also in terms of the areas in the states that are in terms
15:03 of both in terms of population as well as high growth. So we will combine these two
15:07 and focus on where we want to grow and acquire dealerships in the future.
15:12 My final question is that you know you have entered into the…
15:14 There are very few dealers today which has, which are beyond three or four states and
15:20 having more than hundred outlets. So as we move along we will obviously look at being
15:25 a national player. Okay my final…
15:27 You are asking something. Yeah I was asking about the electric vehicles
15:30 because you have entered into EV you know dealership as well through Ather. Does it
15:37 bring in much more you know scale for you? Can you add more EV players to your portfolio?
15:47 So EV right now we took a view that the two wheeler industry and the three wheeler industry
15:52 would be the one that would penetrate further in terms of EV and hence we took Ather and
15:57 Piaggio. But in two wheelers yes we are getting a good traction in terms of EVs. But in three
16:02 wheeler the traction has been much lower especially because there is still sort of one is CNG
16:09 and two in terms of the fame two subsidy, fame three subsidy that debate is still on
16:13 per se. If you look at the passenger car industry I think there was a report in ET today where
16:19 Mercedes Benz has told that they have sold only 700 out of 17000 vehicles that they sold
16:24 as EVs. And if you look at the overall car market is less than 1%. So I think it will
16:28 take a long way and EV this year across the globe there has been a slowdown. But whenever
16:33 the opportunity arises we will definitely move into that. Maruti itself is launching
16:37 a slew of EVs which would be part and parcel of and the first one would be coming out by
16:42 the end of this calendar year early next year.
16:45 Okay, gentlemen it was a pleasure talking to you today. Thank you very much for joining
16:49 us on IPO Addai. Your IPO is opening on March 12th and closes on 14th. Price between 280
16:55 to 295 share is a 601.6 crore IPO which includes fresh issue of 250 crores. Thank you for watching.
17:06 Thank you.
17:08 Thank you.
17:09 (dramatic music)