Landmark Cars coming with an IPO to raise upto Rs 580.81 crore

Landmark Cars

• Landmark Cars is coming out with a 100% book building; initial public offering (IPO) of 1,14,78,394 shares of Rs 5 each in a price band Rs 481-506 per equity share.
  
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
  
• The issue will open for subscription on December 13, 2022 and will close on December 15, 2022.
  
• The shares will be listed on BSE as well as NSE.
  
• The face value of the share is Rs 5 and is priced 96.20 times of its face value on the lower side and 101.20 times on the higher side.
  
• Book running lead managers to the issue are Axis Capital and ICICI Securities.
  
• Compliance Officer for the issue is Amol Arvind Raje.
  

Profile of the company

The company is a leading premium automotive retail business in India with dealerships for Mercedes-Benz, Honda, Jeep, Volkswagen and Renault. It also has a commercial vehicle dealership with Ashok Leyland in India. It has a presence across the automotive retail value chain, including sales of new vehicles, after-sales service and repairs (including sales of spare parts, lubricants and accessories), sales of pre-owned passenger vehicles and facilitation of the sales of third-party financial and insurance products. It started its operations and opened its first dealership for Honda in CY1998, and it has expanded its network to include 112 outlets in 8 Indian states and union territories, comprised of 59 sales showrooms and outlets and 53 after-sales service and spares outlets, as of June 30, 2022. It is focused on the premium and luxury automotive segments. The company’s after-sales service and spare parts offerings at each of company’s dealerships comprise repair and collision repair services and include both warranty work, insurance claim work and customer paid services. It operate as authorized service centers for Mercedes-Benz, Honda, Volkswagen, Jeep, Renault and Ashok Leyland, and it provide after-sales service and repairs through 53 after-sales service and spares outlets, as of June 30, 2022. 

The company buys and sell pre-owned passenger vehicles at each of its dealerships. The company operates on two business models:  the company facilitates the sale of used vehicles through its appointed panel of agents on a commission basis; and the company also take the vehicles on its books for sale after any needed refurbishment. It also receive an incentive from its OEMs for used vehicles traded in for new vehicles; this incentive or over-allowance is available to it as a new car dealer and helps it with closing these transactions. It has also implemented a digital SaaS platform developed by Sheerdrive, an auto technology start-up company in which it held a 19.97% equity interest (as at June 30, 2022), in its pre-owned car business. Sheerdrive’s technology platform enables digital evaluation and real time used car prices, which will help drive transparency, accuracy and velocity of used car transactions, and will help drive its strategy of combining its physical presence with digital scale and speed.

Proceed is being used for:

• Pre-payment, in full or in part, of borrowings availed by the company’s Subsidiaries.
  
• General corporate purposes.
  

Industry overview

The Indian passenger vehicle industry can be broadly classified into three main segments, namely, mass market vehicles, premium vehicles and luxury vehicles. Mass market vehicles segment mainly comprises of basic vehicles which are most economically friendly and preferred by the mass market in India. The mass market vehicles segment comprises of micro, mini, lower compact and vans segments. The share of mass market vehicles segment in the overall PV industry in India has decreased as a result of increasing disposable income, customer preference shifting towards premium vehicles and more frequent launches of new models in the premium vehicles segment. Premium vehicles are costlier vehicles typically preferred by upper middle class and rich class. It comprises of upper compact, super compact, executive, premium and utility vehicles. This segment is getting more and more traction with increasing disposable incomes, higher launches and shifting customer preferences from mass market to premium vehicles. Luxury vehicles segment is a niche segment offering high end vehicles at high premium prices, mainly preferred by high net-worth individuals and organisations. Vehicles of Mercedes, BMW, Audi, Volvo and JLR are part of this segment. The share of ultraluxury market comprising of brands like Ferrari, Lamborghini, Bugatti, Rolls Royce is insignificant in India.

The commercial vehicle (CV) industry can be categorized into the following segments by types of vehicles: light commercial vehicle (LCV), medium and heavy commercial vehicle (M&HCV) and small commercial vehicle (SCV).  Overall domestic CV sales are expected to register a 10-12% CAGR between Fiscal 2022 and Fiscal 2027, in line with economic recovery across segments, improving transporter profitability and materialisation of deferred replacement demand. From a low base in Fiscal 2022, domestic sales in Fiscal 2023 is expected to be driven a gradual revival of industrial activities, increased people mobility, accelerating pace of vaccination, rising domestic consumption, improving rural incomes, government’s focus on infrastructure investments through the National Infrastructure Pipeline (NIP), initiation of commercial mining in India and roll out of the scrappage policy. Overall domestic CV sales are expected to register a 10-12% CAGR between Fiscal 2022 and Fiscal 2027, in line with economic recovery across segments, improving transporter profitability and materialisation of deferred replacement demand.

Pros and strengths

Leading automotive dealership for major OEMs: The company is a leading premium automotive retail business in India with India with dealerships for Mercedes-Benz, Honda, Jeep, Volkswagen and Renault. It started its operations and opened its first dealership for Honda in 1998, and it has expanded its network to include 112 outlets in 8 Indian states and union territories, comprising 59 sales outlets and 53 after-sales service and spares outlets, as of June 30, 2022. The company was the number one dealer in India for Mercedes in terms of retail sales for Fiscal 2022, number one dealer in India for Honda and Jeep in terms of wholesale sales for Fiscal 2022 and was the top contributor to Volkswagen retail sales for calendar year 2021. It was the third largest dealership in India for Renault in terms of wholesale sales contribution for calendar year 2021.

Growing presence in after-sales segment leading predictable growth in revenues and superior margins: The company’s services and repair offerings at each of its dealerships comprise repair and collision repair services and include warranty work, insurance claim work and customer paid services. It operates as authorized service centers for MercedesBenz, Honda, Volkswagen, Jeep, Renault and Ashok Leyland, and it provide after-sales service and repairs through its 53 after-sales service and outlets across eight Indian states and union territories. It also sells spare parts, lubricants, accessories and other products from these outlets. Its after-sales service and spares business provides a stable revenue stream and contributes to higher-margin revenues at each of its dealerships, which helps mitigate the cyclicality that has historically impacted some players of the automotive sector. Its after-sales service and spares revenue contributed to 20.60%, 19.72%, 21.62% and 21.66% of its revenue from operations and its after-sales service and spare parts EBITDA contributed to 58.49%, 57.95%, 64.23%, and 104.07% of its EBITDA during the three months ended June 30, 2022 and Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively. In the three months ended June 30, 2022 and Fiscal 2022, Fiscal 2021 and Fiscal 2020, its EBITDA margins from its after-sales service and spares business were 18.16%, 18.19%, 17.75% and 17.91%, respectively.

Comprehensive business model capturing entire customer value-chain: The company’s business caters to the entire customer value-chain including retailing new vehicles, servicing and repairing vehicles, selling spare parts, lubricants and other products, selling pre-owned passenger vehicles and the distribution of third party financial and insurance products. It benefits from the synergies of these complementary businesses as well as increased customer retention from servicing its customer’s various automotive needs. As the number one dealer in India for Mercedes-Benz in terms of retail sales for Fiscal 2022, number one dealer in India for Honda and Jeep in terms of wholesale sales for Fiscal 2022, were the top contributor to Volkswagen retail sales for calendar year 2021 and the third largest dealership in India for Renault in calendar year 2021, there is ample opportunity for new business in other segments by utilizing its synergies in complementary businesses. Its service centers are also points of sale for spare parts, lubricants and other products such as accessories as well as value added services such as interior cleaning, polishing and sales of extended warranties. Further, its service centers act as points of renewal for insurance policies and extended warranties from end of manufacturer warranty period onwards.

Robust business processes leveraging technological innovation and digitalization: The company has established robust business processes which assists it in reducing costs and increasing efficiency as well as ensuring faster operationalization of new facilities. These processes ensure its ability to replicate its successes as it expands organically and in the new businesses that it acquires. It has established processes for operationalizing new outlets including purchasing inventory, selecting and leasing premises and hiring sales and technical personnel. Further, it also focuses on customer processes and data to provide insights into customer engagement. It target campaigns to existing customers by email, online campaigns and social media for upgrades, after-sales service offers and loyalty benefits. It also provides customers third party offers and loyalty benefits when they enter into after-sales service transactions with it and checkout rewards on its websites.

Risks and concerns

Depends on overall competitiveness of OEMs’ vehicle brands in India: The company’s dealerships for various OEMS are operated under its umbrella brand “Group Landmark”, and its continued success will depend on its ability to maintain and enhance the value of its brands. Although it takes many steps to increase its brand awareness and protect the value of its brand through marketing, advertising and promotion, its business is dependent on the value, perception, marketing and overall competitiveness of its OEMs’ brands in India and on its OEMs’ ability to maintain and enhance brand value. Indian consumers are exposed to a large variety of advertising and marketing efforts by automotive industry participants, including large expenditures on television, radio, print media, online and social media, billboards as well as at events and other promotions. Accordingly, its business is also dependent on customers’ perception of its OEM’s brands and these advertising and marketing campaigns of its OEMs and their competitors. The company’s OEM’s brands could be damaged by negative publicity in traditional or social media or by claims or perceptions about the quality, reliability and safety of their vehicles, regardless of whether or not such claims or perceptions are true. Any untoward incidents such as litigation, product recalls, regulatory actions or negative publicity in traditional or social media, whether isolated or recurring, can significantly reduce its brand or its OEM’s brand value and consumer trust.

Highly competitive business: Automobile retailing is a highly competitive business. The company’s competitors include private and public companies, some of whom may be larger with access to greater financial and marketing resources than it. Its competitors sell the same or similar makes of new and pre-owned vehicles that it offers in its markets at competitive prices. Most of its dealership agreements do not grant it the exclusive right to sell vehicles manufactured by the OEMs within a given geographic area. Accordingly, its revenues or profitability could be materially adversely affected if any of the OEMs award dealerships to others in the same markets where it operate or if existing dealerships increase their market share in its markets. In addition, its OEMs could in certain cases set up their own dealerships in the markets in which it operate. Further, its revenues may also be impacted on account of expansion of dealerships of competing brands of vehicles in the markets in which it operate.

Required to obtain certain licenses, regulatory permits for setting up dealership: The company is required to obtain certain statutory and regulatory permits, licenses and approvals to operate its business, including approvals from the pollution control board. If it fails to obtain the necessary approvals and permits or if there is any delay in obtaining such approvals and permits or if such approvals or permits are withdrawn for any reason, it may disrupt its operations, result in the application of penalties and may materially and adversely affect its business, results of operations and financial condition. In the future it will be required to apply for fresh approvals and permits for any new dealerships and service centers. While it will be able to obtain such approvals or permits at such times as may be required, there can be no assurance that the relevant authorities will issue any of such permits or approvals in the time frames anticipated by it or at all. It has not applied for a factory license and fire license for two of its service centres, one in Vapi (Volkswagen) and the other in Goregaon, Mumbai (Mercedes Benz) as there are certain irregularities which the company is in the process of resolving with the relevant local authorities. It cannot assure that such resolution will be done in a timely manner or at all and whether it will receive the necessary factory and fire license.

The company incurred significant capital expenditure during the last three Fiscal Years: During the three months ended June 30, 2022 and in Fiscal 2022, Fiscal 2021 and Fiscal 2020, the company incurred capital expenditure on account of additions to property, plant and equipment, other intangible assets, capital work-in-progress and intangible assets under development of Rs 112.14 million, Rs 1,129.67 million, Rs 119.67 million and Rs 195.05 million, respectively. A significant amount of its capital expenditure in these periods was used to open new sales outlets and service centers. Its capital expenditure in the three months ended June 30, 2022 and in Fiscal 2022, Fiscal 2021 and Fiscal 2020 has been funded by bank borrowings and internal accruals. In the future, it may require substantial capital for its business operations and planned capital expenditure to maintain and grow its existing dealerships, open new dealerships, develop and implement new technologies to enhance its business process and develop and operate online and digital platforms. The actual amount and timing of its future capital requirements may differ from estimates as a result of, among other things, unforeseen delays or cost overruns in developing its projects, changes in business plans due to prevailing economic conditions, unanticipated expenses and regulatory changes.

Outlook

Landmark Cars is the leading premium automotive retail business in India with dealerships for Mercedes-Benz, Honda, Jeep, Volkswagen and Renault. The company also caters to the commercial vehicle retail business of Ashok Leyland in India. Landmark Cars offers services such as sales of new vehicles, after-sales service and repairs (including sales of spare parts, lubricants and accessories), sales of pre-owned passenger vehicles and facilitation of the sales of third-party finance and insurance products. The company has expanded the network to include 112 outlets in 8 Indian states, comprised of 61 sales showrooms and outlets and 51 after-sales services and spare outlets, as of September 30, 2021. Landmark Cars vehicle dealership network is spread across 31 cities in eight states and union territories including Maharashtra, Uttar Pradesh, Gujarat, Haryana, Madhya Pradesh, Punjab, West Bengal and the National Capital Territory of Delhi. The company's business model captures the entire customer value chain including retailing new vehicles, servicing and repairing vehicles, selling spare parts, lubricants and other products, selling pre-owned passenger vehicles and distribution of third-party finance and insurance products. On the concern side, in order to maintain the look and feel in terms of branding and to keep up with requirements of its OEMs, it is required to make significant capital improvements to its existing showrooms, sales outlets, service centers and other premises. This includes carrying out regular repairs and maintenance, replacement of furniture and adopting new interiors in line with the OEM requirements.

The issue has been offered in a price band of Rs 481-506 per equity share. The aggregate size of the offer is around Rs 552.11 crore to Rs 580.81 crore based on lower and upper price band respectively. On the performance front, the company’s total income increased by 52.01% to Rs 2989.11 crore for Fiscal 2022 from Rs 1966.34 crore for Fiscal 2021. In Fiscal 2022 and Fiscal 2021, its revenue from operations constituted 99.58% and 99.48% of its total income, respectively. The company’s profit for the year increased by 493.67% to Rs 66.18 crore for Fiscal 2022 from Rs 11.14 crore in Fiscal 2021. Meanwhile, the company intends to focus on expanding its business in high growth segments like premium and luxury passenger vehicles including UVs as well as electric vehicles. It aims to leverage its relationships with the OEMs to expand geographically to achieve economies of scale. It will also use its local knowledge of customer preferences to choose the markets it will enter and the best OEM with which to partner. It intends to capitalize on this expected growth in demand for automobiles in India in general, and premium and luxury cars in particular, by increasing sales of its passenger vehicles at each of its sales outlets through its marketing programs and business processes as well as capital investments designed to support its growth targets.