Landmark cars

Premium automotive retailer

Plans to expand its business in high growth segments including UVs and electric vehicles

Landmark Cars is a premium automotive retail business in India, with dealerships for Mercedes-Benz, Honda, Jeep, Volkswagen and Renault. The company has a commercial vehicle dealership with Ashok Leyland in India.

The company has 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.

The company operates on two business models: (1) facilitating the sale of used vehicles through appointed panel of agents on a commission basis; and (2) taking the vehicles on books for sale after any needed refurbishment. The company also receives incentive from its OEMs for used vehicles traded in for new vehicles.

The company started its operations and opened first dealership for Honda in CY1998, and now has expanded its network to include 112 outlets in eight Indian states, comprised of 59 sales showrooms and outlets and 53 after-sales service and spares outlets, as of June 30, 2022.

Landmark Cars is the number one dealer in India for Mercedes in terms of retail sales for FY2022, number one dealer in India for Honda and Jeep in terms of wholesale sales for FY2022 and was the top contributor to Volkswagen retail sales for calendar year (CY) 2021. In addition, the company was the third largest dealership in India for Renault in terms of wholesale sales contribution for CY2021.

In the three months ended June 30, 2022, and in FY2022, the company sold 5,398 and 19,264 new vehicles, respectively, including new passenger vehicles of Mercedes-Benz, Honda, Volkswagen, Jeep and Renault and new commercial vehicles of Ashok Leyland.

In FY2022, the company contributed 15.8% to retail sales of Mercedes-Benz, 5.8% to wholesale sales of Honda, 8.7% to wholesale sales of Volkswagen, 26.8% to wholesale sales of Jeep and 5.1% to wholesale sales of Renault.

The company’s vehicle dealership network is spread across 32 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. These states constituted more than 51% of Indian vehicle demand in FY2022.

The company has executed a letter of intent with the automaker BYD, a leading player in the global EV market to be their dealer in the National Capital Region (Delhi) and Mumbai in respect of their electric passenger vehicles.

The company’s after-sales service and spare parts offerings at each of its dealerships comprise repair and collision repair services and include both warranty work, insurance claim work and customer paid services.

During the three months ended June 30, 2022, and FYs 2022, 2021 and 2020, company serviced 72,521, 268,459, 213,755 and 280,952 passenger vehicles, respectively, and 3,948, 10,619, 7,713 and 10,088 commercial vehicles, respectively.

In the three months ended June 30, 2022, FYs 2022, 2021 and 2020, the company’s after-sales service and spare parts revenue was Rs 164.86 crore, Rs 586.90 crore, Rs 422.95 crore and Rs 480.64 crore, respectively. The company earned an average of Rs 21,559, Rs 21,030, Rs 19,098 and Rs 16,515, respectively, from each vehicle serviced.

The company 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 on June 30, 2022), in pre-owned car business.

As a value add-on to passenger vehicle sales, the company facilitated sale of third-party financial products including insurance policies and vehicle finance through its dealerships. Each of its dealerships offer finance and insurance from recommended financial service providers, banks and insurance companies with which company has commission arrangements.

The company intend to focus on expanding its business in high growth segments like premium and luxury passenger vehicles including UVs as well as electric vehicles. In addition, company plans expand its after-sales service offering to further enhance its higher-margin service and repair revenues.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 150 crore and an offer for sale of Rs 402 crore by existing shareholders- TPG Growth, Sanjay Karsandas Thakker HUF, Aastha and Garima Misra.

The price band for the IPO is Rs 481 to Rs 506 per equity share of face value Rs 5 each.

The objectives for the fresh issue are pre-payment of Rs 120 crore borrowings availed by subsidiaries and remaining amount to be used for general corporate purposes.

Promoter of the company is Sanjay Karsandas Thakker. Promoters and promoter group hold an aggregate of 22,062,378 equity shares, aggregating to 60.24% of the pre-offer issued and paid-up equity share capital. The post IPO shareholding for the same is expected to be around 55.73%.

The issue, through the book-building process, will open on 13 December 2022 and will close on 15 December 2022.

Strengths

The company is a leading automotive dealership for major OEMs with a strong focus on high growth segments. In FY 2022, the company contributed 15.8% to retail sales of Mercedes Benz, 5.8% to wholesale sales of Honda, 8.7% to wholesale sales of Volkswagen, 26.8% to wholesale sales of Jeep and 5.1% to wholesale sales of Renault.

The company has a track record of delivering strong financial performance, Its consolidated revenue, in the three months ended June 30, 2022, and FYs 2022, 2021 and 2020, was Rs 801.90 crore, Rs 2989.11 crore, Rs 1966.34 crore and Rs 2228.93 crore, respectively. Revenue grew at a CAGR rate of 15.8% from FY2020 to FY2022.

The company’s longstanding relationships with its OEM partners offers advantages like sharing infrastructure and manpower across brands to increase margins and expanding business into new cities and geographies.

The company is growing its presence in after-sales segment, which contributes to higher-margin revenues.

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.

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.

The company’s online presence help lead generation for new vehicle sales by allowing customers to book test drives and appointments with sales agents and to provide a convenient platform to book service appointments.

The company forayed into technology platforms through investments in Chatpay Commerce (known as Pitstop) and Sheerdrive. These investment help combine physical presence with digital scale and speed.

The company is managed by experienced promoter and professional management team. The majority of management team has spent more than 10 years with the company and bring capabilities to anticipate automotive market trends, manage business operations and growth.

Weaknesses

The company is subject to the significant influence and restrictions imposed by OEMs. For instance, the OEMs may unilaterally discontinue associations with vendors.

The company’s operations are subject to various governmental laws and regulations and certain state specific notifications and guidelines.

Automobile retailing is a highly competitive business. Increasing competition among automotive dealerships through online and offline marketing and competition from the unauthorized service centers may have an adverse impact on business.

With effect from October 1, 2021, the company’s dealership agreement with Mercedes-Benz materially changed and converted to an agency model. Under this agency model, customers will place orders directly to Mercedes-Benz on which company will earn a commission. This change will have the effect of reducing revenue from the sales of Mercedes-Benz cars.

The company has entered agreements in relation to financing arrangements with certain banks. Some of these agreements contain restrictive covenants, which could adversely affect business. As of June 30, 2022, consolidated outstanding borrowings of Rs 464.36 crore comprised non-current borrowings of Rs 45.44 crore, current borrowings of Rs 351.34 crore and vehicle floor plan of Rs 67.57 crore.

Any closure of the company’s outlets and service centers may result in a reduction of revenue. The company has closed five outlets in the three months ended June 2022 due to the closure of one OEM’s dealerships at certain Punjab locations.

To maintain the look and feel in terms of branding and to keep up with requirements of OEMs, the company is required to make significant capital improvements to its existing showrooms, sales outlets, service centers and other premises. These costs can reduce margins.

Large portion of its business operations are concentrated in the states of Gujarat and Maharashtra, and any adverse developments in these states could have an adverse effect on business. In the three months ended June 30, 2022, and in FYs 2022, 2021 and 2020, 70.79%, 74.31%, 74.24% and 72.99% of total consolidated revenue from sale of cars was derived from dealership operations in Gujarat and Maharashtra.

There are outstanding legal proceedings involving the company, subsidiaries, promoter, and directors. Adverse outcomes in such proceedings may negatively affect business.

Valuation

In FY2022, consolidated sales were up by 52.17% to Rs 2976.52 crore compared to FY2021. The OPM increased by 26 bps to 5.87%, which led to 59.06% increase in operating profit to Rs 174.68 crore. Other income increased 22.99% to Rs 12.59 crore, while interest cost fell 6.85% to Rs 35.22 crore and depreciation increased 11.71% to Rs 69.79 crore. PBT increased 315.90% to Rs 82.27 crore. Tax expenses for FY2022 was of Rs 16.09 crore compared to tax expense of Rs 8.63 crore in FY2021. Minority interest was Rs 0.7 crore compared to negative 0.18 crore in FY2021. Net profit increased 477.87% to Rs 65.48 crore.

The annualized EPS on post-issue equity works out to Rs 16.5 for FY22. At the upper price band of Rs 506, P/E works out to 30.59. As of 9 December 2022, its listed peer Competent Automobiles Company trades at TTM P/E of 6.50.

For FY22, Landmark cars OPM and ROE stood at 5.87% and 6.70% respectively, compared to 4.43% and 6.80% for Competent Automobiles Company.

At the higher price band of Rs 506, the offer is made at Post-issue EV/ FY22 Sales of 0.73 times, on a post-issue equity share capital of Rs 19.79 crore of face value of Rs 5 each. As of 9 December 2022, its listed peer Competent Automobiles Company trades at 0.12 times its TTM EV/Sales.