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Review By Dilip Davda on March 6, 2024

•    PVSL is one of the diversified leader in automobile dealership and servicing segment.
•    It currently operates in four states with 400 touch points.
•    The company marked growth in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Investors may park funds for the medium to long term rewards. 

ABOUT COMPANY:
Popular Vehicles & Services Ltd. (PVSL) is a diversified automobile dealership in India in terms of revenue as of Fiscal 2023, (Source: CRISIL Report) having a fully integrated business model. It caters to the complete life cycle of vehicle ownership, right from the sale of new vehicles, servicing and repairing vehicles, distributing spare parts and accessories, to facilitating sale and exchange of pre-owned vehicles, operating driving schools and facilitating the sale of third-party financial and insurance products. 

PVSL categorizes its automobile dealership business into three key segments, namely, (a) passenger vehicles including luxury vehicles, (b) commercial vehicles and (c) electric two-wheeler and three-wheeler vehicles, which contributed to its revenue from operations aggregating to Rs. 1691.85 cr., Rs. 961.63 cr., and Rs. 45.04 cr., respectively, during the six months' period ended September 30, 2023. It  operate (a) passenger vehicle dealerships covering economy, premium and luxury vehicles across dealerships for the OEMs like: (i) Maruti Suzuki India Limited ("Maruti Suzuki") for both Arena and Nexa, through the Company, (ii) Honda Cars India Limited ("Honda") through its Subsidiary, VMPL, and (iii) Jaguar Land Rover India Limited ("JLR") through its Subsidiary, PAWL; (b) commercial vehicle dealerships of (i) Tata Motors Limited ("Tata Motors (Commercial)"), through its Subsidiary, PMMIL and (ii) Daimler India Commercial Vehicles Private Limited ("BharatBenz"), through its Subsidiary, PMPL; and (c) electric three-wheeler vehicle dealership of Piaggio Vehicles Private Limited, including commercial and cargo vehicles ("Piaggio"), through its Subsidiary, KGPL and electric two-wheeler vehicle dealership of Ather Energy Private Limited ("Ather"), through its Subsidiary, KCPL. The company has many firsts to its credit for JV/partnership with new OEM for its dealership and servicing center in the states it currently operates.

Its presence across vehicle categories, including passenger vehicles, commercial vehicles, and electric two-wheeler and three-wheeler vehicles, further diversifies company's revenue streams. As of December 31, 2023, the company operated through its network of 61 showrooms, 133 sales outlets and booking offices, 32 pre-owned vehicle showrooms and outlets, 139 authorized service centres, 43 retail outlets, and 24 warehouses located across 14 districts of Kerala, 8 districts in Karnataka, 12 districts in Tamil Nadu and 9 districts in Maharashtra. While its sales outlets and booking offices complement sales through its showrooms, its retail outlets facilitate sale and distribution of spare parts and accessories.

The automobile industry is one of the primary contributors to the Indian economy. Its contribution to India's GDP has increased from 2.80% in Fiscal 1993 to approximately 7.10% in Fiscal 2023. India's domestic automobile market is one of the largest automobile markets in the world, with annual domestic sales of over 20 million vehicles in Fiscal 2023.

PVSL acquired 11 service centres and 2 showrooms from a dealer of Maruti Suzuki in Kerala in 2021. Further, it acquired 8 showrooms, 17 service centres and 3 sales outlets and booking offices of BharatBenz in Tamil Nadu and Maharashtra. It has also expanded post-sale services and repair verticals in the last three Fiscals. As of December 31, 2023, it had 10468 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of fresh equity shares worth Rs. 250 cr. (approx. 8474600 shares at the upper cap), and an Offer for Sale (OFS) of 11917075 shares (worth Rs. 351.55 cr. at the upper cap). Thus the overall size of the IPO will be of 20391675 shares worth Rs. 601.55 cr. (at the upper price band). The company has announced a price band of Rs. 280 - Rs. 295 per share of Rs. 2 each. The minimum application to be made is for 50 shares and in multiples thereon, thereafter. The issue opens for subscription on March 12, 2024, and will close on March 14, 2024. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 28.64% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 192.00 cr. for repayment/prepayment of certain borrowings by the company and its subsidiaries, and the rest for general corporate purposes.

The company has reserved shares worth Rs. 1.00 cr. for its eligible employees and offering them a discount of Rs. 28 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The three Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., Nuvama Wealth Management Ltd., and Centrum Capital Ltd., while Link Intime India Pvt. Ltd.is the registrar of the issue. 

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 20.00 - Rs. 97.51 per share between December 2015 and September 2018. It has also issued bonus shares in the ratio of 3 for 1 in September 2010, 11 for 5 in September 2018. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 3.17, Rs. 3.50, and Rs. 27.28 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 12.54 cr. will stand enhanced to Rs. 14.24 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2100.28 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted total income/net profit of Rs. 2919.25 cr. / Rs. 32.46 cr. (FY21), Rs. 3484.20 cr. / Rs. 33.67 cr. (FY22), and Rs. 4892.63 cr. / Rs. 64.07 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 40.04 cr. on a total income of Rs. 2848.21 cr. Thus it posted growth in its top and bottom lines. It has marked improved margins from FY23 onwards. 

As per the pro forma consolidated financial results for FY23, it marked a net profit of Rs. 67.46 cr. on a total income of Rs. 5154.03 cr. 

For the last three fiscals, the company reported an average EPS of Rs. 7.76, and an average RoNW of 15.55%. The issue is priced at a P/BV of 4.82 based on its NAV of Rs. 61.26 as of September 30, 2023, and at a P/BV of 3.54 based on its post-IPO NAV of Rs. 83.30 per share (at the upper cap).

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 26.22. Thus the issue appears fully priced. The management is confident of maintaining the trends going forward with its product mix with high margin business. 

For the reported periods, it has reported a PAT margins of 1.11% (FY21), 0.97% (FY22), 1.31% (FY23), 1.41% (H1-FY24), and RoCE margins of 17.09%, 16.79%, 18.32%, 8.83% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in June 2021, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Landmark Cars at their listed peers. It is trading at a P/E of 40.8 (as of March 06, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the issue have handled 72 public issues in the past 3 years, out of which 23 issues closed below the offer price on the listing date. 

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