Landmark Cars Ltd: For medium to long-term investment

Landmark Cars Ltd is tapping the capital markets with its fresh issue of Rs150 crore and an offer for sale of Rs402 crore. The issue opens on Tuesday (December 13) and closes on Thursday (December 15). The price band of the issue is Rs481-506. The issue consists of a fresh issue of Rs150 cr and an offer for sale of Rs402 cr.

The company sells cars from Mercedes, Honda, Volkswagen, Jeep, EV maker BYD, Renault and commercial vehicles of Ashok Leyland. It is present in 8 States through 112 outlets for sales and service. The company sold 19,264 new vehicles in FY22 against 13,282 in FY21 and serviced 2.79 lakh vehicles against 2.21 lakh vehicles in the same period. It is also in the pre-owned segment. It has an insurance company as well and this generates revenue not only from cars sold who take insurance from Landmark, but others as well. More money flows on renewals of insurance.

The company is present in the key States like Maharashtra and Gujarat and also Delhi and NCR. This gives the company very strong business. If one notices from details mentioned above, the company sold 19,264 new vehicles and serviced 2.79 lakh vehicles. This means an average of 14.5 times the number of cars sold. Secondly the average revenue per vehicle serviced is Rs21,030. This segment enjoys a very healthy margin of 18.19% (service) against 2.87% in vehicle sales. The blended margin for the company as a whole improves to 6.27%. This service revenue increased further to Rs21,559 in the three months ended June 2022.

There has been a change in the way business is done by Mercedes in India. Earlier, the company would sell the vehicles to dealers like Landmark, who in turn would invoice their customers. Effective from October 21, Mercedes changed the policy to raising the invoice on the client directly and giving a commission to the dealer. This reduced the inventory and interest costs of the dealer. As a result of this change, Mercedes stopped giving discounts and paid commissions which were effectively lower than the discount. Dealers benefited as they did not pay interest charges on inventory. More importantly, customers who bought cars felt happy as every dealer offered the same price.

On the accounting front, the company Landmark had lower sales as Mercedes cars of which the company has a 15-17% market share, earned commission income against discount earned. This commission income flows through to the bottom line. This resulted in a better margin for the company on a slightly lower revenue. This would neutralise in the next couple of quarters.

Looking at the press reports which said that automobile sales in November 22 were at record highs, and registered a growth of over 25% over the previous year, this business has everything going for it. Landmark does not sell the most selling car in India, simply because it does not give the flexibility that other OEMs give. Further where the car sells on price, there is little that a dealer brings to the table. Earlier every OEM insisted on a separate showroom. Now, the concept of shared showroom has begun where one part of the showroom is for one OEM and the other part whether on the same floor or another floor is for another OEM. This reduces costs significantly and gives the dealer lot of flexibility.

The company has tie-ups with banks and NBFCs for loan against cars, which also adds to the bottom line. Accessories segment is another source of income for the company.

The company reported revenues of Rs2,976 cr against Rs1,956 cr for the year ended March 22 over March 21. The PAT was Rs66.18 cr against Rs11.14 cr. The EPS on a diluted basis was Rs17.45. The PE band for the issue is 27.56 – 29. There is as of now no listed player in car retailing listed on the bourses. One company from the South had filed its DRHP prior to Landmark Cars, but did not go ahead with its IPO.

Readers would be advised to look at the company for the medium-term and long-term as India rises to become a $5-trillion economy. Readers should apply for the issue of Landmark Cars only if they have a medium to long-term investment horizon in the company. Looking at markets, there may or may not be any listing gains and the share may not perform in the short term.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)