Company Name – Landmark Cars Limited (Landmark Cars) Current Share Price – INR 714 (August 11, 2023) Market Cap – INR 2,870 cr |
1. What is interesting about the stock?
The COVID-19 pandemic has brought about a transformation in the Indian consumer mindset. They have become increasingly health-conscious and place more value on experiences than on savings.
Recently, a group of around 80-100 people between the ages of 40 and 60 traveled from Jaipur and spent INR 15,000 – 20,000 each to enjoy a night at a resort in Kota. This was unheard of before COVID-19.
According to a report by Accenture, 71% of Indian consumers have altered their purchasing habits in response to the pandemic. McKinsey & Co. has also found that the crisis has had a significant impact on the behavior of Indian consumers in various important areas.
The market for ultra-luxury cars in India (upwards of Rs 2 crore) has registered its highest-ever growth this year as the concept of ‘you only live once’ (YOLO) gains pace after the pandemic. Sales shot up by 50% in 2022, surpassing the previous high reached in 2018.
The premium and luxury auto retailer, Landmark Cars, has benefited from the trend.
Landmark Cars Limited is a premium automotive retail business in India. It deals with Mercedes-Benz, Honda, Jeep, Volkswagen, and Renault. The Company has a commercial vehicle dealership with Ashok Leyland in India and provides services like sales of new vehicles, after-sales service, 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 with its first dealership for Honda in 1998 and has expanded its network to include 115 outlets in 8 Indian states and union territories, consisting of 62 sales showrooms and outlets and 53 after-sales service and spares outlets as of June 30, 2023. Landmark Cars is focused on the premium and luxury automotive segments. CRISIL expects the premium segment to grow at a CAGR of 10-12% CAGR from FY22 to FY27, while the luxury segment is expected to grow at a CAGR of 14-16% during the same period. The Company was the number one dealer in India for Mercedes, Honda, Jeep, and Volkswagen in Q1FY24. It was also the third-largest dealership in India for Renault during that period.
Landmark Cars operates authorized service centers for Mercedes-Benz, Honda, Volkswagen, Jeep, Renault, and Ashok Leyland. Their after-sales services include repair, collision repair, warranty work, insurance claim work, and customer-paid services. They have 53 after-sales service and spare outlets as of June 30, 2023, where they buy and sell pre-owned passenger vehicles. Their business models include facilitating the sale of used vehicles through appointed agents on a commission basis and taking vehicles on their books for sale after refurbishment. They receive incentives from OEMs for used vehicles traded in for new vehicles. They have implemented a digital SaaS platform developed by Sheerdrive, an auto technology start-up company, in their pre-owned car business.
The Company has entered into a pre-owned car business with the following model:
Why invest in Landmark Cars?
Uptrend in Premium and Luxury car demand - Strong momentum of premiumization in the automotive industry
OEM Partnerships - Partner of choice for OEMs expanding operations in India and new OEMs entering the country
After Sales - Predictable Revenue & High Margins - Expanding after-sales business leading to predictable growth in revenues and superior margins. Revenues from after-sales business have grown at a CAGR of 20% from FY14 to FY23 and have an 18% EBITDA margin
Geographic Diversification - One of the few premium and luxury car dealers with a wide network of 115 outlets, comprising 62 showrooms and 53 after-sales service outlets, across 26 cities in 8 states and union territories
Presence across the automotive value chain
2. Key Historical Financials
Company revenue and profit have been growing 16% and 38% on a CAGR basis respectively in the last 5 years
Revenue increased 14% in FY23 after showing strong growth in FY22 – recovering from fall in FY21 and FY20
EBITDA margin has been stable at 6-7% aided by higher margin after-sales service business
Revenue, EBITDA, and net profit fell YoY in Q1FY24 due to the unavailability of high-selling models and the discontinuation of some models.
Cash flow conversion (CFO/EBITDA) was poor at 30% in FY23 – due to a high inventory level (~2 months)
ROE and ROCE were at 20% and 24% respectively in FY23
3. What is my view on company valuation?
Landmark Cars made its debut on the NSE and BSE on December 23, 2022, via a successful IPO at INR 506 per share. The shares opened at a ~7% discount over the IPO price. IPO was subscribed ~3x with under-subscription in the retail segment. The current share is ~40% higher than the IPO price.
The Company trades at P/E (TTM) multiple of 34x. The industry is expected to grow at ~10-15% for the next few years so the valuation is not justified. Additionally, the sales of new cars are volatile as can be seen in Q1FY24. Pre-dominantly value could be attributed to after-sales service business in which Company faces competition from the unorganized sector.
On an overall basis, Company looks quite exciting but with a fair price close to 50% of the current value.
4. What are the risks to the investment analysis?
Risks to the analysis are:
There may be limitations and restrictions imposed by OEMs through their dealership or agency agreements that could negatively affect the company's business, financial condition, and ability to expand.
The success of the company largely depends on the value and perception of OEMs' vehicle brands, and any damage to these brands or their failure to compete effectively in India could materially harm its business.
The Company's business operations are primarily concentrated in Gujarat and Maharashtra, and any adverse developments in these states could have an adverse effect on the business, financial condition, and results of operations.
About the Author
I have over 18 years of experience in venture capital, private equity, and investment banking across various sectors in India and the Middle East. I was last working with Majid Al Futtaim Holding (MAF), a leading conglomerate in the Middle East, to look after investments, M&A, and venture capital. I have prior experience in India with Tata Capital (Private Equity), Merrill Lynch (Investment Banking or IB), and Ambit Corporate Finance (IB). I bring the long-term ownership mindset to the analysis.
I graduated from the MBA program of the Indian Institute of Management Lucknow (2005) after completing the Bachelor of Technology program at the Indian Institute of Technology, Kharagpur (2002).
I am an Insignificant Investor in the public market and co-founder of SocInvest.
Disclosure
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.
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