Landmark Cars IPO: Detailed Review

Landmark Cars Limited IPO opens for subscription on 13th December. The company is looking to raise up to Rs 552 crore through the public issue. Here are the details: 

Landmark Cars Limited (LCL) IPO Details:

• Landmark Cars Limited IPO Date: 13 December - 15 December 2022
• Landmark Cars Limited IPO Price band: Rs 481 - Rs 506
• Landmark Cars Limited IPO Issue Size: Rs 552.00 crore (Fresh Issue of Rs 150.00 crore and remaining Offer for Sale)
• Reservation: QIB 50%, Retail 35%, NII 15%
• Minimum Investment: Rs 14,674
• Post Issue Implied Market Cap: Rs 1,912 – Rs 2,003 crore
• Bid lot: 29 shares, and in multiples of 29 shares

Landmark Cars Limited IPO: About Landmark Cars 

• The company was incorporated in 1998. They are the leading premium automotive retail business in India, with dealerships for Honda, Jeep, Volkswagen, Mercedes-Benz, and Renault.
• They also cater to the commercial vehicle retail business of Ashok Leyland.
• They offer services such as sales of new vehicles, after-sales services and repairs, facilitation of the sales of third-party finance, and sales of pre-owned passenger vehicles.
• LCL has expanded its business network and includes 112 outlets in 8 states. They have 61 sales showrooms and outlets and 51 after-sales services and spare outlets (30 Sep 2021).
• For FY22, they were the number one dealer in India for Mercedes and Volkswagen in terms of retail sales and the number one dealer for Honda and Jeep in terms of wholesale sales.
• For CY21, they were the 3rd largest dealership for Renault in terms of wholesale sales contribution.

Landmark Cars Limited IPO: Business Verticals

At each of their dealerships, the company buys and sells pre-owned passenger vehicles. Below are two business models on which Landmark operates:

• They facilitate the sale of used vehicles through their appointed panel agents on a commission basis.
• They also take the vehicles on their books for sale after any needed refurbishment.

Landmark Cars Limited IPO: Industry Outlook

• According to the CRISIL Report, the Indian passenger vehicle (mass and premium segments) industry, in terms of sales volume, grew by a CAGR of 5.3% between FY17 and FY19, primarily due to an increase in demand driven by improved economics, higher affordability, and launches of new automobile modes.
• To add perspective, for the ongoing calendar year, Mercedes posted a 28% rise in sales in India at 11,469 units in the January to September period, surpassing what it sold in the whole of 2021.
• According to the CRISIL Report, the luxury vehicles segment typically comprises approximately 1% of the overall PV industry in India. Sales volume of the luxury segment increased significantly at a CAGR of 16% between FY17 to FY19, driven by increased disposable incomes, favourable economic growth, and more model launches by luxury OEMs/brands. Pent up demand from COVID-19 also added to demand for PVs.

Landmark Cars Limited IPO: Listed Peers

There are no listed industry peers in India that engage in a business similar to that of Landmark Cars.

Landmark Cars Limited IPO: Financials

• The company reported revenue from operations for FY20, FY21, and FY22 as Rs 2218.61 crore, Rs 1956.10 crore, and Rs 2976.52 crore, respectively. It has grown at a CAGR of 23.35% in this period.
• The after-sales service and spare revenue contributed 19.72%, 21.62%, and 21.66% of their revenue from operations for the last three financial years.
• The EBITDA for FY20, FY21, and FY22 was Rs 83.20 crore, Rs 120.06 crore, and Rs 187.28 crore, respectively. The EBITDA has more than doubled in the two years.
• The EBITDA margin for the same period was 3.73%, 6.11%, and 6.27% respectively.
• The company reported net profit/loss of Rs (28.94) crore, Rs 11.15 crore, and Rs 66.18 crore, respectively.
• The average EPS and RoNW for the last three fiscals were 4.38% and 5.25%, respectively.
• The Return on Capital Employed (ROCE) has jumped in the last two years. The ROCE increased from 3.73% in FY20 to 18.86% in FY22.
• The company has a high debt-to-equity ratio. For FY22, the debt-to-equity ratio was 1.25.

Landmark Cars: Vehicle Dealerships

• Landmark Cars has forged vehicle dealerships with marquee brands such as Mercedes-Benz, Honda, Jeep, Volkswagen and Renault. It also has a commercial vehicle dealership for Ashok Leyland.
• Landmark also executed a letter of intent with BYD
• As of June 30, 2022, Landmark’s network included 112 outlets for passenger vehicles, 59 sales outlets and 53 after-sales service and spares outlets. 

Landmark Cars Limited IPO: Unique Selling Propositions

Leading automotive dealership for major OEMs: They are a leading premium automotive retail business with dealerships for high-end cars. They opened their first dealership for Honda in 1998, and as of June 2022, they have expanded their network to 112 outlets in 8 states and union territories, comprising 59 sales outlets and 53 after-sales services.

Growing presence in the after-sales segment: Their services and repair offerings at each of the dealerships comprise repair and collision repair services and include warranty work, insurance claim work, and customer-paid services. Landmark's after-sales service and spares business provides a stable revenue stream and contributes to higher-margin revenues at each of their dealerships.

Comprehensive business model: Their business caters to the entire customer value chain, including retailing new vehicles, selling pre-owned passenger vehicles, servicing and repairing vehicles, selling spare parts, lubricants, and other products, and distributing third-party finance and insurance products.

Robust business processes: The company has established robust business processes which assist them in reducing costs and increasing efficiency, and ensuring faster operationalization of new facilities. These processes ensure the ability to replicate successes as they expand organically and in the new businesses that they acquire.

Landmark Cars Limited IPO: Growth Potential

Continue to expand with a focus on high-growth segments: They plan to focus on expanding business in high-growth segments like premium and luxury passenger vehicles, including UVs and electric vehicles. They aim to leverage their relationships with the OEMs to expand geographically to achieve economies of scale.

Expand after-sales service business: They aim to expand their after-sales service offering to cater to additional customers and enhance higher-margin service and repair revenues. Landmark will continue to explore with OEM dealership partners the possibility of adding service workshops and additional authorised service centres in the markets in which they operate.

Continue to invest in technology:  They intend to continue to invest in IT systems to enhance process efficiencies and to support sales, inventory control, after-sales service, financial control, and customer interaction.

Continue strategic acquisitions: They will continue to seek to acquire dealerships to expand geographic reach in premium and luxury automotive brands, which may or may not be part of an existing portfolio. They look to expand their dealership network in fast-growing demographic areas with a growing upper-middle class.

Landmark Cars Limited IPO: Risks

Restrictions imposed by OEMs: They are subject to the significant influence and restrictions imposed by OEMs according to the terms of dealership or agency agreements that may adversely impact their business. For example, any reduction in margins or capping of service fees by the OEMs may impact their revenues and profitability.

High revenue from only two states: A large portion of their business operations are concentrated in the states of Gujarat and Maharashtra. The two states contributed over 40% together of their consolidated revenue for the last three financial years. Any adverse developments in these states could hurt their business and the company's financials.

Regulations: Company's operations are subject to various governmental laws and regulations and certain state-specific notifications and guidelines. If they are found to be in purported violation of liabilities under any of these laws or regulations, or if new laws or regulations are enacted, it will affect their business.

Landmark Cars IPO: Detailed review and Analysts' Recommendation

• Consistent jump in revenues: Landmark Cars has seen a near 23.35% CAGR rise in revenues between FY20- 22.
• Healthy rise in profits: Landmark Cars has grown from reporting a loss of Rs 39.22 crore in FY20 to a profit of Rs 66.18 crore in FY22.  
• Improving margins: Landmark’s EBITDA margins have shown a steady improvement from 3.73% in FY20 to 6.27% in FY22.  
• Market leader: Landmark Cars is the leading automotive dealership for luxury cars, dealing with brands like Mercedes Benz, Honda, Volkswagen Renault and Jeep  with 112 outlets across eight states and union territories. 
• Aggressive valuations: At the higher end of the price band,  Abans Holdings IPO is priced at a post-issue PE ratio of ~30 times FY22 annualized EPS on a fully diluted basis. 
• Significant stake in Mercedes sales: Landmark Cars account for almost 16% of Mercedes cars sold in India. Mercedes has already sold 11,469 units till September this year, which is already higher than than whole of 2021 sales. 
• Landmark Cars IPO review: There are positive factors such as robust profits, stable margins and higher revenue expectations. However, luxury cars account for only 1% of total passenger vehicle sales in India which makes it a very small market in which the company functions.
• Currently, there are no analyst recommendations on the stock.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.