John Verghese, Chief Financial Officer, Popular Vehicles and Services Limited

16 Mar 2024 , 12:16 PM

Please share some of the key achievements and learnings of the company in its journey so far.

We started in 1983, and we were among the first Maruti dealers when Maruti Udyog began its operations in India. From there on, we have expanded our presence across other OEMs as well.

Today, we are involved in three major categories: passenger cars, commercial vehicles, and the electric vehicle (EV) space. In the passenger car segment, alongside Maruti, we work with Jaguar Land Rover and Honda. In commercial vehicles, we are with Tata Motors Commercial and Bharat Benz. Recently, we have ventured into the two wheeler EV space with Ather and the three wheeler EV space with Piaggio.

We started off in Kerala and have gradually expanded into Tamil Nadu, Karnataka, and more recently, Maharashtra. We are actively exploring opportunities to extend our presence to other states across India. Our dealership primarily focuses on two segments: the sale of new vehicles and pre-owned cars, and second is the servicing of these vehicles. With over 100 outlets operating across four to five states, we stand out in a largely fragmented dealership landscape. There is a trend towards consolidation within the passenger car segment and our focus is on seizing the opportunities presented by this consolidation. We are among the top six dealers in India by volume for the fiscal year 2023.

Please provide a snapshot of the financial profile of the company.

In FY22, we experienced a commendable 19% increase in our top-line. This growth accelerated in fiscal year 2023, reaching an impressive 40%. As for the current fiscal year, in the first six months alone, we have already surpassed 58% of last year’s revenues, indicating a robust performance. On the bottom line, our profit after tax (PAT) rose from ₹33 Crore in FY22 to ₹64 Crore in FY23. In the first half of this fiscal year, we have achieved ₹40 Crore in PAT. Our earnings per share (EPS) have also seen substantial growth. From ₹5 per share in FY22, it doubled to over ₹10 per share in FY23. In the first half of the current fiscal year, our EPS stands at over ₹6 per share, indicating continued profitability.

Turning to our balance sheet, our net worth has grown significantly from ₹250 Crore in FY21 to nearly ₹383 Crore as of September this year, marking a 1.5 times increase over the past two and a half years.

Regarding our loans, we carried a loan of approximately ₹750 Crore in September, which reduced to ₹650 Crore in December. The majority of this loan, about 75%, is attributed to working capital, particularly for inventory funding to support our dealership operations.

In terms of capital expenditure (capex), our approach is predominantly driven by internal accruals for organic growth. Typically, our investment in a new service center ranges from ₹3.5 Crore onwards, with a projected internal rate of return (IRR) of over 35%, ensuring a payback period within three years. However, for strategic acquisitions, we get much better financials. As for debt equity, we maintain a prudent balance to support our growth initiatives while ensuring sustainable financial health.

Our reserves and surplus have witnessed a remarkable 1.5 times increase over the last two and a half years, reaching ₹383 Crore as of September this year. Our ROE stands at over 18% for the last fiscal year, and we have seen an improvement to over 10% in the first half of this year. Additionally, our liquidity ratios are robust.

Considering your forthcoming deployment of IPO proceeds, will this enable you to substantially reduce your debt burden, potentially leading to a debt-free status?

We will achieve a debt-free status. In the IPO, we are planning a ₹250 Crore fresh offer, with ₹192 Crore allocated for debt repayment. As of December, our debt stands at approximately ₹650 Crore. So, the IPO proceeds will partially alleviate our debt burden.

Maruti is your largest client but investors may perceive client concentration risk with key OEMs. How do you address these concerns?

So, our partnership with Maruti has been foundational since our inception, and we remain committed to this relationship. Over the years, we have cultivated a strong bond, and we see Maruti as a key driver of our future growth, particularly in the service segment.

Our workforce is extensively trained and specialized in servicing Maruti vehicles, ensuring unparalleled expertise and efficiency. We also cater to other OEMs, namely, Tata Motors and Bharat Benz in the commercial vehicle segment. We remain open to exploring opportunities with luxury brands like JLR and are actively venturing into the EV segment to diversify our offerings.

Over the years, we have observed a notable shift towards electric vehicles (EVs). So, how is the company capitalizing on these emerging opportunities?

Currently, there is significant uncertainty regarding the replacement of internal combustion engines (ICE) with alternatives such as batteries, hydrogen, or even innovative solutions like Toyota’s exploration of water-based technology. It is premature to determine which technology will ultimately dominate the market.

To navigate this dynamic environment, we have ventured into the two-wheeler and three-wheeler segments, anticipating faster adoption rates. However, the landscape remains highly disruptive, especially with the ongoing FAME subsidy scheme. Despite the uncertainty, we are actively engaging with EVs, selling models from brands like JLR and preparing for Maruti’s upcoming EV offerings.

What is your overall growth strategy for the company for next few years?

Firstly, we are doubling down on our service division, recognizing its pivotal role in our business model. Concurrently, we are expanding our footprint to encompass other states, strategically targeting regions with a robust vehicle population ripe for servicing. We are actively seeking opportunities for inorganic expansion, capitalizing on the consolidation trend sweeping through the industry.

Does the company have a dividend distribution policy in place? If so, could you provide an overview of the policy?

Yes, indeed, we do have a dividend policy in place. The board determines this policy by carefully considering factors such as cash flow, future expansion needs, and the company’s profitability. This ensures a balanced approach to dividend distribution that aligns with our financial objectives and growth trajectory.