Popular Vehicles & Services IPO opens today: Should you subscribe to the issue?

Popular Vehicles & Services' initial public offering (IPO) will kick-off for bidding on Tuesday, March 12 and interested investors can subscribe for the issue till Thursday, March 14. The automobile dealership player is offering its shares in the price band of Rs 280-298 per share. Bid can be made for a minimum of 50 equity shares and its multiples thereafter. Popular Vehicles and Services is engaged in the business of automobile dealerships in India. Incorporated in 1983, the company provides complete services throughout the life cycle of vehicle ownership, including sales of new and preowned vehicles, servicing, spare parts distribution, driving schools, and third-party financial and insurance product sales. The Rs 601.55 crore issue includes a sale of fresh equity shares worth Rs 250, while an offer-for-sale (OFS) of up to 1,19,17,075 equity shares by BanyanTree Growth Capital LLC. The net proceeds shall be utilized towards repayment or pre-payment of certain borrowings of the company and its subsidiaries and general corporate purposes. Considering various demand drivers such as growth in new PV sales, rise in average vehicle prices, rising financial penetration and digital technology, we remain positive on the automotive dealership business in India, said StoxBox in its IPO note. "On the financial performance front, the company’s Revenue, Ebitda and PAT grew at a CAGR of 29.8 per cent, 20.7 per cent and 40.6 per cent during the FY 2021-23 period. On the upper price band, the issue is valued at a P/E of 28.9 times based on FY2023 earnings which we feel is fairly valued. We recommend a 'subscribe' rating for the issue," it said. Popular Vehicles and Services raised Rs 180.17 crore from anchor investors as it allocated 61,07,325 shares at Rs 295 apiece. Anchor book included marquee names like HDFC Mutual Fund, Quant Mutual Fund, HSBC Global Investment Funds, Lionglobal Investment Funds, BofA Securities Europe SA, Pinebridge Global Funds and ITI Mutual Fund. Popular Vehicles operates through a network of 59 showrooms, 126 sales outlets, and booking offices, 31 pre-owned vehicle showrooms and outlets, 134 authorized service centers, 40 retail outlets, and 24 warehouses. It marks its presence in 14 districts in Kerala, 8 districts in Karnataka, 12 districts in Tamil Nadu, and 7 districts in Maharashtra. Ventura Securities also believes that the issue is available at the cheap valuations and suggests subscribing to it. The brokerage is positive on its long-standing presence in the automobile industry, penetration in the market, innovative market strategies and high margin business with full integration. However, Ventura has cited unpredictable factors denting the sale of vehicles, increasing demand of electric vehicles, OEM prices, operational inefficiency, competitive landscape impacting margins as the key risks for the business of the company in its IPO note. In FY 2023, Popular Vehicles serviced 791,360 vehicles - 5,212 luxury, 163,013 commercial, 1,918 electric two-wheeler, and 857 electric three-wheeler vehicles - through 130 authorized service centers across dealerships. The sales outlets and booking offices also facilitate its sales, whereas the retail outlets are responsible for selling and distributing spare parts and accessories.

The top 2 OEM’s Maruti Suzuki and Tata Motors (commercial), account for more than 80 per cent of its consolidated revenue H1FY24 and each of Fiscal 2023, 2022 and 2021. A significant part of the revenue is derived from the dealership business, said Sushil Finance in its IPO note.

"The issue is priced at a P/BV of 4.82 based on its NAV of Rs. 61.26 as at H1FY24. The company is asking for a PE multiple of 28.86 times on the upper end of the price band using diluted EPS for FY23. The industry average is 34.84 times. Looking at all the factors, risks, opportunities and valuation, cash rich investors may apply for the issue," it said. For the six months ended on September 30, 2023, Popular Vehicles reported a net profit of 40.04 crore with a revenue of Rs 2,848.21 crore. The company clocked a bottomline of Rs 64.07 crore with a revenue from operations at Rs 4,892.63 crore for the financial year ended on March 31, 2023. Popular Vehicles provides complete services throughout the life cycle of vehicle ownership, including sales of new and preowned vehicles, servicing, spare parts distribution, driving schools, and third-party financial and insurance product sales, said Canara Bank Securities. "The company’s top line increased at a CAGR of 19 per cent from FY 21. For FY23, the Ebitda and PAT margins stood at 4.80 per cent and 1.31per cent, respectively, while ROE and ROCE were 18.68 per cent and 18.32 per cent, respectively. The company’s P/E is valued at 28.86 times for FY23. We recommend to subscribe for listing gains," it said. Popular Vehicles & Services has reserved shares worth Rs 1 crore for its eligible employees, who will get a discount of Rs 28 per share. It has reserved 50 per cent of the net offer for qualified institutional investors (QIBs), 15 per cent for non-institutional investors (NIIs) and per cent of the net issue reserved for retail investors.  

Nuvama Wealth Management, ICICI Securities, and Centrum Capital are the book running lead managers of the Popular Vehicles & Services IPO, while Link Intime India is the registrar for the issue. Shares of the company are likely to be listed on both BSE and NSE on Tuesday, March 19.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.