IPO Alert: What we can expect when Popular Vehicles and Services goes public

The automobile industry is one of the primary contributors to the Indian economy. Its current contribution to GDP is approximately 7% and it ranks fourth in the world for the thriving domestic auto market. In the fiscal year ended in March 2021, India produced approximately 23.4 million vehicles, of which nearly 17% were exported.

Popular Vehicles and Services Ltd recently filed a draft red herring prospectus with the Securities and Exchange Board of India to raise funds via an initial public offering. The IPO consists of a fresh issue of shares worth ₹1.5 billion and an offer for sale of up to 4.27 million shares by existing shareholders.

The net proceeds will be used for repayment and prepayment of certain borrowings, including working capital loans of subsidiaries. Currently, the company has a total of ₹3.53 billion outstanding under its fund-based and non-fund-based working capital and term loan facilities.

Company Profile

Popular Vehicles and Services is a diversified automotive dealership in India with a presence across the automotive retail value chain. The services include the sale of new passenger and commercial vehicles, services & repairs, spare parts distribution, sale of used passenger vehicles, and facilitation of the sale of third-party finance and insurance products.

The Cochin-based company currently has an extensive network of 59 showrooms, 99 sales outlets and booking offices, 83 authorized service centers, 29 retail outlets, and 25 warehouses located across all 14 districts of Kerala.

The company operates under its main business segments namely passenger cars, luxury vehicles, and commercial vehicles.

Key Numbers

For fisсаl yeаr 2021, the firm reроrted revenue from орerаtiоns оf ₹28.9 billion аgаinst ₹31.7 billion а yeаr аgо. Net рrоfit for the year stооd at ₹324.5 million versus ₹124.9 million last yeаr.

Meanwhile, automobile retailing is a highly competitive business, and the internet has changed the process significantly. Customers are using the internet to compare pricing for vehicles and related financial and insurance services, which may further reduce margins for Popular’s new and used vehicles and profits for its financial and insurance services.

Further, the company faces competition from the unorganized sector, comprising unauthorized service centers, which may be able to provide servicing and maintenance services at lower prices. These factors would have an adverse effect on cash flows and the business as a whole.