IPO bound Popular Vehicles to capitalise on vehicle services and repair segment

Popular Vehicles and Services Ltd., a Kerala-based auto dealership chain established four decades ago, is set to launch its initial public offering (IPO) on March 12. The company, which began with Maruti Suzuki dealerships, aims to raise funds for repaying certain borrowings and expand into high-growth markets like Delhi, NCR, and Gujarat, among others, while solidifying its presence in existing regions. This move comes as the auto dealership industry grapples with consolidation amid rising competition and technological disruption.

Popular Vehicles and Services Ltd plans to raise Rs 602 crore through an IPO, comprising a fresh issue of Rs 250 crore and an offer for sale (OFS) of 1.19 crore shares by existing investor, Banyantree Growth Capital, which holds a 30% stake. The price band for the issue has been fixed at Rs 280–295 per equity share, with a face value of Rs 2 each. The anchor investor bidding date is March 11, 2024. Further, the bid or offer will open on March 12 for subscription and close on March 14. The move would potentially make Popular Vehicles the second auto dealer to list on Indian bourses, following Landmark Cars' Rs 552 crore IPO in December 2022.

Naveen Philip, MD of Popular Vehicles and Services, highlights the company's dual focus and says, "We plan to expand dealerships as the market has been witnessing consolidation."

While vehicle sales remain dominant, contributing 85% of revenue, the service and repair segment, as Philip pointed out, although smaller at 15% of revenue, generates a significantly higher EBITDA margin of 55%. Elaborating further on the profitability of the service and repair segment, he highlighted that collision repairs, which though they comprise around 21.5% of total service jobs, contribute a significantly higher 76.2% to the segment's EBITDA.

EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation, is a financial metric used to assess a company's operating profitability.

The company currently has business operations in Kerala, Tamil Nadu, Karnataka, and Maharashtra. It operates the passenger vehicle dealerships of Maruti Suzuki, Honda, and JLR. In commercial vehicles, Popular Vehicles & Services sells vehicles made by Tata Motors and BharatBenz.

Furthermore, in the electric two-wheeler and three-wheeler space, it handles dealerships for Ather and Piaggio, respectively. A large portion of Popular Vehicles' business—approximately 77.03%—comes from the dealerships of Maruti Suzuki, Tata Motors (commercial) and Honda cars.

Raj Narayan, CEO of the company, said that whenever Popular Vehicles and Services opens a new dealership, it also opens 3–4 touch points around it. 

This helps in the repair and service of existing vehicles in the geography and thereby helps it enlarge its base. 

Asked to comment on how Popular Vehicles is dealing with the emergence of sales and services for electric vehicles, Narayan noted that the growth in the EV segment in general has not been as fast as was earlier anticipated. He, however, added that the next 2-3 years will need to be "keenly watched."