Landmark Cars IPO review (May apply)
• LCL is engaged in the premium automotive retail business.
• The company also has after-sales service centres including sales of spare parts.
• It posted inconsistency in its top line, but the bottom line marked growth.
• The issue appears fully priced based on its recent financial performance.
• Well-informed, cash surplus investors may park funds for long-term rewards.
Landmark Cars Ltd. (LCL) is a leading premium automotive retail business in India with dealerships for Mercedes-Benz, Honda, Jeep, Volkswagen, and Renault. (Source: CRISIL Report, September 2022). It also has a commercial vehicle dealership with Ashok Leyland in India. The company has a presence across the automotive retail value chain, including sales of new vehicles, after-sales service, and repairs (including sales of spare parts, lubricants, and accessories), sales of pre-owned passenger vehicles, and facilitation of the sales of third-party finance and insurance products.
LCL started operations and opened its first dealership for Honda in CY1998, and has expanded its network to include 112 outlets in 8 Indian states and union territories, comprised of 59 sales showrooms and outlets and 53 after-sales services and spares outlets, as of June 30, 2022.
The company has focused on the premium and luxury automotive segments. CRISIL Research expects the premium segment to grow at a CAGR of 10-12% from Fiscal 2022 to Fiscal 2027, while the luxury segment is expected to grow at a CAGR of 14-16% during the same period. (Source: CRISIL Report, September 2022).
LCL is the number one dealer in India for Mercedes in terms of retail sales for Fiscal 2022, the number one dealer in India for Honda and Jeep in terms of wholesale sales for Fiscal 2022, and the top contributor to Volkswagen retail sales for the calendar year 2021. In addition, it had the third largest dealership in India for Renault in terms of wholesale sales contribution for the calendar year 2021. (Source: CRISIL Report, September 2022). As of June 30, 2022, it had 3981 employees on its payroll including 304 trainees.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo offer of a fresh equity issue worth Rs. 150 cr. (approx. 2964438 shares) and an offer for sale (OFS) of Rs. 402.00 cr. (approx. 7944664 shares) making an overall issue size worth Rs. 552.00 cr. (approx. 10909102 shares – at the upper cap) via book building route. It has announced a price band of Rs. 481 – Rs. 506 for equity shares having a face value of Rs. 5 per share. The issue opens for subscription on December 13, 2022, and will close on December 15, 2022. The minimum application is to be made for 29 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 27.56% of the post-IPO paid-up capital of the company. Funds mobilized from the fresh equity issue will be utilized for the pre-payment of borrowings availed by LCL’s subsidiary (Rs. 120.00 cr.) and general corporate purposes.
The company has reserved shares worth Rs. 1.00 cr. for its eligible employees and offering them a discount of Rs. 48 per share. From the residual portion, it has allocated 50% for QIBs, 15% for HNIs, land 35% for Retail investors. Though LCL posted a loss for FY20, it has been permitted for issuing up to 50% to QIBs.
The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd. and ICICI Securities Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue.
Having issued equity shares at par, LCL converted a few CCPS at a price of Rs. 850.96 (based on Rs. 5 FV) in January 2016. The company has issued bonus shares in the ratio of 10000 shares for every 70488 shares in January 2016, and 5 for 1 in March 2017. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 3.30, Rs. 3.50, Rs. 9.36, and Rs. 137.42 per share.
Post-IPO, LCL’s current paid-up equity capital of Rs. 18.31 cr. will stand enhanced to Rs. 19.80 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 2003.26 cr.
On the financial performance front, for the last three fiscals, LCL has (on a consolidated basis) posted a turnover/net profit – (loss) of Rs. 2228.93 cr. / Rs. – (28.94) cr. (FY20), Rs. 1966.34 cr. / Rs. 11.15 cr. (FY21), and Rs. 2989.12 cr. / Rs. 66.18 cr. (FY22). For the Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 18.14 cr. on a turnover of Rs. 801.90 cr.
For the last three fiscals, LCL has reported an average EPS of Rs. 8.44 and an average RoNW of 12.51%. The issue is priced at a P/BV of 6.91 based on its NAV of Rs. 73.25 as of June 30, 2022, and at a P/BV of 4.79 based on its post-IPO NAV of Rs. 105.64 (at the upper cap).
If we annualize FY23 earnings and attribute it to post-issue fully diluted paid-up equity capital, then the asking price is at a P/E of around 27.61.
The company has paid a dividend of 7.50% for FY22 and 8.00% in the second quarter of FY23. It will adopt a prudent dividend policy based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, LCL has no listed peers to compare with.
MERCHANT BANKERS’ TRACK RECORDS:
The two BRLMs associated with this offer have handled 68 public issues in the last three years, out of which 23 issues closed below the offer price on the listing date.
Conclusion / Investment Strategy
The company is enjoying leadership in the premium automotive retail segment and also provides service and spare parts. Based on its recent financial performance the issue appears fully priced. Well-informed, cash surplus investors may consider parking funds for long-term rewards.
Review By Dilip Davda on Dec 9, 2022
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.