The muted response to its IPO was followed by a discounted listing for Popular Vehicles and Services — 2% over the issue price on Tuesday. Despite a tepid debut, analysts are positive about the company’s prospects in the medium- to long-term horizon, betting on the strong demand growth for the automobile industry.
“The company’s consistent profitability further underscores its financial strength. However, some key risks necessitate careful consideration. Allottees who applied for the public offering for listing premium are advised to maintain their stop loss at Rs 250 and wait for further upside, whereas those who have a medium- to long-term perspective can also hold the stock,” said Shivani Nyati, head of wealth at Swastika Investmart.
Being a diversified automobile dealership company in India that has a fully integrated business model, Popular Vehicles and Services caters to the complete life cycle of vehicle ownership, right from the sale of new vehicles, servicing and repairing them, distributing spare parts and accessories, to facilitating sale and exchange of pre-owned vehicles, operating driving schools and facilitating the sale of third-party financial and insurance products.
The company also has over 70 years of experience in the automobile industry with diversified automobile dealerships and a fully integrated business model. Apart from benefiting from the inherent synergies arising from its business verticals, the company’s diversified income streams contribute to higher profitability margins. The company offers fully integrated services through its authorised service centers that contribute to higher-margin business at each dealership and help mitigate the cyclicality that has historically impacted some elements of the automobile sector.
“Supporting the growth of the automobile industry, dealerships form an intrinsic part of the industry, playing the role of an intermediary between customers and manufacturers. Considering numerous 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. Therefore, even after a discounted opening to the issue, we suggest that the market participants who have been allotted the shares hold them for a medium to long-term horizon,” said Parth Shah, Research Analyst, StoxBox.
The company proposes to use the net proceeds for the repayment of debt and to meet other general corporate purposes.
In FY23, Popular Vehicles clocked revenue growth of 41% year-on-year to Rs 4,875 crore, while profit after tax (PAT) jumped 90% to Rs 64 crore. For the period ended September 2023, revenue from operations was at Rs 2,835 crore and profit was at Rs 40 crore.
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