Brokerage firm Phillip Capital recently initiated coverage on Landmark Cars, which made its market debut in December. Just in a little over 6 months, the stock surged over 50 percent from its IPO price of ₹506.
The brokerage initiated coverage with a ‘buy’ call on the stock and a target price of ₹903, indicating an upside of 18 percent from its current market price of ₹765, as on July 10.
The company's shares made a weak debut on the exchanges on December 23, 2022, listing at a 10 percent discount, around ₹458 per share. However, post its listing, the stock rallied around 41 percent in the next 1 month.
In 2023 YTD, it has surged 65 percent, giving positive returns in all but one month - February (down 14 percent). The stock has advanced 7.5 percent in July so far.
"Landmark Cars Ltd (LCL) has a strong track record in the domestic PV dealership and is currently associated with seven PV and one CV OEM. It has a mix of brands; Renault in the entry segment; Honda, Volkswagen in the mid-premium segment and Jeep & Mercedes-Benz in the premium to luxury segment. Its association with BYD and recent tie-up with MG Motors would enable them to enter the fast emerging Electric Vehicle (EV) segment," said the brokerage.
Its diversified OEM partnership and geographical presence along with its strong track record make the company a preferred partner, it added.
Looking at its strong association, and change in consumer preferences, PC expects an 11 percent/20 percent/23 percent/43 percent CAGR growth for vehicles sold & service/sales/EBITDA/PAT, respectively, for the FY23-26 period.
Why Phillip Capital likes the company:
1) Robust business model – The brokerage noted that the company's portfolio includes six OEMs in the PV segment (excluding MG Motors) and one in the CV segment. Also, it is present in 9 states and 26 cities, and has asset-light business model, noted PC. The brokerage also stated that the company's optimum revenue mix of new vehicle sales and high-margin ancillary revenue like after-sales service and financial products will also aid growth.
2) Multiple growth levers - As per the brokerage, organic volume growth for OEMs (8-10 percent CAGR for mass and premium segment and 14-16 percent CAGR for luxury segment till FY27), increase in ASP due to premiumisation and change in sales mix, expanding network and strategic acquisition opportunities are multiple growth levers because of which the brokerage is bullish on the stock.
3) The brokerage further pointed out that the change in consumer preference is reflected in the increasing share of premium and utility vehicles. Premium car share has increased to 62 percent in FY22 from 42 percent in FY17 and UV’s volume share has increased to 52 percent in FY23 vs 28 percent in FY19. Landmark is associated with suitable OEMs to benefit from such change in preference, it added.
4) Also, the brokerage pointed out that the company's association with niche OEMs like Mercedes-Benz & Jeep will help to ride the premiumisation and Utility Vehicle trend while BYD & MG Motors will help in the emerging EV transition, which is at a nascent stage. Thus, the company can be an integral part of OEM’s growth journey in India, said PC.
5) Finally, the company has aggressive strategies for the pre-owned car segment. Landmark has a differentiated model which would only focus on brands they represent in that particular city. It would be a high ROCE business since it would use its existing infrastructure for operating this segment, stated the brokerage.
However, the brokerage also warned that key risks include:
1) Downturn in economic cycle: New vehicle car sale contributes 75 percent to the company’s total revenue which is dependent on various economic factors. A slower-than-expected growth in the automobile industry, particularly the passenger vehicle segment, will lead to lower volume sales for the dealerships. An increase in commodity prices along with unequal growth in income levels can unfavorably impact the business.
2) Resizing of operations: Based on its adopted strategy the company may resize its operations with any particular OEM, which could impact its overall relationship with the OEM which could also affect its operations in other geographies.
3) OEM led issues: The dealership revenue is directly linked to OEMs' overall growth journey; its inability to compete in the market by launching new models at periodic intervals, and providing necessary support to customers/dealers may adversely impact the growth of the OEM and thus a dealer.
4) Supply chain issues: In the past year dealerships have seen lower volume supplies from OEMs due to chip shortages. Similar hurdles in the supply chain would impact the regularity of volumes in the business. Additionally, the review of new car launches in the market will significantly impact the volume and prices of the vehicles.
