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Popular Vehicles & Services Ltd

| Q2 and H1 FY '26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤12th Nov 25

Summary : Popular Vehicles & Services is strategically expanding through acquisitions and digital initiatives, expecting strong demand recovery and double-digit growth despite initial challenges from GST uncertainty and integration costs.

Management Perspective positive : Management expressed pleasure about successful acquisitions and stated they are 'well positioned to deliver a much stronger performance' and 'close FY '26 on a positive growth trajectory'. They also highlighted strategic initiatives and commitment to growth targets.

Concall Report Analysis & Insights

Business Overview

  1. Acquired R.K.S Motors, a Maruti Suzuki dealership in Telangana, for INR90 crores, expanding footprint.
  2. Acquired BharatBenz dealership of Globe CV Private Limited in Punjab for INR12 crores, enhancing commercial vehicle presence.
  3. Established ZPAREX Digisolutions, an e-commerce platform for spare parts and accessories.
  4. Divested Piaggio and Honda businesses to sharpen portfolio focus and reallocate resources.
  5. Expanded operational footprint with new touchpoints, including Tata Commercial Vehicle service center in Calicut.

Future Growth Prospects

  1. Expect sustained demand recovery across key segments, driven by acquisitions and network expansion.
  2. Aim to diversify geographic presence, reducing Kerala's revenue contribution below 50% by FY'27.
  3. Anticipate double-digit volume growth in FY'26 and FY'27, combining organic and inorganic efforts.
  4. Developing an e-commerce platform for spare parts to build a stable, less cyclical revenue stream.
  5. Evaluating opportunities to add another luxury dealership brand and open a new Nagpur facility.

Management Insights

  1. Successfully completed key acquisitions in Telangana and Punjab, strengthening geographic presence.
  2. Q2 was seasonally strong, with healthy inquiry levels and improved footfalls despite GST impact.
  3. Higher inventory was carried to cater to improving demand, now normalizing to under 30 days.
  4. Prudently provisioned for GST cess impact, aligning with potential outcomes.
  5. Committed to achieving growth targets and maintaining a long-term vision.

Signs of Skepticism

  1. Initial negative margins for new acquisitions raise questions about immediate profitability impact.
  2. Clarity on GST cess recovery is still pending, with a writ petition filed, creating financial uncertainty.
  3. Service business growth was flat in H1, despite earlier guidance of 12-15% growth.
  4. High tax for the quarter due to subsidiary profits being set off against loss-making units.

Risk Factors

  1. JLR cyberattack in August/October impacted production and supply of spares, affecting Q2 performance.
  2. Uncertainty regarding GST rate revision created a wait-and-watch approach among customers.
  3. Initial negative margins expected from Telangana acquisition due to preoperative expenses.
  4. Ongoing Supreme Court case regarding GST cess provision of INR3.6 crores.
  5. Service business growth was subdued, not meeting earlier guidance of 12-15%.

Good To Know

  1. Total income for Q2 FY'26 was INR1,534.6 crores, up 16.6% QoQ and 1.1% YoY.
  2. EBITDA for Q2 FY'26 was INR49.4 crores, up 29.1% QoQ, but down 16.5% YoY.
  3. Adjusted EBITDA margin for Q2 FY'26 was 3.5% after accounting for cess provision.
  4. PAT for Q2 FY'26 was INR0.6 crores, compared to a loss of INR8.8 crores in Q1 FY'26.
  5. Credit ratings upgraded for a subsidiary, and the company received multiple industry accolades.

Key Drivers

  1. Acquisitions expand market reach.
  2. Digital platform diversifies revenue.
  3. Demand recovery boosts sales.
  4. Inventory reduction lowers costs.

Key Analyst Discussions

Market Trends & Consumer Behavior

  1. GST rate revision discussions led to deferred purchases, particularly in the mass segment.
  2. Demand environment remains supportive, with deferred purchases expected to flow into Q3.
  3. Luxury car market growth is expected to be muted in FY'26 but will pick up in FY'27.
  4. October saw 40-50% YoY growth in Maruti business in Kerala and Chennai.
  5. Festive season demand and price cuts are driving strong growth in Q3.

Financial Highlights

  1. EBITDA margins for new acquisitions are expected to be negative initially, breakeven by next fiscal year.
  2. Impairment loss reduced to INR1.7 crores due to improved collections and ECL provisions.
  3. Tax was higher due to subsidiary profits being set off against deferred tax assets from loss-making units.
  4. FY'26 closing debt is expected to be lower due to reduced stock levels and interest costs.
  5. Targeting to reach FY'24 PAT levels by FY'27.

Product Composition

  1. Arena portfolio showing renewed traction after being subdued for 2-3 years.
  2. Demand trends in premium hatchbacks and SUVs continue to be encouraging.
  3. EV 2-wheeler penetration is increasing, with Ather gaining market share.
  4. Tata Motors' ACE Pro is gaining traction, expected to contribute 15-25% to volumes.

Strategic Considerations

  1. Strategic objective to diversify geographic presence and reduce Kerala's revenue contribution.
  2. Plans to consolidate presence in Southern region, Maharashtra, and NCR over the next year.
  3. Digital spare parts business aims for higher EBITDA margins than physical retail over 3-5 years.
  4. Service to sales ratio is currently 15x-20x, with plans to grow it organically and inorganically.
  5. Anticipate double-digit growth in servicing volumes for FY'27.