Landmark Cars Limited (LANDMARK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Landmark Cars Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishakha Maliwal from ICICI Securities. Thank you, and over to you, ma‘am.

Thank you. Good morning to all the participants and thanks to the senior management of Landmark Cars for giving us the opportunity to host this call. We have with us in the call the senior management of Landmark, represented by Mr. Sanjay Thakker, Promoter and Executive Chairman; Mr. Aryaman Thakker, Executive Director and Mr. Surendra Agarwal, CFO. I'd like to hand over the call to the senior management of Landmark Cars for the opening remarks. Over to you sir.

Yes. Thank you for hosting us, ICICI team. You have been quite supportive since the beginning. Let me first thank all the people who have joined the call in the midst of the holiday season. I hope we don't have to repeat and spoil your holidays going ahead. The Indian economy, as well as the customer sentiment, remained buoyant in the first quarter. The Indian auto industry, which grew at 27% last year, further grew by 10% year-on-year in the first quarter. Now this is the most heartening fact as there was some fear about last year's demand being a pent-up demand due to COVID. This is really an important signal that the demand continues. Our OEMs somehow did not participate in this rally of the last quarter. But starting now, I'm confident that we will not only catch up the lost ground, but outperform the auto industry. The reason for my confidence are what I will talk about it going ahead. Let's talk about one by one, some of the OEs, which did not participate as well as the industry, and we will see what has happened in that. First start with Mercedes-Benz, our largest partner. Mercedes-Benz, this -- the first quarter in this financial year grew at 8%. The company has guided for a strong double-digit growth for the whole year. This will make rest of the year much more exciting. The introduction of the new GLC, which is incidentally the global bestseller for Mercedes-Benz has taken the luxury market in India also by storm. Bookings have crossed 1,500 cars all India, which was like last week, and I'm sure these numbers would have gone up, which translates to upwards of around INR 1,100 crores on ex showroom price of sales. And we, being the largest partner for Mercedes-Benz, will clearly benefit by this. And this shows the appetite for luxury cars in India. You may also recollect that 25% of the Mercedes-Benz cars sold are now priced at more than INR 1.5 crores. Now this INR 1.5 crores includes the GST, so I'm qualifying that. And we have currently a short -- we have had a short supply of a lot of top-end models like the S-Class, or the GLS, and the Maybach. And those supplies are also likely to get -- to improve starting this month and the next. Honda, for who we are their largest partner and it has been our kind of a consistent performers, the new Elevate is showing all signs of being a blockbuster. The cars have started reaching the dealerships and the deliveries will start in the first week of September. Honda incidentally saw a 37% decline in sales in the first quarter when the industry was growing. So we are hoping that the Honda volumes will more than double from the current levels from September onwards. The dispatches have already begun. The wholesales have already started. The cars are coming to the showrooms, but the deliveries will start from September. I'm also happy to inform that our MG Motors' operations have started in Madhya Pradesh, Indore and Bhopal. This started -- this happened 2 weeks back. And it has taken only 50 days for us to start the operations from the time we took the LOI. So the revenue of this will also start taking in immediately. We have also started receiving this month the BYD cars, which were held up for clearance at the port for the last maybe around 2 or 2.5 months. Till the time the homologation certificate is received, I mean, just to explain, last call, I had explained that there is a cap of 2,500 units that the company is capped at. There is -- we are capped at 2,500 for the whole nation. So this business till the time the homologation certificate is received, though it may come any time, I cannot really say, this will be a nice and important, but a niche business, for us. Because BYD, as we all know, is like the top manufacturer of EVs in the world, and we are very happy that we have got the leg in over there already. The Jeep sales also saw a decline in the first half of the -- the quarter was really not so good. And this happened because of the discontinuation of the petrol cars, which is what I had spoken to you last time. And this situation is likely to improve quite a bit soon as the company is coming out with a cheaper 4x2 diesel version next month. We have been told by around 15th of September, it will come. And that is the price point at which the petrol version kind of exited. So if we have it, we are confident that the numbers will start picking up for Jeep also from next month. We also continue to engage with new and premium luxury carmakers, and we are likely and hopeful of penetrating with some of them soon to partner with new OEs is what I'm talking about. The aftersales business continues to be the backbone of the business, and it has been since -- as it has been from the beginning. Our focus on retaining and adding customers and enhancing the per repair order revenue is showing excellent results. This would not have happened without the customer-centric approach and -- which Landmark already has, and the best dedication of our teams. Surendra will give you the granular details about the same. Currently, our business model consists of two pillars, sales and aftersales. We are desirous of adding the third pillar. We are embarking upon a journey which no one else has embarked upon in India. The authorized dealers of OEMs today are focused on exchange of old cars when they sell the new cars. It is generally treated as a necessary evil, which is prone to leakages, blockage of capital and hardly any profit. Rest of the ecosystem consists of start-ups who are yet to make money, and local brokers. The business model started by Landmark for preowned car consists of eliminating procurement, marketing, manpower and infrastructure costs, and utilizing the existing resources for profitable business model. We seek to retain the customers in our own fold for a very, very long time. And we have, in our presentation, given a diagram as to what we believe is a sustainable business model. And just to put some numbers to it, though it has grown from a low base at 65% in the first quarter, we believe that we -- our internal target is to make it 3x of what we did last year, which will translate to upwards of INR 100 crores of revenue in this year alone, hopefully more, and again, a significant jump the year after. TPG Growth, which was our marquee investor since 2015, fully exited the company as their fund life got over. We are extremely proud and happy about the quality of investors who don our cap table today, who believe in our long-term story. We, as a company, will focus on profitable, industry-beating growth and high ROCE business. I hand it over to Surendra for rest of his comments, and then we'll take question and answer.

Hello. Thank you, Sanjay bhai. Good morning, everyone, and a warm welcome to one and all attending the earnings call. Starting with some operational metrics before getting into the detailed financial numbers. In the last quarter, our new car pro forma sale was around INR 744 crores across all our OEM partners. Aftersales revenue was INR 190 crores. Over the past 9 years, aftersales revenue has seen a growth of 20% CAGR year-on-year, and we expect this growth trajectory to continue. A recent addition to our offering, as mentioned by Sanjay bhai as well, the preowned car of our own brand. In the last quarter, we sold car worth approx INR 17 crores. The average selling price of car for the quarter has gone up from INR 15.6 lakh in quarter 1 FY '23, to INR 19.1 lakh in Q1 FY '24, showcasing a growth of 22% year-on-year. So our average selling price of the car is continuously growing. This is -- this rise in ASP is on the back of higher sale of top-end variant being sold and all round price escalation as well. The average selling price of servicing cars for the quarter has gone up from INR 22,254 in Q1 FY '23 to INR 24,314, showcasing a growth of 9% year-on-year. As highlighted in the previous earnings call, there is a change in the Mercedes-Benz sales model and thereby a like-for-like comparison, we are continue reporting the pro forma revenue. Our total pro forma revenue for the quarter stands at INR 934 crores as compared to INR 1,031 crores in same year previous -- previous quarter of the previous year -- same quarter of the previous year. This symbolize a degrowth of 9.4% year-on-year. Sequentially, the previous quarter pro forma revenue was INR 1,213 crores. Reported revenue for the quarter is INR 694 crores as compared to INR 800 crores in the same quarter of previous year. In the previous quarter for the reported revenue was INR 853 crores. Moving to the profitability metrics. Our gross profit for the quarter stood at INR 143 crores, as compared to INR 140 crores in the similar quarter of the previous year. Our gross profit is around 15.3% on pro forma revenue. Our EBITDA for the quarter stood INR 46.7 crores, as compared to INR 52 crores in Q1 last quarter, and INR 63.8 crores in the previous quarter. On the margin front, we clocked an EBITDA margin 5% on pro forma revenue. The exceptional item reflecting in our P&L this year are linked to CapEx write-off for shifting of Jeep small workshop to large workshop in Jeep Delhi. In this quarter, we also given cash PAT, and PAT as per IGAAP in our presentation. For the quarter, cash PAT stand at INR 19.7 crores, only INR 4.1 crores down as compared to previous year. Lastly, the PAT for the quarter stand at INR 7.3 crores. This is for the previous year was INR 18.1 crores, and INR 20.3 crores for the last quarter of the year gone by. With this, I would like to hand over the call to Mr. Sanjay Thakker before we open the floor for the questions.

No, I think we can open the floor for questions.

[Operator Instructions] We will take the first question from the line of Deepak Lalwani from Unifi Capital.

I had three questions, so I will go one by one. Sir, my first question is on your cost structure. Having a lean cost structure in these times really help. But just wanted to understand, as a sales-oriented organization, are there any variable costs embedded in our employee expenses? One would assume the employee expenses to come down on a quarter-on-quarter basis when the sales are not happening. So can you please throw some light on this aspect?

Yes. Thanks. It was quite a smart question. Now our salary structure has a kind of a 40-60 kind of a variable to fixed structure. People make incentives on cars they sell. Also, it is there on servicing, the revenue that they generate, the customer satisfaction that they get. So there is a detailed metrics of our HR, which is there. The issue with manpower is that there is also a dearth of trained manpower in the industry. So it is a difficult situation of let go of -- to let go of people and rehire them. So in a situation, I'll give you the example of Honda just for no other reason, but because we are there. The Elevate which is -- like which has already come, we have not been in -- we were not in a position to let go of manpower and rehire them. So yes, there is an impact on sales aspect where the sales salaries are concerned as a percentage, but this will normalize once the sale also normalizes.

Sure, sure. So the second question, if you look at your service income, it's heartening to know that the past growth has been 20%. But if you look at the growth rates of this quarter, it is on the lower side, 12%, 13%. And even with that, even if you look at the volume growth, it has been just 2%, 3% in the services piece. So if you can just give some sense here what is...

Yes. So what happens typically is that there is also, Deepak, seasonality which plays out over here. So we are not really unduly worried about this aspect as of now. Just to give you an example, what happens is that during the monsoon season a lot of cars kind of get submerged in the water, and they come for what is -- what we call the hydrostatic lock issues, where maybe the engines need to be replaced or a significant amount of work needs to happen. Now because of the monsoons, a lot of cars are standing in our workshop with higher billing. Say, a Mercedes-Benz cost may go to INR 20 lakhs, INR 30 lakh per car because a lot of work which happens. So this also is bunched up. It is seasonal in nature, and it will pick up. So this is something which is how the business trends, and we will -- we believe that we are on course for what we think we happen.

Sure, sure. And sir, on the preowned sales, which you were talking about, INR 100 crores this year, will you be making profits on this number? And just want to understand which OEs are contributing to most of this INR 100 crores. If you can just give a broad split of this? And thirdly,I want to understand if the OEs are okay with us following this business model in the same outlet because in a way it could dilute their brand as well, right? So just wanted your thought on this?

This is, again, an important thing. And since we came up with this business model, it took us some time. For the last couple of years, we had been studying this whole aspect of preowned cars and we're trying to figure out a win-win-win situation for everybody. Now I'll answer your last question first, whether the OEs will be okay or not. Oh, yes, they are not only okay, they are really supporting this whole endeavor. And we hope that at some point, they also can give a financial support. With one or the other OEs, we are actually looking at that. The reason for that is that every OE wants the resale price of their product to be much higher than the competitor. Now if we are able to do that, then it has a rub-off effect on the new car sales. So this is something which the OEs are clearly okay, and they are supporting this endeavor. That's the first answer. The second thing what you spoke about is, which OEs are we going to go after. So the higher value, Mercedes-Benz is what we believe is, in a way, our low-hanging fruit, which actually there is a demand for reliable suppliers in the market. There is a demand, but the guys who are selling are the local brokers who are not the most credible. There is also a question mark about the -- they are hiding their service history, the accident repair history. So this is something which we believe will -- the customers will be happy to pay higher margin buying from us, which we will bundle. And our model is a very unique model, which our Mercedes team has thought of. And that we -- and this also to take out the leakages in the system. What we are doing is that we will not give the price, the selling price to the customer. We will bundle it and make it into an EMI. So we will play the EMI upgrade kind of a game and we are -- we internally have a much higher kind of ambitions and aspirations. But for this call, we have put a number of around INR 100 crores. The other question was that whether we will make money or not. I don't think we will want to do any business without money. So that is the prerequisite of what we do. We have an internal -- because otherwise, we will be just like the other guys. We can show a huge amount of turnover without making any money, and that's not what we will ever do. And this is -- the thing is that our cost structures will be significantly lower. Same infrastructure, no marketing cost and the same trained manpower who will be selling and buying these cars.

So INR 100 crores would be the breakeven sales or breakeven would be at maybe INR 50 crores, INR 60 crores?

No, no, we will make -- there is nothing like a breakeven here. We will make money from car one, because there is no additional cost. So whatever we make will be a profit.

[Operator Instructions] We take the next question from the line of from [ Pranay Roop Chatterjee ] from [ BCMPL ].

Am I audible?

Yes, you are.

My first question regarding aftersales was already answered, so I'll just move on. This is regarding MG. So MG have opened stores in Indore and Bhopal. When I was doing a search for dealerships on the MG website, it came up that there is another dealer which is running the dealerships there called Hriday Cars Private Limited. So what is the arrangement like there? Will you be acquiring them or will they will be ending the dealership because as far from what I understand the volumes are not that high to support two dealers? So if you can just clarify that? And also what is the expansion opportunity with MG given their strategy for India? And in terms of time line, when potentially could you earn incremental dealership for them? These two questions for MG.

Yes, Pranay, thanks for pointing out that the website is not yet updated. We will take it up with the company and take down the name of Hriday Cars immediately. So that's actually the answer. What has happened is that one of the ways we could start the operations quickly was that we leased out the Hriday Cars facilities as is and kind of took over all their assets, and took many of their manpower on our roll. And that's how we have been able to start our operations. That's the first answer. The thing that Landmark focuses on and which makes us stand apart is that wherever possible, and I don't think this is going to continue forever, but wherever possible, we are the only dealers for the brands that we represent in the geography. And if you see our map, for example, Volkswagen, we are their only dealers in all of Gujarat and so on and so forth. I don't want to go into the detail. But that's the strategy to keep the margins intact. The second question is that how quickly and how much we will expand with them? We are waiting also for the outcome of what happens to either a Jindal or the Indian partner for them, because that's the kind of a second leg of their growth in India which will happen. So we are in active conversation with the company for more locations already. And once this also gets clear, I think we will hit the ground running. And you may have seen that MG Motors was one of the key manufacturers who has shown growth in the [Technical Difficulty].

My second question is with regards to both Jeep and Renault. So Jeep, you already -- you did mention that the sales month-on-month drop could get arrested once the 4x2 Jeep model, which is a more affordable version, comes into play. So I'll just ask the question anyway just to reconfirm I'm on the same page. So Jeep has actually been degrowing month-on-month, and Renault as well, but I think partly Renault, you have reduced your number of outlets, so some impact from there as well. As a sum, Jeep plus Renault, when do you expect your sales to bottom out sort of and start on a sort of growth trajectory? The reason I ask is from what I understand from public articles is at least in NCR, 70% of Jeep sales were actually petrol because of the advanced regulations. This may not be the case in other cities. So how do you sort of pray for that impact and then recover from that? And when do you see organic growth starting both for Jeep and Renault?

Yes. So this is a very interesting and in-depth question that you are asking. I will answer both of them. First, let us take the Jeep matter. My sense is that the Jeep sales will bottom out this month and have an upward trajectory starting from September. And you may know that outside of America, India is the only market which -- where Jeep produces four models, which is the Wrangler, the Grand Cherokee, Meridian and the Compass. There is a clear focus back on India. The management has changed of Jeep India, and we have been in active discussions with them. And I'm really hopeful that the Jeep numbers will start trending upwards starting next month. That is the confidence that I have and get back to maybe 800, 900 units number by maybe October, November. Now that at an average selling price of what it is, is a great business to be doing. As far as the NCR matter is concerned, again, you are right, diesel is not the most preferred fuel in NCR. What the company has done, and this is where I'm saying that the focus is back. What they have done is that they have come up and tied up with, I think, one of the leasing companies, which will be taking back the cars. So there is kind of a safety net like what Mercedes-Benz has, like a 50% residual value. I'm not sure on the percentage, but that program has just got launched, to give confidence to people that even if they buy diesel, they are not necessarily going to be losing out. So this is a proactive step which has happened, and this will also hopefully mitigate the concerns of people in NCR. Yes, so this was one. As far as Renault is concerned, yes, the investments are going to be coming in. The models have been announced, but that is still 1.5 years out. So we have been reducing our footprint with them. But the good part is that the company has also offered and already extending financial support to us during this period. So they don't want to lose us. So we are already getting a fixed financial support. And hopefully, we will get more in the times to come to continue.

Got it, sir. Sir, I wanted one data-related question. Should I ask that or I can come back later as well?

We'll leave it to the moderator. I don't know.

Yes, you can go ahead with your question.

Sure. Sir, I was comparing our presentation versus the last one, the Q4 one, and I noticed that the sales outlets for Volkswagen actually increased by around 6. So have you opened any new outlets and what are those locations?

Yes, we have -- this is a strategy of Volkswagen, and we will be inaugurating some of them this week, and you will see my photograph also in the newspapers this week for that. But they are low-cost outlets. And the reason why we did not outlet -- kind of say it very loudly was that they are low-cost outlets giving incremental sales in like Tier 3, 4 places. For example, Anand in Gujarat or a Bardoli in Gujarat, I'm giving you some examples like that. So those are not very capital intensive, but we will gain some incremental sales volume.

[Operator Instructions] We take the next question from the line of [ Deepti Kothari ] from [ Kothari Securities ].

Sir, my first question was that in one of the participants' questions you mentioned that we will do bundling of EMI structures. So, is there any plan to get into NBFC policy?

See, not currently, we do not have any plans to become an NBFC ourselves. But to kind of answer your question, there is a wide space in the industry where the leasing products are not done. Globally, leasing is approximately 70%, 75% of what the world buys. In India, this number is 2%, 3% confined only to the corporates. And the reason of this is that the banks are not allowed to lease and hold assets in their books. Over a period of time, we will try to learn the business. This may be one of the starting points when we do the used cars. We are looking at Mercedes-Benz, which is clearly doing it. We are going to be talking to some NBFCs to basically see if they can tailor-make this product on a risk-sharing basis. The reason why I'm saying this is that there is a significantly higher margin that you get in white label products as compared to what you get it from the OEs or a pure vanilla thing. And that is where the -- that is why Landmark is where it is. So we want to kind of push the envelope, think of some innovative ideas. We have done it with some extended warranties that we have designed ourselves, the Landmark Genuine Accessory line that we have started, the car care products that we have got all-India dealership for. So we are kind of positioning ourselves that we have this customer base and which are the ecosystems which can be made meaningful businesses in their own right. So that's the answer for your question.

Okay. That is helpful, sir. Secondly, just wanted to understand the size of your pre-owned business in the coming years.

Yes. So the preowned car market, as we know, is in unit terms, bigger than the new car market. Nobody has been, in India, been able to crack it profitably. We have seen a lot of start-ups come and go, and we have seen a lot of kind of gas which is generated, but nothing really happens. For us, we are taking one step at a time. We believe that we have good enough market for our pre owned car market. We said around INR 100 crores that hopefully will become INR 200 crores in 2 years' time, and we will take it up from there. So the issue is that we need to also learn this, we need to perfect the business model. What is our business model? Our business model is workshop to showroom to back to workshop. Now that's the business model. So we will have to align all our internal teams, and we are confident of cracking it. Once we crack it, the numbers can significantly grow up -- grow from here.

Lastly, there is a sharp rise in the ASP already. So what is the expected rise further as we end the year? Want to understand the value growth.

Can you repeat it again? There is some disturbance on the call here.

Yes, sure, sir. lastly, I wanted to say -- ask that there is a sharp rise in the ASP already. So what is the expected rise further as we end the year?

Average selling price. See, the average selling price is a factor of what product mix we sell. And one of the reasons why it has also gone up is that we have taken out the Renault part of the business from our thing, which was there last year same quarter, a part of it, not all of it. We also are seeing -- we will see an average selling price increase in Honda with the Elevate coming. We are in a good zone. So the price rise, the product mix will all determine this. So it's difficult to put a number of which models will exactly sell how much. So we are in a very comfortable zone. I don't think we will endeavor to kind of push it further unless the market conditions allow.

[Operator Instructions] We take the next question from the line of Harini Dedhia from Tamohara Investments.

I have two questions. One is on Honda. So I know we are preparing for the launch of Elevate, which is why we've seen the current quarter, the Q1 numbers being a little softer. If you can just help me understand because the two models that we do sell through in Honda, they're not in the category of Elevate. So why does an Elevate launch impact these volumes of City and Amaze so much? So that was the first question. And the second one is on BYD. So I mean the government has made it pretty clear that they are not going to make it very easy for Chinese companies to come, set up Indian manufacturing, invest directly here. So is there any change in BYD's aggressive plans that they had for India in the EV passenger vehicle space or so far they're trying all their options, they're still keeping all routes open?

Thanks, Harini. The -- let me answer the Honda question first. The Honda volumes did not go down because of Elevate coming or the expectation of Elevate coming. It went down also because the Jazz, the WRV and all the diesel models were discontinued in like Jan to March quarter. Now -- so from April, we did not have two or three models that we were selling last year. So this was something which played a much higher role than the Elevate expectation. So that's as regards the Honda. As regards BYD is concerned, it is difficult to see how the government will react because sometimes it is political posturing, sometimes it is the election, difficult questions completely. The business model that is being followed right now is that they are getting the kits, and the kits are assembled in a unit which is existing already because of their bus manufacturing unit that they have, and the cars come to our dealerships. Now there is a cap of 2,500 cars, which is a profitable business because the margins are very high, and the demand for at least 2,500 cars is clearly there. The numbers will increase once the homologation happens, then the 2,500 cars cap will go away, but it will still have to come under the same either CKD or a CBU route. Now the price point at which it is being offered, there is still headroom for these numbers to go up. I am really not in a position to comment on the manufacturing plant, or when it will happen, how it will happen, but the company as of now is holding to its stand that we are in India, and we are not going to kind of go away. We will find a way with some Indian partner or thereabouts.

[Operator Instructions] We will take our question from the line of Pranay Roop Chatterjee.

Just one question. From March to June, how has the working capital days movement been? Like I think the inventories was elevated in March. Has there been any cash release from there? And was there a positive CFO in Q1 in case you can reveal that?

Okay. So working capital as our turnover is we measure in the percentage and days worth. So as a percentage is around 8% to 9% in the turnover. In terms of days, it is around 40 days. Little increase happened in the Q1 being the sales volume low, but we are mindful. We will be getting back in the 40 days in the coming quarter.

Any comments on the CFO, cash flow from operations?

So operation, as Sanjay bhai already mentioned about the Q1 performance, and we are hopeful to getting back in the coming quarters with the new launches. So we are confident enough that we will hit our numbers what we're looking for.

Is that your question?

Any comment on the overall operation?

By the CFO?

Yes.

Got it, sir. And if you can just comment if you have any numbers around GLC. Like you said 1,500 was the number. Any idea how many we could sell potentially on pan-India scale for how many Mercedes could sell and what kind of traction you are seeing?

Yes. So the GLC was published, we don't get the all India figures like on a daily basis. But when the car was launched, the company management announced the potential of 1,500, which more or less tallied with what we do. We do around 16% of their sales. So it kind of tied up with what bookings we had. So it's only gone up from that. It's only been some 4, 5 days. And the waiting for the rest of the models, high-end models continues, and that is likely to -- the supply is likely to ease in the coming quarters.

Got it, sir. And sir, any numbers around pre-bookings or bookings for Elevate that you are able to share?

So we are looking at. We are aiming that the car has come now. We are already at around what, 650 or thereabouts. And we believe that by the time the car is launched, we will be sold out for 3 months at least, or maybe 4. That's the expectation that we have beginning of September.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Yes. So thank you all for joining the call. It was in the midst of the holiday season, so taking out time was really very heartening. So as India goes into the next decade, the premiumization and luxury sales is clearly the theme. We have -- we are well positioned. We really can do a lot, and we will kind of continue to do profitable, high ROCE growth, and that is what we will be focusing on. We will have and hit road bumps like the quarter which just went by but we are not -- and I'm sure you will also not lose sight of the road ahead. Thank you.

Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.