Landmark Cars Limited (LANDMARK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Landmark Cars Limited Q4 FY '24 Earnings Conference Call hosted by ICICI Securities. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involves 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. Basudeb Banerjee from ICICI Securities. Thank you, and over to you, Mr. Banerjee.

Thanks, Manav. Good morning, good afternoon to all the participants. Thanks to the management of Landmark Cars for giving us the opportunity to host the call. We have with us Mr. Sanjay Thakker, Promoter Chairman and Executive Director of Landmark Cars, Mr. Aryaman Thakker, Executive Director and Mr. Surendra Agarwal, Chief Financial Officer of Landmark Cars. So, without wasting any time, over to you Mr. Sanjay bhai, for your initial comments. Thanks.

Yes, good morning, Basu, thanks for holding -- hosting us once again. On behalf of the company, I extend a very warm welcome to everyone for joining us today. On this call, we are joined by Mr. Aryaman Thakker, Executive Director; and Mr. Surendra Agarwal, CFO; and SGA, our Investment Relations advisers. The results and presentations are uploaded on the stock exchanges and the company website. I hope everyone has had the chance to have a look at it. India is going through a structural change. This is being seen in the auto sales quite evidently. The auto sales for financial year '24 grew at nearly 10%, while the luxury car sales grew at double of that, that is 20%. In the last call, I have spoken about the uncertain times that the auto industry is going through globally, as also in India as far as the technology is concerned. The EVs continue to get adopted faster in China, while in some other parts of the world, the adaptation has clearly slowed down. In India also, there is a clamor for some tax concessions on hybrid vehicles as an interim measure. Several OEMs are trying to fine-tune their policies and new offerings in this dynamic changing world. India continues to be the chosen destination of all global OEMs, and we have seen several global heads of various OEMs visit India in the last few months. In the last few years, some brands have been showing significantly higher growth than the industry and they look to continue this journey. There have been geographies which are also growing faster than the nation. Looking at the long-term need of the company to be a meaningful player and participate in the growth of India, we have embarked upon a significant growth journey. During the current year, we will be opening 24 new outlets with an investment of approximately INR 75 crores. You will notice that bulk of the investment is with the newer, fast-growing brands in the identified geographies where we want to achieve operating leverage. We aim to have approximately 20% of our pro forma turnover of the company from these newly opened outlets once we are operationalized. You may refer to the slides in the presentation for more detail. We are now deploying the money as we see less froth in the market with the brands and geographies of our preference. You may recall that we had held back on expansion in the early part of calendar year 2023 as the terms of trade that we were looking for were unfavorable. All the expansions have been funded by internal accruals. You would have noticed that the company has generated INR 112 crores of cash profit for the last financial year, which is not much different from the previous year. Landmark will soon be present in 11 states with 10 brands with 3 states of our presence: Goa, Telangana and Rajasthan which are new, and we will be having this footprint across the growing vast states. In this industry, hardware, which is the infrastructure is easy to come by if one is well capitalized. What sets Landmark apart from others is the software, which is the people. Landmark is blessed by far with the best team that the industry can boast off. Over the last 26 years, we have developed expertise in faster infrastructure development, operating in multiple geographies, multi-brand system and processes while keeping customer experience at the core of our ecosystem. The focus for the current year will be on executing the task on hand. We will want to strive to operationalize the locations faster and have cash registers ringing. Our business is a very predictable and process-oriented business. It is a thin margin, high turnover business. We are mindful that cost rationalization will help us to improve our profitability. We have studied the topic at length and worked out several measures to bring down our cost of operations, especially other expenses and manpower cost. We are -- we expect operating leverage to come in play on manpower costs soon. As a result, we are targeting to reduce manpower costs as well as other expenses to approximately 4% each of our pro forma turnover from the current elevated levels. The current levels are higher also due to front-loading of expenses in some brands and lesser-than-expected sales in some other. The inventory levels have gone up in this quarter due to the opening of new outlets of Mahindra & Mahindra and MG Motors. In quarter 3 of financial year '24, we had successfully reduced our inventory, and we are once again taking measures to bring it under control. In the last year, Landmark was not able to fully participate in the premiumization growth story of India as we were not partners with the topmost volume brands. This situation has changed. There is a certain growth that we need to have our operating leverage kick in. We believe that with well thought out strategy, we have solved for the growth. The focus of the company was and will be generating high ROCE. For the immediate term, the company has achieved the objective of expansion. It is now execution. In a nutshell, I would summarize the situation as below; Indian auto market is well poised for growth and premiumization. Luxury cars will outpace the passenger car market. Landmark is the partner of choice for OEMs who are keen to partner with Landmark. Rapid expansion is planned at Landmark. There is a big focus on cost rationalization and optimizing operations. As stated earlier, we should look at operations annually or over an extended period as we provide -- it will provide a clearer picture of the positive outcomes from our strategic actions. With this, I hand over the mic to Aryaman to give us more granular details.

Thank you. As mentioned by our Chairman during the previous calls, we have focused on expanding with high-growth premium brands in the relevant geographies. These brands include the 3 Ms of Mercedes-Benz, MG Motors and Mahindra & Mahindra. In the last few months, we have also added Kia to that list and expanded with them in Hyderabad and Kolkata. This move will help us to derisk and cushion our performance against any cyclicality risk faced by any particular OEM. Along with the high demand for new cars, partnering with these brands in the given geographies offers an additional benefit of a sizable car park that can start coming to our service centers at the start of operations and thus helping us reach profitability faster. Over the last year, we have expanded our network by adding 20 new outlets, which include 8 workshops and 8 Volkswagen pop-up stores. We have a strong pipeline of 24 new store additions coming this year. Coming to the after-sales business. Our performance has been stable. Going ahead, this segment will be much more promising as the new workshops will ramp up after a few months of gestation period. Our pre-owned car business in its first year has exceeded our expectations, clocking a revenue of INR 117 crores. And this year, we are looking to build further on this momentum. Let me now give you all an update on the performance and plans of our various partner OEMs. Mahindra & Mahindra was amongst the fastest-growing brands in the Indian PV market with a 29% year-on-year growth in FY '24. This year as well, we are expecting to grow in the high teens which will significantly outpace the overall private vehicle market. They continue to have a large booking pipeline for models such as the XUV700, the Scorpio cars as well as the newly launched 3XO. They have recently announced plans to launch 16 new models by 2030, which include 9 ICE SUVs and 7 all-new EV SUVs. MG Motors has announced its partnership with the JSW Group in India, and they have also announced aggressive plans to grow volumes. They are aiming to launch one new product every 3 to 6 months, starting from October of 2024 and want to be the leaders in new energy vehicles by 2030 with an estimated sale of 1 million cars. We have further announced plans to invest into localizing the supply chain. We have started our operations in Ahmedabad last month and in Mumbai this month. With these expansions, we will now have 11 outlets for MG Motors across 4 geographies, and we aim to become their leading dealers in India with a market share of over 5% of their sales volume this year. BYD has recently announced that the Atto 3 has received its homologation certificate. This takes away the 2,500-unit import cap, allowing for market expansion. The BYD Seal, which was launched in March has received a very positive response with over 1,000 bookings already pan India. The deliveries of the Seal have started this quarter and should ramp up. Our showroom in South Mumbai is already in the works and is likely to start operations in the next couple of months. We all know the success that Kia has enjoyed so far in India. We have been waiting for some time to partner with them in chosen geographies and with favorable terms. They have big plans for our country and will be expanding their production capacity by 1 lakh units. By 2027, they are planning to launch 4 new models, including a dedicated EV for emerging markets. The new Carnival and the electric EV9 are likely to launch this year, and they are expecting a 10% CAGR growth till 2030. Mercedes-Benz is looking at India as a key growth market with sales of luxury goods plateauing in some parts of the world, India offers a large growth opportunity for them. There has been a continued series of top-level visits from German HQ to India. They continue to be the luxury car brand of choice for Indian customers and sold approximately 5,400 units in quarter 4 of FY '24, which was a 15% growth year-on-year in volume terms. The Mercedes-Benz also enjoyed a lead of 32% in volumes over its nearest competitor in the same quarter. The prices for Mercedes have gone up on an average of 3% from April 2024, which will further help increase the ASP. In financial year '24, Landmark has increased its contribution to Mercedes-Benz India volumes to 16.2%, which was 15.2% a year back. For this year, Mercedes-Benz has lined up new -- 9 new model launches for India, which include 4 top end vehicles. There is a strong demand for their models with many of the SUV portfolio, having waiting times from 2 months to over 1 year. We are confident that over the next few years, this brand will surprise us positively with its performance. For all the brands that we represent, Landmark has achieved a market share of over 5%. We are confident that with the new additions in our portfolio, we will reach this level of market share over a period of time. Apart from the growth brands, Landmark is also focused on rationalizing costs in performing as expected by way of sharing infrastructure and also rightsizing our outlets. We closed 6 outlets of Renault in Punjab during this past year as a part of our strategy to align with premium brands and focus on healthy unit economics. In Mumbai as well being an exclusive partner for Renault, we have agreed with the OEM to provide us with financial support till the volumes increase. In the meantime, we are also going to be reducing our footprint in Mumbai for Renault. Every OEM has a cycle and with Jeep, we are hopeful that they will soon have a turnaround. The OEM is planning to launch EVs in India this year with the introduction of its Leapmotor products. These will be premium products and targeted more towards Tier 1 towns, where we are present. However, we have already started taking some corrective measures in the meantime. The Jeep showroom that we have in South Mumbai at Worli will become a shared facility by taking out some space for our upcoming BYD outlets. We will also be sharing facilities in New Bombay between Jeep and Renault. At Landmark, we are objectively reducing our exposure with underperforming brands, increasing our footprint with profitable ones and partnering with successful brands to build for the future. I will now hand it over to our CFO, Surendra Agarwal to take us through the financial highlights. Thank you.

Thank you, Aryaman. A good -- very good morning to everyone. I want to share some key performance metrics to illustrate how we performed this quarter and throughout the year. We continue to be the highest contributor in terms of volume of multiple OEMs. In the last quarter, our new car pro forma sale was around INR 1,077 crores across all our OEM partners and after-sales revenue was INR 222 crores during the quarter. As seen earlier, there is a steady and sustainable rise in the average selling price of new car sale. The average selling price of cars for the quarter has gone up from INR 20.5 lakh in the quarter Q4 FY '23 to INR 22 lakh in Q4 FY '24, showcasing a growth of 8% year-on-year. In the year gone by, we have serviced 3,30,000 cars, and the average service revenue increased by 10%, rising from INR 23,444 in FY '23 to INR 25,768 in FY '24. In the cars sold, we saw ASP increase by 13%, rising from INR 17.71 lakh in FY '23 to INR 20 lakh in FY '24. The increase in costs such as depreciation, finance costs and other expenses, is on account of opening new outlets of new brands. For many of these outlets, we have incurred the expenses, whereas the revenue contribution for some of the outlets started in the last week of March or early April. Our inventory position at the end of the quarter is on a higher price as we have built inventory for a couple of outlets that started operation either towards the fag end of the quarter or in the beginning of April. Coming to the financial number of Q4 FY '24, our total pro forma revenue for the quarter is stand for INR 1,300 crores as compared to INR 1,212 crore in the same quarter of the previous year, with a growth of 7% year-on-year. The gross profit for the quarter is INR 171 crores with a 19.8% margin on reported revenue as against gross profit of INR 161 crores in Q4 FY '23, as 18.9%. The EBITDA stood at INR 56.2 crores versus INR 63.8 crores in the same quarter last year. EBITDA margin clocked at in Q4 FY '24 being 6.5% on the reported revenue. Similarly, PAT at INR 11 crores -- stood at INR 11 crores with a 1.3% margin as compared to INR 24.3 crores in the same quarter last year. However, the cash profit for the quarter is INR 25.1 crores as compared to INR 30.4 crores in the last quarter -- last year same quarter. Let's now turn our attention to the full year performance. Our full year pro forma revenue stands INR 4,655 crores, which is up by 1.3% year-on-year. In FY '24 full year, our gross profit was INR 651 crores as against INR 613 crores in FY '23. EBITDA for FY '24 stood at INR 227 crores compared to INR 250 crores in FY '23. Profit after tax for the FY '24 stood at INR 57.2 crores versus INR 85.1 crores. Cash profit for the year is INR 112 crores as against INR 123 crores in the same period last year. One of the reasons for being lower PAT is due to depreciation and index impact by addition of new locations in newer city. During the quarter, inventory increased, and that also increased primarily due to -- again, due to the addition of newer brands like MG, operation in Ahmedabad and Mumbai, M&M in Kolkata with sales started from April. Thank you. Now I hand over the quorum for questioning.

[Operator Instructions] We have our first question from the line of Pranay Roop Chatterjee from Burman Capital.

Am I audible?

Yes, Pranay. Go ahead, please.

My first question is with respect to your gross margins. And when I say gross margins, it's as a percentage of the gross revenue for Q4 FY '24 versus the same quarter last year or maybe even the last quarter, right, Q3. So this gross margin has gone down to about 12.8%. Despite the fact that year-on-year, your after-sales is higher in the mix. And also despite the fact that your ASP of new car sales has gone to like 22 lakhs odd, which is double-digit growth Y-o-Y. So these are all supposed to be positive contributing factors to your gross margin and upfronting of costs should not impact this. So just wanted to understand this.

Okay. So our gross margin impact on the quarter-on-quarter is increased from Q3, it was 18.3%, and now it is 19.8%. So you are referring that?

Sir, no, sir, because that is not true representation of your business. I'm only looking at all numbers as a percentage of pro forma revenue.

Okay, okay. So our gross margin for the quarter on pro forma revenue is 13.1% for the quarter as against 13.3% in the same quarter of the previous year. That's what you are referring?

Yes, sir, I wanted to understand why this would reduce when ASP of new car has gone up and after-sales in the mix has gone up.

So the thing is there are the couple of brands, the model, there is no new model. So when the model has sustained the period, which is the past 1 year, then there are some discounting started in those models. So this is because of that, so like in the VW case, the last year, there was a new model. This year, there were no new model. Likewise, in Jeep also, there's a discounting started in those brands.

Got it, sir. In that case, that is understandable. So is this 13% odd number a more sustainable number to look at for next year?

So Pranay, what is happening is, and let's look at -- I'm sorry, I'm going a little up in the air. The thing is that we are -- what are we doing right now. There have been the Indian premium and luxury market grew. Luxury, let's keep it aside. We are representing there well, and we are actually increasing our market share. In the premium segment, we were partners with brands which were not participating in this growth really and were degrowing. And we had to quickly change this portfolio. This is what we are doing. So with Mahindra, with Kia and MG and MG, the meaningful numbers will start coming from October when the new models will start getting launched. So there are -- that portfolio change will help us to retain the margins higher and kind of give the turnover that we so desire.

Sir, I understand that. But then the question remains, right, when you go into these newer brands, based on the terms basis the terms you have with these brands, can 13% be a more sustainable number, or can we go back to 13.5% or higher number that we are seeing...

Yes. So look, we have added all the 3 brands which we have added is the premium brand, Kia, Mahindra and MG vis-a-vis the existing brand, if you look at the Renault and Jeep. So with these newer brands, definitely, it will go back to the...

And the after-sales the numbers will start clocking which will have a higher margin. Right now, we are not looking at their after-sales number at all their contribution. So I understand your point, but the after-sales also of these brands will start clocking along with it.

Okay. Got it, sir. So okay, that is clear. And if you would have the number of -- so there is an index called same-store sales growth, which could be quite relevant for your business. So would you have this tabulated from an annual perspective, at least like FY '24 on FY '23 for serviced cars and new cars sold, what would be the like-for-like growth number?

So what we will do is, Pranay, and every quarter, you would have realized that we are improving the quality of our presentation and our disclosures. Whatever we are doing it, we will improve on that. And maybe from next quarter or even before that, we will start sharing that with the people. What is happening is that some of our outlets are getting cut. Some of our outlets are getting reallocated to some other brands. So -- but we will find a solve to it. It's a fair question and we will try to see how we'll be able to give you this information.

Got it, sir. And my last question is actually on your operating leverage guidance that you have provided in your presentation. So in FY '25, if I think of it from a year-end-to-year-end perspective, your total outlets are going to go up by 20% odd, right? So 119 outlets and then 24 more. And if I add up the annual cost base for FY '24, which is employee cost, other expenses and the rental, lease rentals is obviously an estimate at this point. We don't know what it is, but this should all add up to INR 500 crores in FY '24. Now, basis the outlet expansion, how much can this number grow in the next year.

Ladies and gentlemen, we have the management line disconnected. Please stay connected. Ladies and gentlemen, thank you for patiently waiting. We have the management back with us. Over to you, sir.

Were we the only guys who got dropped out because Basu was also not able to join, or some other investors also got dropped out. What is happening here?

Sir, we will investigate that. Mr. Basu is also connected now.

[Foreign Language]

Sir, It's some technical glitch from their side. So I hope it's resolved. So sorry to all the participants, and let's start, sir.

Yes, yes, I'm taking this call from the mobile phone. Our audio system, we are trying to connect back, but let's -- in the interest of time of everybody, let's continue with our questions.

Sir, should I repeat the question once?

Yes, yes. I don't know what, Pranay, you were asking. We got dropped out.

Okay, okay, okay. No worries. No worries, sir. I'll be quick. So your total outlet expansion is going up -- total outlet number is going up by 20% over next year. So in my estimate, your total cost base, employee plus other expenses and broad estimate of what your rentals would be add up to INR 500 crores for FY '24. In your estimate, bases the outlet expansion plan, how much will this INR 500 crore go up by?

No, we would not like to give a guidance on this number as of now, Pranay, please appreciate that. We have tried to be as transparent as we could under the circumstances. We have given the outlet count, we have given the investment setup likely to go over there. We are saying that of the turnover, we are -- we kind of stuck our neck out. There were some discussions internally. I said that we will be transparent as we can, and we are saying that we will have a certain percentage of our expenses, which we will strive to kind of achieve and which we have given our guidance at 4% of the other expenses and the employee costs, which is what we are doing. Rather than putting a number to it, let's kind of stay there as of now.

So essentially, you would have built in some level of volume growth or top line growth and because of which you got to the percentage, right, 4%.

Sir, what we are saying is -- what we are saying -- yes, I'm sorry, I'm joining from the other thing -- other -- yes, Pranay, I am back. Can you hear me?

Yes, yes, yes. Perfect.

Yes, yes. I disconnected from the other thing. So let's kind of stay with that. We, of course, have built in some amount of growth. We have put in our pots before investing the money. We are saying that the exit turnover would be in and around 20% of what we would be doing from these outlets.

We have our next question from the line of Pritesh from Lucky Investment.

Sir, I wanted to know in your total capital employed, how much is the capital invested in the OEs, like Jeep, Honda and Renault put together? That's my first question. My second question is when you are taking these incremental dealerships of, let's say, MG or M&M, usually at what capital employed and ROIC are these investments considered?

I will answer the second question first, if you don't mind, Pritesh. The MG, M&M or any other acquisition that we are doing, we are looking at a ROCE of upwards of 20% when we make these decisions. Also, please understand that you mentioned Jeep, Honda and Renault in the same breath. Now, I'm assuming that in your mind, it is that these are not profitable or good brands. Let me tell you that Honda continues to be for us one of the better ROCE generating businesses even now. Let me also tell you that Jeep, maybe 3 years back or so, was amongst the -- within the group amongst the highest profitable brand that we have seen. So what last 26 years has taught me is that there is a time and place of every brand. And the entire industry somehow is a little cyclical. So we need -- to solve for that cyclicality, you need to be adequately diversified. What last year brought out was that we were not adequately diversified. The brands that some of -- or many of them together did not perform. Now, while we invest in sunrise brands like BYD, Mercedes Benz being our crown jewel and performing very well, we were not able to capture this growth story. We were -- the selection of -- or the bouquet of brands that we had were clearly underperforming the market. So to have a more stronger portfolio of brands, we have gotten with Kia, Mahindra & Mahindra and MG. And Priteshji, good part is that this is something we chose consciously, we were relentlessly for the last 1 year. The geographies that we wanted were in the terms that we wanted. And in my speech, as I said, in the initial part, the first 6 months or so, we did not deploy money because of the terms of trade. And what do you mean in terms of trade? The infrastructure requirement for some of the brands was really very high. There was a great amount of froth in the market post COVID, where everybody was on the high. Today, the market situation is such that the demand and supply in most cases is even. And in many brands, in fact, the supply is more than the demand. So this is where people have got more rational. This is where you can deploy capital for the long term, and this is what we have done.

And the first question?

The brand wise, capital employed...

It's not the brand wise. I want to know, let's say, when you initially mentioned -- in your opening remarks, you mentioned 3 Ms, Mercedes, Mahindra and MG. So let's say, outside this 3M, what is your capital employed?

So roughly in MG, we have CapEx...

No, no, I don't want brand wise. I want outside of the 3 Ms.

He wants to know outside of brands how much is the capital employed in -- are we reporting that separately? Or...

Sir, any ballpark guestimate, sir, is okay.

Can I reach out to you, Pritesh, separately, if you don't mind?

No problem. And just on my second question, you're opening about 25 dealerships, right?

Let's call them outlets for simplicity.

Okay. So what is the capital -- usual capital investment that you are undertaking? And what is the asset turn probably for that 20% ROIC that you are looking at?

So as far as the CapEx investment, it's in the tune of around INR 6 crores per jodi, which is the sale and service put together. So if 1 outlet we count is around INR 2.5 crore or INR 3 crores, in a particular outlet, either of the sale or either of the service, that's the CapEx investment.

This includes the inventory?

No. Inventory is separate. The turnover, which we get -- yes. Hello?

Including inventory, if you could tell us.

So including inventory, inventory would be roughly around 1 -- the current thing is around 140 days inventory we have, plus the spare inventory. We counted. It will be -- for this upcoming showroom, it will be around INR 150 crores.

All of them?

All of them, not one.

So 25 will be INR 150 crores investment?

With the inventory of this 24 outlets.

Okay. 24 outlets, INR 150 crore investment, plus...

No. INR 75 crores investment. INR 75 crore is the CapEx investment, plus the INR 150 crore is the inventory.

And then another INR 75 crores for the service station, right?

No, the INR 75 crores includes the total investment into these 24 outlets.

Sorry?

Yes, yes.

Sir, you mentioned INR 6 crores per jodi, so 24 x INR 6 crores is INR 144 crores per...

No, no, no. Jodi means sale and service. Hello?

Okay. Okay.

So jodi means it' the sale and showrooms -- service station, service station and the showroom.

And when you are saying 20% ROIC, you're considering the inventory number also.

Yes, yes, yes. Are you clear on that?

Yes, I'm clear on that. I just needed the asset turn on this.

Yes.

On the capital employed turn. How much time turn this capital -- how much time -- how much turn this capital employed does? So if you invest INR 225 crores, how much sales do you get?

How much sales we will generate?

Yes.

So the sale of -- I can give the around INR 125 crores or INR 150 -- between INR 100 crores to INR 125 crores sales per month.

INR 125 crores x 12.

Yes. So around INR 1,200 crores or INR 1,300 crores sales, we will get from these stores.

On INR 225 crores investment.

Yes.

We have our next question from the line of Himanshu Jain from Tiger Assets.

My question was like when we give the financial numbers for FY '24, I see that the revenue from operations is moreover flat when compared to FY '23 numbers. So like what is the growth that you are expecting in FY '25? And what are the growth triggers for that?

Yes. So you actually are asking the root cause of what we are doing for expansion. So the brands that we represent, see what has happened, we are kind of a reflection, we are kind of a bouquet and we are a proxy for the brands that we represent in India. And what are we talking about? We are talking about Mercedes Benz, we are talking about Volkswagen, we are talking about Honda, we are talking about Jeep, we are talking about Renault, we are talking about Ashok Leyland commercial vehicle, we are talking about BYD and so on and so forth. Now the brands that we represent did not grow in the year that we are talking about. There is a single-line answer, which says that the brands that we represent really did not participate whether it be Jeep, whether it is Volkswagen, whether it is Honda, whether it is Renault, did not participate. Now, we are replacing them, not replacing them in a literal sense, but kind of getting additional brands, which are really fast growing. And that has been the need of the hour to look at the growth. So in the first 6 months of our operation, in fact, we were de-growing. What we have been able to do is to make that up, and our internal target was to actually go beyond last year's numbers, and our teams really worked very hard to get that done. So the growth with the newer brands that we have will be significant over last year, and we hope and wish to make up for what has happened in the past year.

Okay. So you are saying that there will be no growth in sales from the existing brands, like Mercedes, Mahindra and all?

Mercedes will continue to be our -- see, Mercedes sales is getting reported as pro forma revenue. So Mercedes will grow at a significant pace. We have actually -- Mercedes has grown 15% in the last quarter, which has gone by, and we are their largest partners. So as far as Mercedes is concerned, with the ASP also going up and the sales also actually doing significantly well, we believe that more than double-digit growth will happen in Mercedes Benz. Hopefully, a high double-digit growth will happen in Mercedes Benz, and we will have other brands, which are -- so we don't expect, for example, any growth in a small brand like a Renault or a Volkswagen right now. That's what I can say, but we will see significant growth in BYD. We will see significant growth coming in from Mahindra, Kia, MG, where we had no base and all that.

So overall, you're expecting like a growth in double digits, like overall, all the brands combined?

Yes. Yes, yes. Yes, yes. More than that for sure.

Okay. So last one question, sir. Any exclusive like dealerships that you're about to sign in FY '25 or you are in talks with certain brands to sign a contract?

I don't know. What does exclusive mean?

I mean, like dealerships for like you have taken up for BYD. So are you in discussions with any of the brands?

So right now, I think we have taken in as much as what we can chew. If you ask me, this is -- the time is now for execution, focusing on cost, getting our balance sheet right, what we internally believe of factors which were beyond our control, which is the OE performance and the brand acceptance. We have -- we are -- that's why rebooting in a sense. So if you are asking me, are we looking at some major things happening now this year anytime soon? I would say no. We have done what we had to do.

[Operator Instructions] We have our next question from the line of Karan Kokane from PGIM India.

Am I audible?

Yes, Karan. Please, go ahead.

Yes, sir. So I was just going through the presentation. So if you see, you've talked about new facility additions in FY '24 and FY '25. So you have added almost 20 facilities in '24, and the cost of that is approximately INR 40 crores. And now in '25, you are adding 24 more, and the cost of that is INR 75 crores, so almost double of that. What is leading to the sharp jump in investment cost for outlets?

Correct. So what has happened is that if you see our presentation, you will see a terminology known as pop-up store. In financial year '24, if you were to look at it, there is a last line which says pop-up store Volkswagen 8. So these are really very small investment and kind of a one single shutter kind of places in tier 4 kind of towns, which are easy to kind of start and shut if required and does not require any significant CapEx. They're very frugal in nature. That is the reason.

Okay. And sir, secondly, on this operating leverage thing, so you have talked about almost 120 basis points of cost savings through manpower and other expenses. But at the same time, you are also adding 24 new facilities, which will result in upfronting of cost. So do you expect margins to kind of expand from these levels despite these new facilities coming up?

So the focus, Karan, will be on that. We are mindful of the fact, and over the last 26 years, we have been in this business, and we have really seen people go in the direction of bad growth and not keeping eye on the cost. Now, that's not what we do. In fact, in the previous calls and all, people were saying that how many new store additions will you do when India is growing, and we were saying that we -- no, we will not grow, we have to actually focus on the same-store, kind of getting more juice out of. I don't think that, that philosophy has changed at all. It is just that we have had to go with newer brands and with 2 newer geographies. That's why this number is going up. We will want to have matrices, which are very strictly laid down in our organization, and the focus will be on achieving them. The 1 or 2 levels below our CEO, people are given these numbers to focus on and deliver them. That's where their PLBs are also linked.

Understood, sir. And just a quick follow-up on that. So in this presentation, on Slide 25, you have given your aftersales EBITDA number, right, for 3Q FY '24 and 4Q FY '24. Sir, so on a sequential basis, there has been a sharp drop in the EBITDA. So while I understand it might be because of new workshop additions, et cetera, what would be the gross profit -- corresponding gross profit numbers for this?

Gross profit...

In what are you saying?

Aftersales business on a quarterly basis.

Aftersales...

Aftersales EBITDA usually is around 18%. What you are talking...

He is asking for a gross profit on that.

Margin.

Gross margin. Is that correct, Karan?

Yes. So sir, on the Slide #25, so you have talked about number of INR 44 crores for 3Q FY '24, which has fallen to INR 37 crores in 4Q. So corresponding gross profit numbers is what I wanted, sir.

Corresponding. Just give me a moment.

Sure.

So FY -- you required the previous quarter number or what you really mean is?

Sir, third quarter FY '24 gross profit and fourth quarter FY '24 gross profit number.

Okay. Okay.

Third quarter has been reported.

Third quarter is there, INR 44 crores. So he's asking the gross profit -- gross margin. It's the 41%, which is the INR 93 crores in the Q3. Hello?

Okay. Yes, sir.

And in Q4, it is 38.5%, INR 85 crores.

Okay. Sir, any reason for that drop in the services part. So new vehicles, you said discounting has gone up, but on the services side why is the...

I would not read much into it, Karan. So let's [indiscernible], I will also join you.

Karan, the thing is the new brand, which we opened, like the Mahindra, the cost was set up. So MG, Mahindra, these are the 2 new brands we entered. And the showroom -- service stations has opened. Service station has opened, but their service number is not really kicked in this -- in the last quarter.

Also, what we do over a period of time, Karan, is that we sell high-margin products, like extended warranties, annual maintenance contracts and all that, which generally contribute to a higher margin than just part sale and general repair. The accident repair also is a higher-margin business. So my sense is that this will normalize once the workshops are stable. I won't read too much into it.

We have our next question from the line of Harini Dedhia from Tamohara Investments.

I just have 1 question. We are acquiring some showrooms and workshops for Honda in Rajasthan at the behest of the OEM. I understand the workshop part because Honda is a very large installed base. But I just wanted to understand the rationale for also acquiring showrooms. Where are we seeing this brand going forward? Because Elevate was supposed to be their big revival moment, and it's not panned out as per their plans. So I just wanted to get your sense on what our expectation is with the Honda brand, and why we would heed this OEM request?

Yes. So it's not necessarily an OEM request. It was our kind of interest in acquiring it. So there are 2, 3 reasons why you do certain things. First thing, as far as Honda business is concerned, we have always and always made money in Honda business since the time we started, and we continue to do so. That's the first answer. The second is that there is not such a strong relationship between the OE sale in number terms and the dealer making profits. So you may have certain very high-volume OEs. I don't want to name them on their call, but their dealers would not make money because the number of dealers that you would have in a town will be significantly higher. Now, in case of Honda, the number of dealers have shrunk over a period of time. So it's not only the question of numerator, but also the denominator that we have to look at. So I do not think that Honda has any ambition of going above, say, 1,50,000 units in India in the next maybe 3, 4 years. But if they are able to do, say, 1,00,000 units or 90,000 units or even there, the business is very profitable. So it's a small investment and decent ROCE business. The other answer to this is that there is -- in the industry, you need to be present in a certain geography to basically expand in that geography. This is a very unique industry issue. So, say, it took us some time, we have been wanting to get into Hyderabad for a very long time, and I was not able to crack it. But the moment we were able to get the Mercedes Benz workshop approval in Hyderabad, then rapidly, Mahindra and Mahindra and Kia piled on saying that, oh, you are already present in Hyderabad, why don't we go ahead with you in Hyderabad. Now that's where you need to identify a geography. And we have several such examples, in Indore and now in Kolkata and all that. You have to go with one. In our case, Honda is an extremely profitable business. That's why we are doing it. And acquiring showrooms, we are not buying any showroom. But as you know, the business comes with sales and service as a combo offering, not stand-alone.

The next question is from the line of Vidrum Mehta from ASK Investment.

Firstly, sir, if you could help us more on the environment, which you said that it has been more conducive for expansion. So what are the favorable terms of trade, which we are seeing right now and which was not present, say, a year ago?

Yes, Vidrum, it's a very intelligent question that you are asking. And let me explain what this means. The terms of trade basically start with the investment in infrastructure. Now, I don't want to name a certain brand, where we were in talks with them, say, a year back and we were in a position to sign up with them. But the requirement came up of, say, a 1 acre of land to be constructed upon, a 120 feet of frontage that they would need for a showroom, say, 8,000 square feet of showroom with a double height and all that, where the investment was getting obnoxious. Now, we waited out. We said that we don't want to kind of get in with these terms of trade. And we, actually, in a different geography, we have been able to kind of get it at a significantly lesser investment per square foot of investment. Now, this is the first win that you have. Over a period of time, and this doesn't happen straight up what over a period of time happens once you get the confidence of the OE. And when you basically become a very integral part of their ecosystem, like what we have become for Mercedes-Benz or Jeep or a Volkswagen over a period of time and even Renault, what happens is that they treat you differently. And you get a nice expansion opportunities. You also get sometimes some credit, sometimes some real estate support. Now, this is exactly what is happening in Renault. Now, Renault is going through one of the worst times that they can go through. But because they wanted Landmark not, too, kind of fold. What is happening is that they are practically underwriting our entire loss for the next 1.5 years if we were to incur and give us such favorable terms, which I'm not in a position to disclose on this call that they've compelled us to stay. Now, these are the favorable terms that happen over a period of time. It has happened with Jeep. It has happened with many OEs.

Okay. Okay. Sir, the other question was with respect to other expenses. So if I look at on a half yearly basis, say, for H2 of FY '24, our net store count addition is just 2 stores in H2 because we closed Renault stores, and we opened Volkswagen and BYD stores in H2. So if I look at H2, our other expenses have gone up significantly vis-a-vis H1 and net store count addition is just 2 stores. So how should we read on this?

So the store which is closed down is Renault store, the 6th store which we closed down during the H2. And then, the addition of the store is the MG and Mahindra -- mainly MG and BYD.

What he is saying is that...

Yes. So that's why the cost we were operating for the Renault location in Punjab, which is a small location, and the showroom and the service station for MG, which we opened, is a larger one and the sale also in that thing, like the number of vehicles sold on these locations is higher. Therefore, we kept the higher manpower and higher operating costs of the MG operations.

Sir, I agree to that, but if you look at H1 other expenses, if I add up, it is INR 97-odd crores. H2 other expenses is around INR 111 crores. And the difference is INR 14-odd crores, wherein we have broadly added 2 stores, and probably, there could be -- operating leverage would also be better because in H2, our sales is relatively better. We clocked INR 1,823 crore of sales as against the H1, which was just INR 1,464 crores. So operating leverage was better in H2 and number of store addition was just 2 on a net basis.

Yes. It is their front-loading of expenses. I'll give you an example, Vidrum. We have -- I'll give you an example, which we'll explain to you. We have a CEO that we have hired for Hyderabad. Hyderabad -- none of our operations of Hyderabad has started. Now, we are paying him salary for the last maybe 8 months. I'm just giving a top of the mind number. There are people who have been recruited in locations that have not been operational at all. That is the front-loading of expenses that we are talking about. That is where the other expenses have gone up, and they need to come down. Obviously, they will come down. So that's where we have guided that we will keep them in check.

Sir, actually, I was more talking on the other expense side because that would be part of employee expense, right? The recruitment of the CEO or the employees, which have been hired, for new stores would be a part of employee expense, but other expenses has also gone up significantly.

So that's what I'm saying, as I mentioned, the rental of the closed location and the operating cost of the closed location of Renault, so what's happening, you're paring with the Renault and MG, so MG operation -- MG and BYD operation vis-a-vis the Renault, which we closed down, the 6th store which we closed down in Punjab. So the closedown location is in Punjab, whereas the new store is like in Mumbai or in Ahmedabad or in Indore and Bhopal. So the rental is a differential rental rate, then the operating cost is higher on these cities as compared to Punjab. You have the -- we were having the showroom, which we closed now is in Punjab. So don't take the net one, the Renault separate and the MG and BYD showrooms, which we added, is a separate.

Okay. Sir, I will take this offline, no issues, sir.

Yes.

Ladies and gentlemen, that would be the last question for today due to time constraint, and I would now like to hand the conference over to Mr. Sanjay Thakker for closing comments.

Yes, would you -- we had some glitches in between. So in case if you think that we must make up for it, I'm -- we are okay to kind of continue if that is some -- and I'll let go of the closing comments instead.

So sir, do you want me to take more questions?

Maybe take 1 more question. See, I have said what we had to say. If there is -- this is a time paucity, I would rather give it to some investors to ask a question that he wants.

Sure, sir. Sure. So we have our next question from the line of [ Vikas Mistry ] from Moonshot Ventures.

Sir, I had a couple of questions. Now, we have almost 10 brands with us, and we see that specifically when this one brand goes out of favor, another goes out of -- goes into the work. But it seems like that a portion of our business will always be in a struggling mode, and we will keep repairing this -- our business. And as soon as we repair this business, some other brands will go out of favor. So diversification is very good, but it looks like that we are in a -- some portion of our business is in treadmill kind of business, so what is your opinion on this.

That is a little brutal, [ Vikas ]. That has not happened all the time. We are looking at that now, and we are believing that. But that's not how we have seen the last 26 years kind of perform. And we will not be existing. We have existed. We have -- we are -- as a company, we are focused on -- we are getting out of these small ticket items. That is what we have done. We haven't got out of any premium or luxury brand, and we don't intend to do that. It's just that you need to caliber the business, reallocate the resources and use the infrastructure for something else. So I have a different view on this. I don't think it is a treadmill or that kind of a business.

Okay. Okay. That's fair to understand, but in Slide #14, you said that new stores will come to 20% of turnover. And some -- that is 24 number of stores we are going to open. And last year, we opened 8 more stores, so the fair assumption can be that 30% of the revenue will come from these old facilities? And...

I'll need to kind of do the math and tell you. I don't have it on top of my mind. So if you can allow me -- because as we are short of time, so I'm just trying to keep this more efficient.

Okay. My last question is that how much we lose when we close down a store?

So we have written down -- written off amounts in the past. Say, for example, the Renault stores were shut, we wrote off around INR 7 crores in last year -- in the last year. So the amounts are there because we provide high depreciation, and this is why we are taking that charge. A lot of our charge is taken upfront. So -- and we are mindful of closing down locations. We will not do that randomly, and we are trying to reallocate to a different brand wherever that opportunity permits. And you will see that on ground. If you are in Mumbai, you will see these kinds of moves that are happening or in some other geographies, we can decide and discuss.

I'm just not asking from Renault point of view. Let's assume if a new store of BYD or KIA, if you want to close down, and we are putting expense of maybe INR 5 crores, INR 6 crores per store. Can this all be just gone with the written off?

So see, theoretically, if you are putting in INR 6 crores as a kind of a combination of a workshop and a showroom, we are depreciating that over a period of time. It is unlikely. We haven't actually shut down that many stores in our life. What we are seeing today is a kind of an unusual situation. So I do not think that they are like a part of the business model that we have and something comes in, something goes out. Before the last 2 years, I don't think we had exited one brand, and we had taken that conscious call, but it is not something which is a routine part of the business.

We have our next question from the line of Chirag Fialoke from RatnaTraya Capital.

Just 2 questions, sir. Is my understanding correct that the part of the business -- part of our business that is most predictable is basically the services business. And that too there we have a very clear indication of what kind of volumes of cars you will see for servicing in the next, say, 6 to 12 months. Is that broadly first correct -- is that comment correct?

Chirag, in fact, it is not 6 to 12 months only. I have a clear visibility of a few years. That's what it is.

Perfect. Sir, so my question is actually related to that. This year, the volume of car service have gone up by 4%, which is on the lower side for sure from a historic number perspective also and from what would be reasonably expected. Can you just talk a little bit about that? And for the next 12 months, given that, that is something that you have clear visibility on, could you give us a guidance for that? Just the volume of service cars.

Yes. So again, the business, Chirag, I'm saying that because this is a business where -- which is difficult to look at in a quarter-on-quarter basis, sometimes on an annual basis also, this financial year matrices sometimes put us in a box. But having said that, let me explain the reason at a high base what will happen and how we see the business. There are brands, which have sold more cars in the past than what they are selling currently. Take an example of say a Volkswagen, which sold more cars 10 years back than they sold 2 years back. So the cars which are coming in for service currently less than the cars which are not coming in for service, so -- but this is something which is what we -- how we calculate the business, and that is where the new brands, which are coming, the Mercedes part of the business, and we are focusing on the higher revenue for these cars, which are coming in for service. So we are not only looking at the number of cars we do, but we are kind of increasing the ASP. Now, the growth that we have seen, and it's a 10-year CAGR of around 19-point-some percentage that we are having. Now, it will hover around that much. It will be a little bit of bits and spurts. Now, suddenly, you will see a Mahindra and a Kia and an MG, which were not there. You will see a jump once these were shopped -- were shop start, but this is a very predictable kind of a business, and you can be comfortable there.

Understood. And on a volume basis for the next year, is there a number that you can share or would like to share?

Of what volume?

Volume of cars serviced.

No, I would not kind of like to go that road as of now. But I'm saying that, on the blended portfolio, we have, continues to kind of go with the margins being pretty intact.

Sir, you mean continue -- on an ongoing basis, you think 18% to 20% growth on the overall servicing revenue.

Not like a quarter-on-quarter or a 1-year period basis, but this is something that we have been able to demonstrate, and I believe that we will go there. I don't want to say that within 6 months or within 1.5 years and all that, but yes.

Understood. Understood, sir. That's clear. One last question on the debt. Given that the inventory is sort of a little raised because of the new showrooms, I'm guessing some of the short-term debt was for that. Is this kind of the peak debt that we will see here in the next financial year? Or do you anticipate the debt going up still from here?

See, from the existing locations, and this is something, which we are clearly focusing on. And we, as an organization, put our mind to getting the debt down in the December quarter. I had -- actually after September also, our debt had gone up. What is the environment, Chirag, right now is that the entire auto fraternity, the retail outlet is working on a much higher inventory than they have done for the last 2, 3 years. Now, this is a macro issue that we are talking about. If you look at FADA and all those guys, they will tell you this. Now, we at Landmark because we believe that we have a negotiating power with the OE, we should do better. I can't and should not say that the industry has higher inventory, so I have higher inventory. That's not how we look at things. We have to bring this down. We have brought this down in December. For the same stores, we will again bring it down. That is the first thing. As far as the newer locations are concerned, where, say, a Mahindra Hyderabad location will start or a Kia operations will start, which is currently, none of it has started, so that will increase it. So this is something -- but we'll be mindful of the fact that the ROCE should not get impacted over a period of time, and we actually keep it under control.

Understood, sir. Last question from my side, sir. For the year that ended, the lease -- the interest on lease, which is a part of the finance cost, what was that number for FY '24?

I'll give you. Just give me a moment, I'll give you that number. So it's at INR 21 crores.

Ladies and gentlemen, that would be the last question for today. And I would now like to hand the conference over to Mr. Sanjay Thakker for closing comments.

Yes. Thank you, everybody, for coming on the call and participating in it. So India is an exciting thing. We at Landmark believe that this is a lull before the election results come out and the mood again goes to -- back to business. And hopefully, we will get into the trajectory where our country is destined to reach. And sometimes from now, the questions will be on how the profitability has grown and how much more we can do. Thank you.

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