Popular Vehicles and Services Limited (PVSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Popular Vehicles and Services Limited Q1 FY '26 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note this conference is being recorded. I will now hand the conference over to Mr. Naveen Philip, Promoter and Managing Director from Popular Vehicles and Services Limited for opening remarks. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and a very warm welcome to our Q1 FY '26 earnings call. Joining me today are Mr. Raj Narayan, our CEO of PVSL; and Abraham Mammen, Group CFO; and other senior team members. The last 12 to 15 months have been challenging for the auto industry and particularly the small car scenario. Several external factors weighed on consumer sentiment and our own performance too was impacted by these headwinds. This prompted us to look at our internal levers. Through cost effective and through effective cost control measures, we managed to improve our operating margins and reduce losses compared to Q4 of FY '25. As part of our broader strategy to build a more resilient business, we are continuously focusing on cost control initiatives, undertaking selective divestments and channeling resources towards high-growth opportunities. Our revenue improved by 2%, supported by strong performance of our PV and luxury portfolio. At the same time, we remain committed to our expansion journey. We are strengthening our presence in existing markets, while also entering new geographies in partnership with other OEMs. To elaborate further, we have received an LOI to establish state-of-the-art 3S facilities in Punjab for Bharat Benz, making our entry into a new state as the exclusive Bharat Benz dealer across the entire region. This will be our third state for Bharat Benz operations. This represents significant steps in strengthening our footprint in North India, building our strong presence in Maharashtra and Tamil Nadu with Bharat Benz. The facilities are strategically located across 8 locations, housing, 3S facilities with a total of 32 service bays, the facilities represent a cumulative investment of approximately INR 12 crores. For ASM, we have received an LOI for Chennai -- in fact 2 LOIs for Chennai. The operations will be spread across 2 locations. The service center will initially feature 5 bays with the capacity to service approximately 450 vehicles per month. Total investment for setting up these facilities is approximately INR 75 lakhs, and we expect to commence operations by the first week of September. Maharashtra, we will be opening up -- the early LOI that we had for Maharashtra for Ather, we will be opening up 2 outlets by the end of this month. We have also received LOIs for Bangalore, marking an entry into Karnataka, our fourth state to the Ather in this growing network. The facilities will be spread across 2 locations, one dedicated to an experience center, the other accommodating the experience center, service center and warehouse. The third service center will feature 5 bays with the capacity to service approximately 500 vehicles per month. The total investment for setting up these facilities is estimated around INR 1.2 crores. We expect operations to commence from second week of September. For Maruti, we continue to expand our operations in Bangalore. Operations are expected to commence by the end of August this year in terms of True Value extended service, et cetera. All these initiatives are in line with our strategy to diversify and reduce our revenue contribution from Kerala to below 50%. Coming to the business overview. FY '26 began with several uncertainties for the domestic passenger vehicle segment with demand momentum remaining weak in Q1 is typically a soft -- seasonally soft quarter for us. Both volumes and revenues declined, while we saw marginal uptick in April, May and June remain subdued. Our PV business, excluding luxury, was also impacted by the prolonged slowdown with entry in small car segment under pressure. However, our luxury cars delivered robust growth. In CV, India saw a robust Y-o-Y growth driven by the early month deliveries through -- though muted infrastructure activity was there. For us, CV volumes improved sequentially but remained lower than the corresponding period of last year. The EV 2-wheeler segment recorded strong Y-o-Y growth in Q1 FY '26, reflecting rising consumer adoption and structural shift towards electrification. Our 2-wheeler EV business also saw strong momentum with both volumes and revenue doubling year-on-year. Sequential growth was modest in line with the seasonal nature of Q1. Ather product continues to bring strong market acceptance and as indicated earlier, we are successfully expanding our network in alignment with their growth plans. In new business, sales volume growth remains subdued due to weaker demand in the mass market segment. However, our ASPs improved driven by a higher sales mix of premium and luxury vehicles as well as better realization in CVs. The luxury portfolio posted healthy Y-o-Y growth in both volumes and realizations; however, sequentially declined as Q1 is seasonally weaker than Q4 in terms of volume pick-up. In preowned vehicle segment, we saw positive development, as volumes and realizations have increased. We saw more synergies between the new vehicles and preowned car sales. In our service business, though volumes remain flat due to little bit of seasonality, we were able to capture a higher wallet share and improved ASPs, especially in the PV and luxury vehicles. We remain optimistic about service volumes picking up going forward. As part of the festive season preparedness, there was a little ramp up of inventory, but in terms of overall inventory, which currently stands at 43 or 44 days, and we expect this to taper down to upward 37 days by end of September. We have implemented a discount control measures, which significantly reduced discount levels from the FY '25 peak. Our employee cost, the savings achieved through cost control measures, have been strategically deployed towards expansion, annual increments and strengthening the frontline sales team for the next phase of growth. In essence, the functions and the internal accrual of these additional expenses being offset by the efficiencies generated through cost discipline, which would otherwise have added to cost and further pressured margins. Consequently, the net impact of these savings is not immediately visible. That being said, we are consciously standing resources towards their most effective use. To summarize, while Q1 is typically a seasonally slow quarter, we are encouraged by the early trends across segments. Luxury demand continues to grow, reflecting positive consumer sentiment in the premium category. Pre-festive footfalls have also been encouraging, giving us confidence ahead of the festive season. Despite a tough environment with the Indian economy expected to grow at a healthy pace and consumption likely to improve, we are continuing to execute our growth strategies, anticipating a demand recovery as we believe this is nearly a prolonged slowdown and the long-term India growth remains -- to be remained intact. We believe that as industry growth picks up, investments made and internal measures implemented over the last 12 to 15 months will enable us to deliver stronger performance going forward. With this, I would like to hand over the call to Abraham Mammen, our Group CFO, to update you on the financial performance for the quarter. Thank you.

Thank you, Naveen, and good morning, everyone. I will take you all through the company's operational and financial performance for quarter 1 FY '26. In the new vehicle business, the company sold 9,532 new vehicles versus 9,676 in similar quarter previous year, showing a 1.5% year-on-year growth. The total income from new vehicles sold was INR 932 crores, up 0.1% year-on-year from INR 931 crores in quarter 1 of FY '25. The average selling price increased by 1.6% from approximately INR 962,000 to INR 977,000. In new vehicle sales volume, passenger vehicle constituted 60%, commercial vehicles 26% and EV 14%. Moving on to the preowned business. The company sold approximately 2,575 vehicles versus 2,472 in a similar quarter previous year, showing a 4.2% year-on-year growth. The total income from preowned vehicles sold was INR 93 crores, up 10.2% from INR 85 crores in quarter 1 of FY '25. The average selling price increased by 5.7% from approximately INR 342,000 to INR 362,000. In preowned car sales volume, passenger vehicles constituted 99% of the sales volume. In services, company services and repairs business did a volume of 253,851 vehicles vis-a-vis 254,358 in quarter 1 of FY '25, showing a 0.2% year-on-year degrowth. The total income from vehicle services and repairs business stood at INR 227 crores, up 4.5% from INR 217 crores in quarter 1 of FY '25. The average selling price increased by 4.7% from INR 8,534 to INR 8,938. In services volume, passenger vehicle constituted 79% commercial vehicles 18% and EV 3%. The company's spare parts distribution business clocked a total income of INR 64 crores, up 1.8% year-on-year. Moving to the financial performance. Our total income for the quarter stood at INR 1,316 crores vis-a-vis INR 1,298 crores in quarter 1 of FY '25, showing 1.3% year-on-year growth. EBITDA was INR 38.3 crores versus INR 52 crores in quarter 1 of FY '25, a decrease of 26.3% year-on-year. EBITDA margin stands at 2.9% for quarter 1 of FY '26. There was a loss of INR 8.8 crores versus PAT of INR 5.4 crores in quarter 1 of FY '25. Despite weaker volumes and revenue, we were able to lower the losses from quarter 1 -- quarter 4 of FY '25. In the segmental performance, passenger vehicle revenue stood at INR 724 crores versus INR 734 crores in quarter 1 FY '25, a decrease of 1.3%. Commercial vehicle revenue was INR 497.3 crores versus INR 479.9 crores in quarter 1 of FY '25, an increase of 3.6%. In EV, revenue was INR 26.8 crores versus INR 13.6 crores in quarter 1 FY '25, an increase of 97.7%. Other updates. Credit rating. CRISIL Ratings Limited have reaffirmed the rating awarded to the company, as the long-term rating at CRISIL A stable and the short-term rating at CRISIL A1 on the outstanding INR 468 crores bank loan facilities of the company. Popular Mega Motors India Limited, CRISIL Ratings Limited have reaffirmed the rating awarded to the company as the long-term rating at CRISIL A stable and the short-term rating at CRISIL A1 on the outstanding of INR 235 crore bank loan facilities. Awards and recognition. Popular Autoworks Private Limited company wholly owned subsidiary received the all-India's first runner-up award for Retail of the Year '24-'25 by JLR, ranked #1 in new bookings and new bookings growth across the JLR network in India. Popular Vehicles and Services Limited received the award for dealers with the highest paid service to sales ratio for NEXA by Maruti Suzuki. Popular Mega Motors India Private Limited company's wholly owned subsidiary received multiple accolades from Tata Motors, Best Customer Success Center for South India for months of May and June, spare parts highest volume growth FY '25 in South India. In the business vertical revenue breakup for quarter 1 FY '26, passenger vehicles, including luxury, is 55%; commercial vehicle contributes 38%; EV 2% and the spare parts distribution 5%. State-wise revenue breakup for quarter 1 of FY '26. Kerala stands at 58%, Tamil Nadu 26%, Karnataka 11% and Maharashtra at 5%. That's it from my side. Now I would like to open the floor for question and answers.

[Operator Instructions] The first question comes from Preet with InCred AMC.

My first question would be on the line of discount. How much was the discount in absolute terms for this quarter? And how much higher was it from previous levels like when it is 1 or 2 years back levels?

Okay. On the Maruti side of the business, we've been able to bring down the discounts by almost 50% compared to Q4 of last year. On the Arena business, the average discount for the 3 months of Q4 was averaging around INR 12,000, which we were able to bring down to about INR 5,500 to INR 6,000 range. Near was running around approximately INR 15,000 per car. We've been able to bring that down to between INR 7,500 to INR 8,000 per car, Q1 over Q4. And Q4 over the past, say, a longer period, maybe 1 or 2 years, has been pretty high because last year, the discount has been increasing every quarter throughout the entire year. So we've been able to bring it down in Q1 of this year.

Will it be more better in coming quarters? Or this is the usual discount which you have to give?

So this quarter, it is Onam season where -- I mean, Maruti is also running a lot of offers from their side, whereby the dealers need not necessarily bring in -- put in a lot of discounts. So mostly, we should be able to hold it around there, maybe plus or minus INR 500 per car.

Okay. Got it, sir. My next question would be on the line of debt. What are your outlook on debt? Are you planning for any debt reduction? And by when we can see reduction in debt, if any?

Okay. So when we look at the debt position from the last year, our debt position has actually gone up because the previous year, we had the benefits in terms of the IPO funding. With the expansion plans that we've actually -- Naveen had mentioned, at this point, our debt is a little on the higher side, but we are expecting this to come down by quarter 3 of the next -- of this year.

And if you can quantify by how much?

We are currently at around INR 540 crores in terms of the debt that we're looking at. We are trying to bring this down by at least 5% to 6% in terms of the numbers.

Okay. Got it, sir. And next question on the line of margin. How much more margin expansion we can see in coming quarters? And what would be the driver for this margin expansion? And as per your internal targets, when we will be back positive for the quarter?

Q2, I think with the announcement of the GST and all that, we're just going to evaluate how that would play out for the entire festival season for us in Kerala. The remaining areas would be subdued itself. So Q2, unless we get clarity on that, it will be tough to estimate in terms of how the margins will play out in Q2. But Q3 and Q4, we expect a very high growth with the GST norms coming into play and hence, the effect on margins also coming.

New locations?

The expansion into some of the new locations might have been subdued, but we will still be better off from the Q2 and Q1 EBITDA margins.

Sorry, but sir, I was not able to hear you properly. What I can interpret is you told that we will be better off from Q1 in coming quarters. Am I correct?

In Q3 and Q4. Q2, we are not estimating it because of the GST announcements that have been made. And hence, we don't know what the effect will be. So we'll have to wait and watch how that would play out over the next 10 to 15 days.

Okay. Got it. And on inventory days, if you can mention, how much was the inventory day as of June or the current...

As of June, we were able to bring down the overall inventory by about approximately 500 numbers, which translates to about 3, 3.5 days. So as we speak, the overall inventory is in the range of about 45, 46 days.

So is it usual business level case, right?

Yes, with the festive season coming -- just started yesterday. So we expect increase in the purchase of the customer plus generally, with the festive season starting off in the rest of the country from October onwards, the dispatches to Kerala and all will be much lower, which -- so hopefully, we should be able to bring down the inventories to under 30. Naveen mentioned 37 days earlier in his speech, so about 37, 38 days by September 30.

[Operator Instructions] the next question comes from Amit Agicha with HG Hawa & CO.

Sir, this is in continuation to the previous participant's question like about debt. Like what is the blended cost of debt, current average rate of interest of borrowings?

See, current blended average in terms of the debt that we have is close to around 8%, 8.2% is the blended average that we're looking at. And that is primarily because of the higher interest rates that we have in the subsidiaries that we have, but this is expected to come down to below 8% in this quarter because of the lower rates that the RBI has come back with.

Sir, can you speak something about the competition intensity also like all the 4 states where you are belonging in Kerala, Tamil Nadu, Karnataka, Maharashtra?

Sorry, I didn't get your question. Could you please repeat?

The competition intensity?

So if you look at our expansion -- if you look at -- so if you look at each of it specifically, so Ather does not have dealers within the Maharashtra areas that we have expanded to, 1 or 2 dealers per se in the Nagpur to Aurangabad area. In terms of Jaguar Land Rover, where we would be opening up by November or so, we would be the sole dealer in that area, in the 14 district that we're comprising with centered out of Nagpur. Bharat Benz in Punjab, we are the sole dealer. So intensity across brands would be very different. Maruti in Karnataka, in Arena, we would be having about 9 dealers in Arena. But Bangalore market per se is -- in terms of numbers would be as large as the Kerala market, which also has the same number of dealers, but many more outlets per se.

And sir, does the company plan to enter into new business verticals like leasing or digital platform or used car financing? Are these sectors being explored?

So we are exploring. We are constantly exploring where all we can expand in terms of not just within the dealerships, but outside of dealership thing, as you had mentioned in terms of used car or used CV financing. We're evaluating those options. We have not taken a decision yet.

Sir, last question, can you share your 5-year vision?

So in terms of -- as we mentioned earlier and when we went for the IPO also, we said that we would like to double ourselves every 3.5 to 4 years so that we have a CAGR of at least approximately about 18% to 20%. So that going forward, we continue to keep that as the vision. So today, we are at around INR 5,600 crores turnover. So within 4 years, we should be able to double that at about INR 11,000 crores turnover. But then this keeping EBITDA margins, our [ FY '24 ] EBITDA margins are approximately 5%, having a delta increase on the EBITDA margin to closer to 6%.

The next question comes from Shirish Pardeshi with Motilal Oswal.

So I think I have a few questions. Starting from the GST, obviously, we don't have a clarity at this time. But in your conversation with the OEMs, what will happen? I mean there are 3 things. One is the current inventory. Hopefully, the GST rate will get revised downwards. So what will happen to the existing inventory then? And given this event is going to happen in the next 45, 50 days, do you think the discounting will continue to -- at the elevated level?

Shirish, it's too early for us to say because even none of the OEMs have come back with clarity on any of these. But if you look at it in terms of schemes, for example, what Maruti has schemes for most of the smaller car segment is in the region of about INR 45,000 to INR 50,000 in terms of schemes for the festival season in Kerala, okay? If you look at -- if there's a GST reduction of, say, from 28% to 18%, that's about 10% on an average ASP of about 5.5% in the Arena sector, which is about INR 50,000, which would probably be lower in terms of flow-through to about INR 40,000, INR 45,000. I would assume that the net savings to the consumer would be in the region of about INR 5,000 to INR 7,000 less of schemes, et cetera. But it's too early to say. In terms of inventory and how to go forward with it, I think most of the OEMs will wait for clarity from the government before deciding on how to tackle the inventory.

Okay. Okay. My second question, if we go back when GST was implemented in 2017, '18, initially, we had a lot of -- so the question here is that if there is a clarity, do you think the customer will prepone or postpone its purchase because if discounting is not going to go up? So I'm just talking about consumer behavior. Is there any inquiry? Is there anything you can pick up from 2017 experience, how the consumer behavior changes? And second, given Kerala, do you think any particular segment of SUV or you can say that the hatchback will show a higher momentum because of the tax relief?

Yes. So that's what you're saying. If you look into H2 numbers, and that's the statement that I made earlier, in terms of -- if the GST is implemented and there's a drop in GST and et cetera, H2 numbers, given the fact that there's a 10% drop or whatever that percentage drop that will be there, I mean, the smaller cars should have a positive impact. This should be combined with the fact that the interest rates are also getting lower, which is starting to have effect now. So I think combine that, I think H2 should be a very robust H2. In terms of the consumer sentiment as of today, since our -- I mean, the Kerala festival season is on, the inquiries, the bookings, et cetera, are still on track right now.

Okay. Okay. No, I just wanted to confirm my thesis because Arena segment has been struggling last 2, 3 years. So if this material change happens, do you think Arena will become again positive in second half and going forward?

That's our viewpoint also.

Okay. Okay. My second question is on the margins. You have been saying that there is a margin lever, but I think we are around 1.5% to 2.2%, 2.9% segment. What are the margin levers you have going forward? Because if the volume picks up, obviously, that is one tailwind, you will have operating leverage. But beyond that, what are the costs which you think will be under control and we will see the margin expansion?

So we have started consultation with an outside entity. We did some surveys and we started something on increasing the revenue per car in service. And as of July end, we were -- compared to Q1, we were able to show traction in terms of per car revenue and that traction is continuing in this month also. Plus we have also done some cost restructuring on the employee side, which we mentioned in the earlier call also, some of these other main levers, plus we intend to increase our body shop revenue also.

No. One is in terms of service margin expansion. And to add, as we have mentioned that with the ASP of the cars going up and the NEXA, Arena mix also shifting towards NEXA, that would have a margin impact also going forward.

Okay. Okay. Just last question. We have, at this time, 64 showrooms. If I look at next 3 to 4 quarters, what are the showrooms we have in pipeline? And what is the number we are looking at the end of FY '26 and maybe mid-'27?

So across, as we said, in terms of expansion, Bharat Benz, Tata Motors, Ather, Jaguar Land Rover, all of them we would be expanding in a similar manner what we have expanded in the last 3 years. plus over and above that in terms of acquisitions. So to put an exact number would be tough, but the guidance that we have said that we would double our turnover in the next -- within that 3, 4 years, that continues. So accordingly, both the showroom and the service station count would increase.

[Operator Instructions] the next question comes from Nilesh Doshi with AMC Asset Management.

Okay. Sir, we are the dealer of the vehicle for Maruti, JLR, Bharat Benz, Tata Motor, et cetera. So particularly, we are selling the product of the other OEM and the other dealers are also selling the product of the same OEM. So what difference the Popular is doing to better than other dealers? And is there any area Popular succeed to gain the market share?

So we are strengthening our frontline manpower. I mean I'll break it into 2, 3 critical actions that we've initiated, right, in terms of -- we've gone back to the basics in Q1 and started retraining the people in terms of the sales pitch. Second thing, our overall lead management system, we completely restructured it across May and June and effectively July functioning where the inquiry being passed on to one executor. For example, a walk-in inquiry or a digital inquiry, which all comes this side. It is not created by the executor to whom will we allocate. That was happening [indiscernible] by the immediate supervisor. So we brought a scientific thing in terms of the past inquiry to retail conversion, how much is his self-generated inquiries versus the inquiry that the company has given. We brought in a mix and we started that. So that is beginning to show some traction in terms of absolute numbers. We have also looked at our entire manpower placement down to the level of talukas and smaller towns to check what is the industry size there and what is our manpower strength there. And we realized that in some of those smaller talukas, our manpower strength was also low, where the size of the business is high. So that we have done. I'm just giving you 2, 3 examples. So we see Q1, there's a lot of effort, has gone into some of these very micro granular detailing as well as corrections of basics, which should help us bring this up.

And it's more than that in terms of the differentiating factor across all the segments that we operate, be it passenger cars, luxury cars, EVs commercial vehicles is in terms of the service that we provide and the accessibility to service. And there, we score above most dealers and we continue to strengthen that area per se and which is the driving force for the sales also and increasing market share across all segments.

And also a lot of automation to improve our efficiencies. Nilesh, when he called me last about a month back, I was explaining about the automated test drive module, and you said you like it because you had an issue with -- when you wanted to buy Grand Vitara in Bombay or somewhere [indiscernible]. So all that actually bring in those efficiencies, whereby the percentage of conversion from an inquiry will improve pretty strongly.

So the result of the action will be same from the next or by the year-end. Is it possible?