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Key Takeaways
One of the largest automobile dealership chains in India
The Popular Group has been in the automobile industry for the last seven decades. It is
one of the largest automobile dealership chains in India, with dealerships of Maruti
Suzuki (second-largest dealer in India), Honda (cars), Tata Motors (CVs) and Jaguar. It
has a combined turnover of over INR20b, a workforce of over 6,500, and a network of
over 200 units in Kerala, Chennai and Bangalore.
Demand muted, but 6% growth likely in FY12; 15-20% CAGR over 4-5 years
It expects its Maruti dealership to grow by 6% in FY12, despite a flat FY12 YTD,
driven by new Swift and pick-up in festive season. While current walk-ins and
conversions have declined, it expects demand pick-up during the festive season (17
Aug to 17 Sep). Its inventory has increased to ~35 days (from 20-22 days).
It believes that a pause in further rate hikes by RBI would trigger demand recovery.
While discount levels are lower in South India, Popular is of the view that current
higher discounts are for pushing non-fast selling models through discounts.
It is currently witnessing replacement demand of 35-40% (with ~25% replacement
through exchange program), as against 90-95% replacement demand in developed
countries. Its experience suggests a replacement cycle of 4-5 years.
Spares & Service - key profit driver for the dealer & big opportunity for OEs
Spares & Service is a key driver for any dealer, as margins on new car sales are
very low (<5%), whereas profitability on spare sales and service is high (15-20%).
For every new car sold, a dealer services 8-10 cars a year (12-13 for Popular), with
normal servicing cycle of once in six months. Non-dealer authorized service centers
service a similar number, taking total cars serviced through OEM-authorized centers
to 16-20 cars for every new car sold.
Increasing sophistication and implementation of BS-IV and BS-V would drive out
local garages for servicing. Further, higher car penetration would drive demand for
genuine spares. Maruti's genuine spares are competitively-priced and the OEM is
focused on reducing usage of spurious spares. Even for OEMs, spare sales (18-20%
margins) offer a big opportunity, as all spare supplies to authorized service centers
(including dealer) are by the OEM.
Other takeaways
The Popular Group, which is also a dealer for Honda cars, has not yet witnessed any
impact of the aggressively-priced Honda Jazz on Swift sales.
Being a dealer for both Maruti and Honda, it can differentiate between business
practices of OEMs - dealer friendliness, feedback systems, accessibility to senior
executives, etc. It believes Maruti is way ahead of its competitors.
Popular believes that Maruti is improving its quality and value for money (e.g. new
Swift), whereas its competitors are going the other way (except Hyundai).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
One of the largest automobile dealership chains in India
The Popular Group has been in the automobile industry for the last seven decades. It is
one of the largest automobile dealership chains in India, with dealerships of Maruti
Suzuki (second-largest dealer in India), Honda (cars), Tata Motors (CVs) and Jaguar. It
has a combined turnover of over INR20b, a workforce of over 6,500, and a network of
over 200 units in Kerala, Chennai and Bangalore.
Demand muted, but 6% growth likely in FY12; 15-20% CAGR over 4-5 years
It expects its Maruti dealership to grow by 6% in FY12, despite a flat FY12 YTD,
driven by new Swift and pick-up in festive season. While current walk-ins and
conversions have declined, it expects demand pick-up during the festive season (17
Aug to 17 Sep). Its inventory has increased to ~35 days (from 20-22 days).
It believes that a pause in further rate hikes by RBI would trigger demand recovery.
While discount levels are lower in South India, Popular is of the view that current
higher discounts are for pushing non-fast selling models through discounts.
It is currently witnessing replacement demand of 35-40% (with ~25% replacement
through exchange program), as against 90-95% replacement demand in developed
countries. Its experience suggests a replacement cycle of 4-5 years.
Spares & Service - key profit driver for the dealer & big opportunity for OEs
Spares & Service is a key driver for any dealer, as margins on new car sales are
very low (<5%), whereas profitability on spare sales and service is high (15-20%).
For every new car sold, a dealer services 8-10 cars a year (12-13 for Popular), with
normal servicing cycle of once in six months. Non-dealer authorized service centers
service a similar number, taking total cars serviced through OEM-authorized centers
to 16-20 cars for every new car sold.
Increasing sophistication and implementation of BS-IV and BS-V would drive out
local garages for servicing. Further, higher car penetration would drive demand for
genuine spares. Maruti's genuine spares are competitively-priced and the OEM is
focused on reducing usage of spurious spares. Even for OEMs, spare sales (18-20%
margins) offer a big opportunity, as all spare supplies to authorized service centers
(including dealer) are by the OEM.
Other takeaways
The Popular Group, which is also a dealer for Honda cars, has not yet witnessed any
impact of the aggressively-priced Honda Jazz on Swift sales.
Being a dealer for both Maruti and Honda, it can differentiate between business
practices of OEMs - dealer friendliness, feedback systems, accessibility to senior
executives, etc. It believes Maruti is way ahead of its competitors.
Popular believes that Maruti is improving its quality and value for money (e.g. new
Swift), whereas its competitors are going the other way (except Hyundai).
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