Popular Vehicles & Services Ltd. (PVSL)
Market Capitalisation ~₹660 crore
Book Value: ~₹628 crore
Total Borrowings ~₹690 crore
Lease Liabilities: ~₹710 crore
Cash & Cash Equivalents: ~₹70 crore
Listed: April 2024
The company has business with multiple OEMs across all vehicle types.
Passenger vehicle - Maruti, JLR, Audi(recently acquired in Jan 26)
CV - Tata, BharatBenz
2 wheeler - Ather
Spare parts/accessories - Tata, Maruti, BKT Tyres (recently started)
The company is operating in Kerala, tamilnadu, Karnataka, andhra Pradesh, Telangana, maharashtra and punjab. At the current market capitalisation of around ₹660 crore, the stock trades close to its reported book value of approximately ₹628 crore. Before the recent industry downturn, the company generated a normalised profit after tax of around 76 crore in fy24 and 64 cr in fy23 with operating margin of around 5%. The investment case is therefore based on whether FY25 and FY26 represent a cyclical earnings trough rather than a permanent deterioration in business. If industry conditions normalise and the company can restore its historical profitability while continuing its acquisition-led expansion, the current valuation could become worth looking in terms of risk-reward.
Dealership businesses are generally considered no-differentiation businesses where success depends more on operational execution. Good businesses only arise from building scale within a region, delivering superior customer service, maintaining efficient inventory management and consolidating fragmented dealership networks through acquisitions. Another important feature of this industry is that all vehicle inventories are largely funded through inventory financing. So, higher inventory levels translate into higher borrowings, greater finance costs and increased working capital requirements. New vehicle sales account for the majority of revenue, they generate ~2% ebitda margins. The real profitability lies in the after-sales business, including servicing, spare parts, body shop repairs, accessories, finance and insurance commissions. These businesses generate recurring revenue throughout the ownership cycle of a vehicle.InFY26, the company generated consolidated revenue of approximately ₹6,381 cr of that 968 crore came from the service business. Contributing only about 15% of total revenue, the service business contributes nearly 70% of the company’s EBITDA. Historically, before the recent industry issue, PVSL consistently reported consolidated EBITDA margins of around 4.5% to 5% during FY22, FY23 and FY24, which has been around 2.5 to 3 in the past 2 years. The past two financial years have been among the most challenging periods for the Indian automobile dealership industry. OEMs increased wholesale dispatches while dealers simultaneously built inventories in anticipation of continued strong retail demand. However, retail sales failed to absorb this inventory, resulting in unusually high stock levels across dealerships. Higher inventory created a chain reaction. Dealers were forced to offer aggressive discounts to clear vehicles, reducing already thin gross margins. Increased inventory also required additional inventory financing, leading to higher interest costs. Slower inventory rotation increased working capital requirements, putting further pressure on profitability. These factors simultaneously compressed PAT margins across the industry. Even with good revenue growth because of discounting pressure, elevated finance costs and higher inventory days significantly affected profitability of fy25 and fy26. However, now appears to be improving from h2 of fy26 with reduced discounting and improving working capital efficiency. Plus, GST reduction helps support retail demand, which shows in H2 of fy26 of PVSL as well as q1 fy27 from maruti volume numbers.
recent acquisitions:
last 1 year, PVSL completed acquisitions worth approximately 120 cr, including the acquisition of Maruti dealerships in Telangana (~90 cr), an Audi dealership in andhra and telangana(~10 cr) and BharatBenz in Punjab (~₹12 cr). Based on management commentary, these acquisitions were completed broadly at the underlying asset value of the businesses.
| Segment | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|---|
| Passenger Vehicles (incl. luxury) | 2,070 | 2,340 | 3,014 | 3,307 | 3,301 | 2,551 |
| Commercial Vehicles | 691 | 959 | 1,570 | 1,954 | 1,883 | 2,125 |
| EV (2W & 3W) | 0 | 5 | 56 | 85 | 87 | 137 |
| Spare Parts Distribution | 132 | 161 | 234 | 270 | 270 | 267 |
| Total Revenue from Ops | 2,894 | 3,466 | 4,875 | 5,616 | 5,541 | 6,381 |
| Metric | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|---|
| Service Revenue (Cr) | 433 | 533 | 714 | 865 | 894 | 968 |
| Service Volume (units) | 6,46,280 | 7,21,400 | 9,57,148 | 10,53,545 | 10,42,298 | 9,82,100 |
| Service ASP (₹) | 6,700 | 7,388 | 7,460 | 8,213 | 8,575 | ~9,850 |
| OEM(revenue from new sales | FY23 | FY24 | FY25 | FY26 | ||
|---|---|---|---|---|---|---|
| Maruti Suzuki | 1,772 | 1,888 | 1,832 | 2,056 | ||
| JLR (Luxury) | 128 | 285 | 378 | 426 | ||
| BharatBenz | 114 | 540 | 576 | 775 | ||
| Audi | — | — | — | 13 | ||
| Tata Motors CV | 1,310 | 1,168 | 1,034 | 1,350 | ||
| Ather (EV) | 39 | 58 | 67 | 132 |
p&l:
| Particulars | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|---|
| Revenue from Operations | 2,893.5 | 3,465.9 | 4,875.0 | 5,615.5 | 5,541.2 | 6,381.1 |
| Other Income | 25.7 | 18.3 | 17.6 | 31.2 | 20.4 | 20.0 |
| Total Income | 2,919.3 | 3,484.2 | 4,892.6 | 5,646.7 | 5,561.6 | 6,401.1 |
| Cost of Goods Sold | 2,433.0 | 2,916.8 | 4,142.6 | 4,758.3 | 4,760.2 | 5,540.1 |
| Gross Profit | 486.2 | 567.4 | 750.0 | 888.4 | 801.4 | 861.0 |
| Employee Cost | 203.5 | 242.0 | 308.2 | 366.5 | 387.1 | 413.9 |
| Other Expenses | 105.4 | 145.8 | 203.9 | 237.7 | 236.0 | 238.0 |
| EBITDA | 174.9 | 178.7 | 234.8 | 286.1 | 175.4 | 203.4 |
| Depreciation | 72.5 | 69.3 | 79.4 | 91.9 | 98.8 | 127.3 |
| EBIT | 102.4 | 109.4 | 155.4 | 194.1 | 76.6 | 76.0 |
| Finance Cost | 55.1 | 60.9 | 70.5 | 98.0 | 85.6 | 103.3 |
| Exceptional Items | 0.0 | 0.0 | 0.0 | 1.6 | 0.0 | 13.9 |
| Profit Before Tax | 47.3 | 48.5 | 84.9 | 97.7 | (8.9) | (13.3) |
| Tax | 14.8 | 14.9 | 20.8 | 21.6 | 1.5 | (0.8) |
| Profit After Tax | 32.5 | 33.7 | 64.1 | 76.1 | (10.5) | (12.5) |
p&l in percentage terms:
| Particulars | FY21 | FY22 | FY23 | FY24 | FY25 | FY26 |
|---|---|---|---|---|---|---|
| Revenue from Operations | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
| Other Income | 0.9% | 0.5% | 0.4% | 0.6% | 0.4% | 0.3% |
| Total Income | 100.9% | 100.5% | 100.4% | 100.6% | 100.4% | 100.3% |
| Cost of Goods Sold | 84.1% | 84.2% | 85.0% | 84.7% | 85.9% | 86.8% |
| Gross Profit | 16.8% | 16.4% | 15.4% | 15.8% | 14.5% | 13.5% |
| Employee Cost | 7.0% | 7.0% | 6.3% | 6.5% | 7.0% | 6.5% |
| Other Expenses | 3.6% | 4.2% | 4.2% | 4.2% | 4.3% | 3.7% |
| EBITDA | 6.0% | 5.2% | 4.8% | 5.1% | 3.2% | 3.2% |
| Depreciation | 2.5% | 2.0% | 1.6% | 1.6% | 1.8% | 2.0% |
| EBIT | 3.5% | 3.2% | 3.2% | 3.5% | 1.4% | 1.2% |
| Finance Cost | 1.9% | 1.8% | 1.4% | 1.7% | 1.5% | 1.6% |
| Profit Before Tax | 1.6% | 1.4% | 1.7% | 1.7% | -0.2% | -0.2% |
| Tax | 0.5% | 0.4% | 0.4% | 0.4% | 0.0% | 0.0% |
| Profit After Tax | 1.1% | 1.0% | 1.3% | 1.4% | -0.2% | -0.2% |
opportunity:
1)The past 2 years have been very bad for the full industry, which has already started showing improvement after GST reduction. Q4 fy26 and Q1 fy27 both show very high growth in PV sales in Maruti volume. Which translates into service volume (higher-margin business) with a lag of 6 months to 1 year. Plus, inventory days are improving, so lower discounts and lower finance cost. From management commentary, Maruti’s inventory had peaked around 70 days at the mid of fy2024 and now it has come down to around 30 days as per the latest concall.
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The Indian automobile dealership industry remains highly fragmented, with industry estimates of 30k dealership touchpoints across different vehicle categories(from different sources may not be accurate; there is no exact figure available, 30k is from FADA). A significant proportion of these dealerships continue to be family-owned businesses operated by second- and third-generation promoters(from PPFAS youtube video on car dealerships). As the industry becomes more competitive and cyclical, many single-brand dealerships may find it increasingly difficult to operate independently, creating consolidation opportunities for larger organised players such as PVSL.
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The luxury vehicle segment provides another attractive growth opportunity. JLR revenue has increased significantly over the last few years from 128 cr in fy23 to 426 cr in fy26, and the company has recently expanded into central India through a new 3S showroom in Nagpur(started business fom 1 april 2026). The acquisition of Audi dealerships in Andhra Pradesh and Telangana further strengthens its premium vehicle portfolio. Luxury vehicle customers generally exhibit higher service retention rates. Unlike many mass-market OEMs, luxury manufacturers do not offer multiple free services, making workshop revenue more profitable from the beginning of the ownership cycle.
4)Within the Maruti portfolio, increasing contribution from Nexa vehicles could also improve profitability. Dealership margins remain broadly similar in percentage terms; higher vehicle values increase absolute gross profit per vehicle while simultaneously supporting higher ASP in the service business.
Risks:
1)The primary near-term risk is execution. If management is unable to restore historical EBITDA margins of around 4.5% to 5%, earnings recovery may take longer than anticipated.
2)The increasing contribution of commercial vehicles to overall revenue is another factor worth monitoring, as commercial vehicle dealerships generally operate at lower gross margins than passenger vehicles (management has said that the recent reduction in gross margin from 15.7 to 13.5 is because of higher CV contribution as one of the reasons).
3)Acquisition discipline will remain critical. Consolidation is likely to be the primary driver of long-term growth.
4)Although service revenue has continued to grow, service volumes have declined modestly over the past year from 10.4 lakh to 9.8 lakh vehicles. Management attributes this to a strategic decision to reduce low-value service activity.
- I think the major risk for the long term for all dealership businesses is the rise of ev. As all dealers have around 70% of operating profits from the services business. Because EVs have lower mechanical parts than ICE, it leads to lower service requirements. However, based on research from some reports from jp morgan and accenture and from google/chatgapt from mature market like norway and china, there is definitely lower service requirement in initial years of vehicle lifecycle but some also saying that there is also no impact as ev became more and more technical(rise electrical, software part) so there will market share increase for oraganised service centres. Plus, there is higher torque and acceleration, so body damage is also increasing(body work has the highest margin within the service business also; this is part of insurance cover). Plus, there is not a large sample of vehicles with more than 10-12 years, so what happens to vehicles after that no one knows; maybe there will be a need for battery replacement/repaire which is very costly, as a battery pack alone costs around 30% of new car value.
major holding:
francis paul - 20.4%, john paul - 20.4%, naveen philip(MD of company) - 20.4%, banyantree private equity - 10%
disclosure: invested