Rating Rationale
April 01, 2024 | Mumbai
Popular Vehicles and Services Limited
Ratings upgraded to 'CRISIL A/Stable/CRISIL A1'
 
Rating Action
Total Bank Loan Facilities RatedRs.436.4 Crore
Long Term RatingCRISIL A/Stable (Upgraded from 'CRISIL BBB+/Stable')
Short Term RatingCRISIL A1 (Upgraded from 'CRISIL A2')
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has upgraded its ratings on the bank facilities of Popular Vehicles and Services Ltd (PVSL; a part of the Popular group) to ‘CRISIL A/Stable/CRISIL A1’ from 'CRISIL BBB+/Stable/CRISIL A2'.

 

The upgrade factors in strengthening of the group’s credit risk profile post the initial public offer (IPO) during March 2024. Prior to the IPO, CRISIL Ratings had taken a standalone view of PVSL owing to the management’s stated posture to manage operations at arm’s length owing to different private equity (PE) investments in individual group entities. However, PE’s stake reducing from 34 percent to 10 percent after the IPO, the management now considers PVSL and all its subsidiaries and step down subsidiaries as a single group with operational and financial linkages. This would result in significant synergies from being part of a single group and hence the ratings have revised its approach from standalone to consolidation of business and financial risk profiles of the all the group entities. Such consolidation strengthens the credit risk profile of the group, which would have a top line of Rs 4,875 crore for fiscal 2023 with operating profitability of over 4.6%. The group reported revenue of Rs 2,850 crore for the first half of fiscal 2024 with earnings before interest, taxes, depreciation, and amortisation (Ebitda) of 4.6%.

 

Fresh equity of about Rs 250 crore raised through the IPO would be used to reduce debt of around Rs 192 crore and the rest would be used for general corporate purposes and kept as additional liquidity. This would strengthen the financial profile of the group. Gearing is expected at around 1 time as on March 31, 2024, from over 2.5 times a year ago. With lower debt, debt protection metrics  and liquidity will also see an improvement in this fiscal.

 

The ratings reflect the group's established market position and healthy relationship with key suppliers in the automobile (auto) dealership business and healthy financial risk profile. These strengths are partially offset by geographical concentration, exposure to intense competition and susceptibility to cyclicality in the auto industry.

Analytical Approach:

CRISIL Ratings has changed its analytical approach for PVSL from standalone to consolidation of business and financial risk profiles of PVSL with its subsidiaries to arrive at the ratings. The change in approach follows reduction in PE’s shareholding and management’s stated posture of considering PVSL and its subsidiaries as a single group given  business and financial fungibility between the entities.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Established market position of the group and healthy relationship with key suppliers in the auto dealership business: The Popular group has established longstanding relationship with its principal suppliers. It has been associated with Maruti Suzuki India Ltd (MSIL) for over 30 years, more than 10 years with Jaguar Land Rover India Ltd and Honda Cars India, and 20 years with Tata Motors Ltd (commercial vehicles). This has given them strong understanding of market dynamics helped establish healthy relationships with suppliers and customers. The group has set up several showrooms and workshops and established itself as a recognised auto dealer across South India. Operating income grew at a compound annual rate of over 15% over the three fiscals through 2023 and is expected to report healthy growth in current fiscal with addition of Daimler India Commercial Vehicles (Bharat Benz). The company has longstanding relations with its principals. Risk of the principals cancelling the dealerships or offering dealerships to other companies is low as the company has demonstrated a healthy growth record since inception. Benefits from the longstanding relationship with the principals will continue to benefit the business profile.

 

  • Moderate financial risk profile: Capital structure was leveraged, marked by gearing of 2.89 times and total outside liabilities to tangible networth (TOL/TNW) ratio of 3.65 times as on March 31, 2023. With infusion of Rs 250 crore in March 2024 and subsequent reduction in debt, gearing and TOL/TNW ratio may remain less than 1 time and 1.5 times, respectively, as on March 31, 2024. Debt protection metrics are likely to strengthen, with interest coverage ratio improving to 3.25 times in fiscal 2024 from 3.04 times in fiscal 2023 and net cash accrual to adjusted debt ratio to 0.24 time from 0.14 time.

 

Weaknesses:

  • Geographical concentration and exposure to intense competition: Since significant portion of the revenue is derived from Kerala and Tamil Nadu, the group is exposed to geographical concentration risks. Hence weakening in the regional economy or region-specific events may affect sale volumes. Furthermore, the auto sector comprises numerous players in the mini, compact, mid-size, executive, premium and luxury passenger car segments. The company faces intense competition from the unorganised used-car market and dealers of other car manufacturers. However, to offset the risk, the group is planning to expand to other geographies such as Maharashtra, Telangana and Andhra Pradesh in future.

 

  • Susceptibility to volatility in economic cycles and industry downturns: Auto sales are vulnerable to economic cycles. Downturns in economic activity, particularly, in the region in which the company operates, impacts the operating performance of the company. 

Liquidity: Strong

Bank limit utilisation was moderate at around 70% for the 12 months through January 2024. Cash accrual is expected at more than Rs 180 crore per annum, against negligible yearly debt obligation over the medium term. Majority of the outstanding debt would be closed through the IPO proceeds, leaving insignificant long-term debt on the books.

Outlook: Stable

The Popular group will continue to benefit from its strong market position and established relationship with suppliers.

Rating Sensitivity factors

Upward factors

  • Steady increase in scale of operations and Ebidta margin stable at over 4%.
  • Sustenance of healthy financial risk profile.

 

Downward factors

  • Decline in scale of operations or fall in Ebidta margin, resulting in net cash accrual less then Rs 100 crore.
  • Significant increase in debt levels due to expansion or higher working capital requirement.

About the Group

Incorporated in 1983 in Kerala, PVSL is the one of the largest authorised dealerships for MSIL vehicles in India.

 

Its subsidiaries and step down subsidiaries are in the dealership business of Honda Cars India, Jaguar Land Rover India Ltd, Tata Motors Ltd (Commercial Vehicles) and Daimler India Commercial Vehicles (Bharat Benz) among others.

 

Mr Francis K Paul, Mr John K Paul and Mr. Naveen Philip manage the daily operations of the group.

Key Financial Indicators (Consolidated)

Particulars

Unit

2023

2022

Revenue

Rs. Cr.

4875

3466

Profit after tax

Rs. Cr.

64

34

PAT margin

%

1.3

1.0

Adjusted debt/adjusted networth

Times

2.89

2.65

Interest coverage

Times

3.04

2.57

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon

rate (%)

Maturity

date

Issue size (Rs.Cr)

Complexity

Levels

Rating assigned with

outlook

NA

Bank Guarantee

NA

NA

NA

12

NA

CRISIL A1

NA

Cash Credit

NA

NA

NA

10

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

9

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

5

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

20

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

15

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

41

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

0.5

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

60

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

22.5

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

20

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

15

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

2

NA

CRISIL A/Stable

NA

Inventory Funding Facility

NA

NA

NA

65

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Sep-2025

16.5

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Jun-2025

2.94

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Jun-2025

3.17

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Jun-2025

3.94

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Sep-2025

17.91

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Apr-2028

55

NA

CRISIL A/Stable

NA

Long Term Loan

NA

NA

Jun-2025

8.89

NA

CRISIL A/Stable

NA

Working Capital Demand Loan

NA

NA

NA

10

NA

CRISIL A/Stable

NA

Working Capital Facility

NA

NA

NA

1.95

NA

CRISIL A/Stable

NA

Working Capital Facility

NA

NA

NA

6.8

NA

CRISIL A/Stable

NA

Working Capital Facility

NA

NA

NA

4.55

NA

CRISIL A/Stable

NA

Working Capital Facility

NA

NA

NA

7.75

NA

CRISIL A/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Popular Autoworks

Private Limited

100%

Wholly owned subsidiary

Prabal Motors Private

Limited

100%

Step down subsidiary

Kuttukaran Green

Private Limited

100%

Wholly owned subsidiary

Kuttukaran Cars

Private Limited

100%

Wholly owned subsidiary

Keracon Equipments

Private Limited

100%

Wholly owned subsidiary

Popular Mega Motors India Private Limited

100%

Wholly owned subsidiary

Popular Auto Dealers Private Limited

100%

Wholly owned subsidiary

Popular Vehicles and Services Limited

100%

Parent entity

Vision Motors Private Limited

100%

Step down subsidiary

Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 424.4 CRISIL A/Stable   -- 24-04-23 CRISIL BBB+/Stable 28-01-22 CRISIL A3+ / CRISIL BBB/Stable   -- CRISIL A3+ / CRISIL BBB/Stable
      --   -- 30-03-23 CRISIL BBB+/Stable   --   -- --
Non-Fund Based Facilities ST 12.0 CRISIL A1   -- 24-04-23 CRISIL A2 28-01-22 CRISIL A3+   -- CRISIL A3+
      --   -- 30-03-23 CRISIL A2   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 12 The Federal Bank Limited CRISIL A1
Cash Credit 10 The Federal Bank Limited CRISIL A/Stable
Inventory Funding Facility 9 The Federal Bank Limited CRISIL A/Stable
Inventory Funding Facility 5 Cholamandalam Financial Holdings Limited CRISIL A/Stable
Inventory Funding Facility 20 HDFC Bank Limited CRISIL A/Stable
Inventory Funding Facility 15 The South Indian Bank Limited CRISIL A/Stable
Inventory Funding Facility 41 Axis Bank Limited CRISIL A/Stable
Inventory Funding Facility 0.5 TVS Credit Services Limited CRISIL A/Stable
Inventory Funding Facility 60 State Bank of India CRISIL A/Stable
Inventory Funding Facility 22.5 IndusInd Bank Limited CRISIL A/Stable
Inventory Funding Facility 20 YES Bank Limited CRISIL A/Stable
Inventory Funding Facility 15 Bank of Baroda CRISIL A/Stable
Inventory Funding Facility 2 Kotak Mahindra Prime Limited CRISIL A/Stable
Inventory Funding Facility 65 ICICI Bank Limited CRISIL A/Stable
Long Term Loan 16.5 The Federal Bank Limited CRISIL A/Stable
Long Term Loan 2.94 IndusInd Bank Limited CRISIL A/Stable
Long Term Loan 3.17 ICICI Bank Limited CRISIL A/Stable
Long Term Loan 3.94 YES Bank Limited CRISIL A/Stable
Long Term Loan 17.91 State Bank of India CRISIL A/Stable
Long Term Loan 55 The Federal Bank Limited CRISIL A/Stable
Long Term Loan 8.89 Axis Bank Limited CRISIL A/Stable
Working Capital Demand Loan 10 The Federal Bank Limited CRISIL A/Stable
Working Capital Facility 1.95 Sundaram Finance Limited CRISIL A/Stable
Working Capital Facility 6.8 Mahindra and Mahindra Financial Services Limited CRISIL A/Stable
Working Capital Facility 4.55 Sundaram Finance Limited CRISIL A/Stable
Working Capital Facility 7.75 IndusInd Bank Limited CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Criteria for rating trading companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation

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