ICICI Securities upgrades this smallcap auto dealer; sees new store additions to drive growth ahead

Domestic brokerage ICICI Securities has upgraded Landmark Cars from the earlier 'Add' call to the new 'Buy' rating with a target of Rs 650 per share, implying significant gains of over 44 per cent from the last close.

Landmark Cars is engaged in the premium automotive retail business in the country with dealerships for Mercedes-Benz, Honda, Jeep, Volkswagen and Renault.

During the December quarter, new car sales revenue was up around 32 per cent year-on-year (YoY) at Rs 1,400 crore and average selling price at Rs 0.2 crore, up 8 per cent on-year. The company expects robust growth in new car sales led by high-growth brands such as Mercedes Benz (MB), M&M, Kia, and MG.

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However, in the case of Renault/ Jeep operations with slower performance, the company expects margins to improve through infrastructure sharing that aims to reduce the cost of operations.

The brokerage also underscored that the company's other expenses as well as manpower costs have been slashed lower from around 5 per cent each in FY24 to nearly 4 per cent amid cost rationalising initiatives.

Additionally, the brokerage noted that the company's EBITDAM or earnings before interest, taxes, depreciation, amortisation and management fees during the December quarter was at 5.6 per cent, a 20 bps decline sequentially, amid weaker gross margins as service revenues at new outlets is in ramp-up phase.

"With the company’s focus on operationalising ongoing projects, rather than expansion, and with bulk of incremental costs already being up-fronted, a rise in revenue from new outlets should help improve margins ahead," said the brokerage report.

Landmark Cars in the 9MFY25 added 23 outlets, which increased the company's revenue by 25 per cent on-year and also at the same time helped diversify with high-growth brands, including M&M, Kia, MG and BYD. The company's revenue from new outlets in the December quarter stood at 12 per cent of total at Rs 190 crore.

So, as the brokerage sees the impact on margins due to new stores to last for a few more quarters, it has slashed its FY26 margin estimates by 80 basis points, but retained its revenue estimates.

Besides, ICICI Securities added that the company will draw benefit from the addition of high-growth brands, new passenger vehicle launches as well as continuation of premiumisation trend.

Downside risks

The brokerage pointed to the following 3 downside risks:

Slowdown in domestic PV market
Pause in trend of car premiumisation theme in India
Risk of rise in working capital and discounts for models,ex-MB, in times of weak car demand.

Landmark Cars share price performance

In the last one year, shares of Landmark Cars have declined by over 38 per cent. Furthermore, since its listing in December 2022, the stock as against the issue price has declined nearly 6 per cent.