Landmark Cars Limited (LANDMARK) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Landmark Cars Limited Q2 FY '27 Earnings Conference Call hosted by 360 ONE Capital. 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 the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Akhil Parekh from 360 ONE Capital. Thank you, and over to you, Mr. Parekh.

Yes. Thank you. Good morning, everyone. On behalf of 360 ONE Capital, I welcome you all to Q2 FY '27 conference call of Landmark Cars. We have with us management of Landmark Cars, including Mr. Sanjay Thakker, Promoter Chairman and Executive Director; Mr. Aryaman Thakker, Executive Director; and Mr. Surendra Agarwal, Chief Financial Officer. I'll hand over the call to Sanjay, sir, for his opening remarks, post which we'll open the floor for Q&A session. Over to you, sir.

Thanks, Akhil, and good morning to everyone. I hope everybody has had a wonderful Diwali. On behalf of the company, I extend a warm welcome to everyone who has joined us today. And I would like to especially thank 360 ONE Capital for hosting the call. As Akhil mentioned, I have with me Aryaman Thakker; and Surendra Agarwal, our CFO, who are with me on the call. The results and the presentation are uploaded on the stock exchanges and on the company's website. I hope everybody has had a chance to look at them. The growth in the auto industry is relentless since GST 2.0 last September. The Indian EV industry, already the third largest EV market in the world, will comfortably cross the mark of 5 million vehicles this financial year. This has brought the focus of global OEs back strongly into India. In the last 6 months alone, our Board members of Mercedes-Benz Global, including the Global CEO, visited India twice to firm up their India plans and further investments. Stellantis, Renault and Honda have all announced big plans for India starting soon. The EU FTA is also likely to come into effect early next year. This is likely to boost our business positively. Landmark is best poised to take advantage of the move towards new energy vehicles. nearly 29% of the vehicles sold by us are new energy vehicles, which is nearly 3x the industry average. BYD is launching its luxury brand Denza in India today. The initial response is overwhelming, to say the least. The investments done by the company in the last 2 years are bearing fruit. The new brands, BYD, MG and Mahindra today are #2, #3 and #4 position in our revenue in terms of the PVs. Our company acted decisively and boldly to embrace the changing scenario, undergoing short-term pain for long-term benefits. In the last quarter, apart from having the highest ever EBITDA in the history of the company, we also recorded the highest ever new car sales EBITDA. The new car sales EBITDA is now 40% of the total EBITDA. We have always maintained that in our business is well run, keeping a hot eye on expenses, both sales and service will be very profitable. The aftersales business has once again proved that it is an annuity business. As our service revenue keeps on rising and reaching a record -- our per service revenue has kept on rising and has reached a record INR 30,000-plus this quarter per service. We have, in our presentation, shared how service revenue for EV repairs has no negative impact on our workshop business. The number of last -- the number for the last quarter would have been better had it not been for the disruption of business in many workshops in Gujarat in the month of August due to heavy rains and flooding. We have commissioned a very large state-of-the-art multi-brand workshop in Jogeshwari in place of 3 smaller workshops in the Mumbai region. This will give us operating leverage. The quarter gone by includes some additional expenses on account of overlap of transition, which has normalized as we speak. In our industry, the second half of the year is generally much stronger than the first half. To summarize, we are feeling very confident about the future sitting here today. I would now hand over to Aryaman to give us further insight into the business of the company. Thank you.

At Landmark Cars, we continue to focus on strengthening our business relationships, expanding our offerings and identifying new opportunities across the automotive value chain. In this context, we have made some important progress across our existing and new partnerships. Before moving to individual OEM updates, I would like to highlight a recent development in our preowned car business. We have signed an agreement with OLX India, part of car trade tech, to develop a phygital proposition that combines OLX India's industry-leading digital reach with Landmark's leadership in physical retail and service networks. OLX will help with digital customer journeys, while our outlets will serve as physical experience centers for vehicle inspection and handover. The vehicles will be bought and sold on a revenue-sharing basis and in a co-branded way. The partnership will be rolled out in phases beginning with select cities with the objective of building a scalable, profitable and sustainable presence in the preowned car market, which has so far not been done in India. Our objective is to be a prominent player in the preowned car industry over time. Let me now take you through some of the important developments of our OEM partners and their respective businesses. Starting with Mercedes-Benz. The brand delivered a record quarter in India, achieving its highest quarterly volumes, supported by a strong product portfolio, new launches and sustained demand for its models. The brand has recently introduced the India-made GLC electric SUV, which has received a fantastic response with over 1,000 bookings in a short period of time and the product being sold out till March of 2027. This is the first of the 40-plus new launches planned by the OEM globally. Deliveries have already started this month. We also expect improved availability of the CLA EV, which has witnessed strong customer demand alongside initial supply constraints. The new will further strengthen the top end vehicle portfolio and position of the brand. Moving to MG Motors. The company continues to strengthen its position in India's new energy vehicle market, with the Windsor EV remaining the highest selling electric vehicle model in India. The recently launched Hector Tomahawk EV further broadens its electric portfolio and has received phenomenal bookings with delivery commencing in October and likely to ramp up going forward. The Tomahawk Hybrid, which will be -- which is soon to be launched, will bring another dimension towards powertrain portfolio providing customers with an alternative mobility proposition. Mahindra continues to have a strong year, crossing 6 lakh SUV sales for the second year running. The models have been very well received, and the company has recently announced that they will be introducing 4 new models till June of 2027. Together, these developments highlight Mahindra's strategy of strengthening its core SUV franchise while catering to evolving customer preferences across petrol, electric as well as CNG vehicles. Coming to Kia, they have announced a further USD 2 billion investment into India to increase production capacity and introduce new models across powertrains. The Seltos continues to anchor its with most still in a waiting period. The Karen and the Syros EV strengthened Kia's presence in electric mobility. The new Sorento has received a strong response with it being in a book and situation. During the last month, Kia has become the fifth largest OEM in India. Turning to BYD. The company is expanding its ambitions in India with the introduction of its luxury brand, Denza, marking its entry into the higher-end premium mobility segment. We will be establishing their dealership in Mumbai. Two models will be launched initially, the D9 luxury NPV and the Z9 GT. The response for both these models have been great with them already being sold out for the next quarter, even prior to launch. The recently launched dynamic commenced deliveries in the previous quarter and has received encouraging customer interest. Honda is sharpening its India growth strategy with a focus on quicker product development cycles and deeper localizations to strengthen its market presence. The updated Honda Elevate launched first in India underscores the strategic importance of the Indian market for the company. It's planned entry into the battery electric vehicle segment this year with the Alpha 0 SUV also marks an important step towards broadening its portfolio and addressing emerging opportunities. Landmark continues to be the largest partners for Honda in the country. Stellantis has announced a further INR 4,000 crore investment underlying their commitment to India. The company plans to introduce 12 new models under the Jeep and Citron brands by 2030. They have also gotten into a partnership with Tata Motors to collaborate on vehicle technologies and platforms. Landmark has recently received the letter of intent for JSW Motors for the markets of Ahmedabad and Bhopal. The company is heavily investing in a new production facility at Chatrapati Shambaji Nagar. The first product called the GSW Combat which is based on the will go on sale early during Q4 FY '27. The GST cuts came into effect last October. In spite of a higher base, the festive momentum remains strong. New model launches across powertrains, ongoing effect of the GST cuts, along with the traditionally stronger of the financial year should keep the industry buoyed in the future. We remain focused on continuously adapting our business model, strengthening our OEM relationships and building capabilities to capitalize on emerging opportunities. Thank you.

[Operator Instructions] The first question is from the line of Vijay Pandey from Axis Capital.

A couple of questions. I wanted to check on the margin front. So our margin came at -- sequentially was relatively better. So I just want to understand how do you see whether this margin is sustainable on going forward? Was there some inventory gains built in, in this quarter that we may not see in the coming quarters? And secondly, on the growth expectation for upcoming years in the second half and moving into FY '28. So if you can just highlight what will be your expectation moving ahead, how do you see both in terms of volume and revenue expectation?

Yes. Thanks, Vijay. So what we are seeing in the industry today is a kind of a secular growth which is happening, though -- and we -- on ground, we have had a great October. We believe that this momentum as of now will continue. Unless some very major macro event happens, we believe that this growth in the industry right now is there for the next few quarters at least. And we have entered a new unchartered zone, which -- I mean, we all know that the penetration of passenger cars in India is hardly 3%-or-so. So this is something which has a very long road ahead, and this looks good. You spoke about the margins. Yes, there has been a significant margin improvement year-on-year on EBITDA level, and that is something we had kind of indicated that once the outlets kind of mature, this is kind of bound to happen. And we are happy that we have more or less reached there. And the margins would have been even higher had we not had some rain disruptions. And also the newer brands, which are selling a lot of cars as when their after sales does as well as the old brands after sales, that we believe the margin is a sustainable thing that we have kind of delivered. The inventory, you rightly pointed out, last year, the festive season was in a different quarter. So the industry itself has built the inventory. If you look at the announcement, they have said that the industry inventory nearly 45 days. We are at around 35 days. So our sales has also gone up. So in absolute numbers in rupee terms, it looks higher. But this should normalize in the next 2 months-or-so.

Sir, I was talking about the inventory pricing

Yes. So it is difficult to pinpoint as to how much extra money we made. The prices will again go up, Vijay, in the month of January. So this is something which is an ongoing thing within the industry. And -- but we are confident about keeping our margins where it is as far as sales is concerned. Difficult to exactly put a number to it, but there's nothing unusual that we are seeing.

And sir, second, guide us about the CapEx expectation for the year? Because I think last quarter, you said around INR 50 crores, but we have already done INR 50 crore

Yes, it would be a little higher than that. You are absolutely right. This was our estimate at that time, then JSW has come along and so has Densa, which we did not have exact visibility of at that time, apart from our making a new workshop at We believe that it would be maybe another INR 30 crores-or-so as of now as we believe.

The next question is from the line of [ Simran Takker ] from BS Capital.

First of, what would be the revenue share [indiscernible] commission basis or will the gross as be booked share of arrangement? And also, what it mean by the [indiscernible] in the presentation. Also, if you could make [indiscernible]

Simran, sorry I would ask to repeat the question as it was not very clear to understand.

[ Simran ], I would request you to kindly use your handset, please. There is a disturbance when you use your headphones.

Sure. Sir, I wanted to understand on the revenue share split with the OLX and what model is this Will that be on the gross sales booking basis or will it be on a commission basis like we have in case of mdoel? And also in the presentation that you have mentioned acquired sold. So what does that mean? Like will the inventory be on balance sheet till the time it is being sold. So that's my first question.

Yes. So I'll take that question. So what it is, this is -- as we said, it's an industry-first sort of partnership. It's a business agreement between 2 parties. What we are doing is that to create this digital model merging 2 leaders in their respective industry. The port is that the vehicles will be jointly acquired and co-funded. Yes, the -- it will be lying in the balance sheet of Landmark Cars. So the cars will be jointly acquired, refurbished where needed and then put up back for sales. and the margins, which are kind of accrued will then after costs be shared with between both the entities.

Understand. Also taking this question ahead. In the U.S., usually we see these used cars, the revenue share is around 40% to 42% for the U.S. dealer. So what share of revenue and EBITDA is Landmark management expect out of the used cards and what are the that you are expecting

So yes, you are right. I think in the U.S., it is a much more mature used car market and the new car retailers have a very healthy contribution of used car turnover as well as profits in their books, as you rightly said, around 30%. In India, that penetration is significantly low. The new car retailers approximately only account for of their sort of revenue profitability, it's in the single digits. For us, the -- as what we said, I think the idea is that we will be rolling this out in phases. In the first phase, we will be going live with a certain number of cities and banks. The idea is to get the process and the exact business model right because we are looking at it in a long-term way and we want to build a profitable and scalable model, which has so far not been successfully done in the country. So we will kind of build it over time. And we've just gone live having done our first 2 transactions in the post Diwali period. And post this phase, we will kind of expand in our cities and our brands. So difficult to give you an exact number right now. But I think once we have the processes and we are confident that, that can be replicated, then we will press the accelerator and see much more transactions happening here.

Understand, sir. That was clearly Sir, my third question is on the inventory and the OCS turning negative for this quarter at INR 16.9 crores. And also, we see the which rose to INR 144.5 crores. So against -- if you speak on quarter 4 and quarter 1 FY '27 con-call, where we mentioned that the debt would be reduced. So if we could just let us know like what would be the inventory and debt expected by FY 2027, and how the trajectory will look like, please?

Yes. So as I said, the inventory levels will come down. It's difficult for me to put an exact number to it. But this is something we never thought that the demand would be so strong. And the prices, as was discussed earlier, sometimes it makes sense to buy the inventory because the prices are going up. So it's a very dynamic kind of a situation. There has also been some talks of supply chain disruption because of the war and all that. So whenever the inventory comes, we sometimes take a business decision to procure it. There are certain items which are certain vehicles, which are imported, and the ships and the kind of reach at a particular time. So it's a certain time zone. We are, as of now, comfortable with what we are holding and not really that concerned. We believe that over a period of time, this will come down. We are at around 35 days of new car inventory, which I think most people in the industry believe that anything under 30 is good. So keeping that in mind, I wouldn't be too worried on this matter right now.

Understand, sir. That's helpful. Just 1 last thing to confirm. So showing some slower growth. So should we read that in terms of mass market growth or the luxury cars as well. Your opinion would be really helpful.

Please repeat the question. We did not get it.

So VAHAN data, the new data which is out. So there, it mentioned that there is some slower growth which is being seen in the market. So should we interpret it in terms of mass market demand or should we also see something that you're in terms of luxury market as well?

So I think what you are referring to is the numbers -- the VAHAN numbers for the month of October '25 versus '26, is that, [ Simran ], what your question is? Because you are right, the October of '25 was a very unusual month where the GST cut happened, the festival was all there and it got all bunched up. There was a pent-up demand last year same time. So it is no surprise, clearly, the growth percentage that we have seen in the first half of the year will not continue in the second half as a percentage, but I personally believe that the growth will happen in the next 6 months also. This is also the view of which believes that we will have a decent growth even in the months to come.

The next question is from the line of Ronak Mehta from ICICI Securities.

Sir, I have 2 questions. One is with respect to your partnership with OLX, would you be tracking any internal metrics to see how efficient this partnership turned out to be or to keep evaluating whether this is actually beneficial for you? Because there could also be a risk where some of the customers that come via OLX would have anyway come to you and just because they have come by OLX, you will have to share some revenue or margin. So profitability on those revenue could be lower, which would have -- which would otherwise not be the case. So is there any metric that you will keep on track -- that you will track that as a number of vehicles sold per employee? Is it improving or something of that sort? That would be my first question.

Sure. So yes, the idea is that, of course, we have internal metrics and KPIs that we will be using to track it. However, what we are also looking at is that OLX right now represents upwards of 60% -- upwards of 60% of used car listings in India are happening on one of their platforms. For us, I think the idea also is that we get expanded reach. While procuring used cars is there, we need to make sure that we are also able to liquidate them at a quicker rate because that to make a profitable and scalable model. So that is where we believe that their expertise will also help us, will be in the listings and the reach. And because these vehicles will also be branded jointly by both these -- both the parties that will give a sort of expanded reach, and we can get the transactions done quicker. What will also we expect will be a secondary benefit to this is that while customers come to sell their cars, it may also act as a funnel for new car inquiries that we will generate at our existing locations. So that is another added benefit that we believe will come out of this partnership.

Ronak, if I were to add. Aryaman answered this question, are the -- let us look at the bigger picture. The point is that, so far, nobody has been able to crack the pre-owned car space in India proprietary. And there have been a lot of money which has been burned. So the 2 organizations have a kind of shaken hands with the idea that we will not burn money we will be capital efficient. And is there a way that this whole business of preowned cars can it be done profitably? Nobody has been able to do it. So we are making an effort of an online leader with an on-ground present leader. Now this is something which is an emerging kind of a business model, and we are internally pretty excited with the prospect of it. The softwares are getting built, the are getting built. And as the time goes by, we will share more details with you on this.

Perfect, sir. Okay. My second question is on -- if you could help us refresh your positioning across different brands? For instance, Mercedes and Honda you are the largest partner for them in India. But for some of the newer brands like say JSW basis your current engagement with the group, do you envisage a scenario where your positioning could be similarly strong in JSW? And how do you see that panning out for some of the other newer brands?

In the newer brands, we are the largest partners for BYD. We are the third largest partner for JSW, MG Motors. So we have kind of -- if you count 4 new brands in the 2 of them, we are already have a sizable kind of a presence. And the thing is that we are continuously evaluating. The global scenario is so dynamic and things keep on changing. Who would have thought that companies like a Volkswagen, 7 years back, if you were asked this question as to what is going on to a Renault or Volkswagen or Honda, you would not have been able to answer or I would not have been able to answer. So this is an ever-changing thing. So the good part about our organization is that we have made a lot of our infrastructure fungible. We have -- our people are -- we are able to kind of put them in different roles. So wherever the business demands investments, we kind of put our capital and efforts behind it. But to answer your question, the point is that wherever we go, we generally -- and if the business is profitable, we become a meaningful partner for those brands. So it is not only 4, 5 brands where we are in the top 1, 2.

We take the next question from the line of Lokesh Manik from Vallum Capital Advisors.

Sir, just wondering your views on the recent announcement on the motor insurance. If you had a chance to speak to your OEM partners, how are they looking at this? How are you looking at this internally? And what could be the impact broadly if these guidelines are to become as they are proposed on our profitability as well? So this so if you can share thoughts would be really great we have some clarity on that.

Yes. Thanks, Lokesh. Now this IRDA matter, you may know that the first phase was the consultation paper, which will be followed by draft regulations and then the third stage is the actual regulations. So the regulator asked for comments and suggestions. And our association FADA has made a very strong representation on what needs to change in those draft regulations. So -- and I have been a part of that kind of submission. So I'm aware of it. So let us wait and see the indications are that the consultation paper will be modified. That's the view we are getting. It's a little early. So we have had no conversations with the OEs on this matter because we do not know what is really going to happen. Just so that you know that the deals that happen at our end when you sell a car and it's like on-road price, which includes the RTO, the insurance, sometimes the accessories and all that. So it's a package deal sometimes that happens. So we will have to kind of wait and watch how industry evolves over here. Very difficult to put a thing right now.

We'll take the next question from the line of Akhil Parekh from 360 ONE Capital.

Congratulations on a strong set of numbers. Sir, my first question is, I think in previous call, you have broadly mentioned that first half and second half split in the profitability is usually 40%-60% or 45%, 55%. So does that hold true for this year, if you can give some broad direction on that one? That's my first question.

That's what my 27 years has basically shown me. So I hope that trend continues. I mean there's no reason to feel otherwise. We have -- generally, there are strong months, which is the Diwali month October, there is a strong December in the industry, I'm talking about the industry, then there is a March. So there are very big months which generally happen in our industry, and we are hopeful as we speak.

Sure. So broadly you're saying 60% profit should benefit 60%

I'm saying that, that's what has been the historic trend.

Great. That's very good to hear. Sir, second, on the operating cash program, you did mention that inventory has increased mainly because of sales. Last year, we did a ballpark INR 70-odd crores of operating cash flow and INR 200 crores of free cash flow, implying 100% of EBITDA to OCF conversion, basically [indiscernible] Would it be fair to assume that you would do similar kind of better to OCF conversion broadly in FY '27 as well? So -- that's my second question. How should OCF free cash flow looks like

We will have -- maybe Surendra, let's see is voice also. He hasn't participated today. Let's have...

Yes. So as we told that this is the seasonal impact on the September cash flow, what we have published we are expecting this little lower than the last year 1 because last year, it's 0.95 was the ratio of the operating cash flow versus EBITDA, but not much different, a little lower than the last year.

So that implies you have a substantial free cash flow ratio, and you mentioned that CapEx is not major in FY '27, so anything you would like to highlight what we would be doing with the...