Landmark Cars Limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Landmark Cars delivered its highest quarterly EBITDA and turnover in Q3 FY25, with revenue growing 28% YoY to INR 1,668 crores, driven by new outlets and recent car launches. The company successfully implemented cost optimization initiatives, reducing expenses and inventory. However, profitability was impacted by higher depreciation and the ramp-up phase of new outlets, which led to gross margin contraction, particularly in the service segment.

Highlights

  • Total pro forma revenue for Q3 FY25 was INR 1,668 crores, a 28% year-on-year growth.

  • Achieved highest quarterly EBITDA of INR 69.5 crores in the last 8 quarters.

  • Personnel expenses stood at 3.9% and other expenses at 3.5%, achieving cost optimization targets ahead of schedule.

  • New car inventory reduced to near normal 35 days, significantly below the industry average of 55-60 days.

  • Cash PAT for the quarter stood at INR 28.7 crores with a 2.4% margin, up from INR 17.2 crores (1.9%) in the previous quarter.

Concerns

  • PAT for Q3 FY25 was INR 11.8 crores at 1% margin, impacted by high depreciation and Ind AS effects.

  • Gross margins contracted by 800 bps YoY and 500 bps QoQ, primarily due to new outlets ramping up and lower service contribution.

  • Service business growth is currently slower than historic trajectory due to changing car parc of older brands and new workshops not yet at full operational capacity.

Key financials

  1. Total Pro Forma Revenue ₹1,668 Cr +28%YoY
  2. New Vehicle Pro Forma Sales ₹1,421 Cr
  3. Aftersales Revenue ₹247 Cr
  4. Preowned Vehicle Sales Revenue ₹36.6 Cr +32.1%QoQ
  5. EBITDA ₹69.5 Cr
  6. EBITDA Margin 5.8%
  7. PAT ₹11.8 Cr
  8. PAT Margin 1%
  9. Cash PAT ₹28.7 Cr
  10. Cash PAT Margin 2.4%
  11. Depreciation ₹34 Cr +29.8%YoY
  12. Personnel Expenses (as % of revenue) 3.9%
  13. Other Expenses (as % of revenue) 3.5%

What they filed

Q1 FY27: revenue up 22.6%, net profit up 114.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue907 1,195 1,091 1,062 1,211 +34%1,345 +13%1,279 +17%1,302 +23%
EBITDA52 66 55 61 54 +4%74 +12%76 +38%72 +18%
Net profit0 12 2 7 2 14 +17%15 +650%15 +114%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex Capex disclosed from internal accruals, pulling out money from working capital
    • Capex for 23 new stores ₹70 Cr
    • Long-term capex for new stores (part of 23 stores) ₹65 Cr
    We have put up our close to 25 stores from our internal accruals, pulling out money from our working capital. And we had kind of said that close to INR75 crores of capex will happen in these stores. We are within that budget. I believe we have spent much lower than that. (Sanjay Thakker, Page 9) So 23 store, the capex would be around INR70 crores. (Surendra Agarwal, Page 10)
  • Debt Gross ₹560 Cr
    So overall debt is INR560 crores, Devesh. Out of that around INR150 crores debt is from the Mercedes-Benz demo car, which is the interest free. (Surendra Agarwal, Page 9)
  • Liquidity Liquidity disclosed Operating cash flow for 9 months was INR 200 crores. Free cash generated for 9 months was INR 25 crores.
    So operating cash flow is around... INR200 crores. (Surendra Agarwal, Page 9) And as far as the actual cash post capex and rent is INR25 crores for 9 months, right? Yes. That's the figure. (Bhargav & Surendra Agarwal, Page 12)

Guidance & targets

Service Revenue

  • Annual Service Revenue Service Revenue · soon · High confidence INR 1,000 crores
    It is also noteworthy to note that the service revenue for Landmark will soon touch INR1,000 crores per annum number, which is a big milestone in our journey.

    — Sanjay Thakker

Market Share

  • EV Market Penetration in India Market Share · this year · Medium confidence 7-8%

    From 2% today

    From an Indian perspective, our penetration has been only 2% or thereabouts till last year. With the launches of mainstream players like Mahindra, Hyundai, MG, this penetration is definitely going to go up this year. Now our view is that this number will go to maybe around 7%, 8% to begin with of the overall market and kind of stabilize there.

    — Sanjay Thakker

Volume

  • Kia Volumes from new Syros model Volume · this year · High confidence 15% increase
    The new Kia Syros, which was launched in January, has garnered a positive response, and we expect it to add around 15% to our Kia volumes this year.

    — Aryaman Thakker

  • BYD Sales Units Volume · current calendar year · High confidence upwards of 10,000 units

    From 3,500 units (CY24) today

    BYD closed calendar year '24 with a retail of nearly 3,500 cars... The brand has an ambition to sell upwards of 10,000 units in the current calendar year.

    — Aryaman Thakker

Profitability

  • PAT Margin (Existing Stores) Profitability · Medium confidence 2%

    From 1.1% today

    On a steady-state basis, what should we look at in terms of PAT margin from existing stores? See, the global average and in good times, we have seen a 2% plus net profit margin. I'm not giving this as a guidance. Please I'm putting that as a caveat right now. But we our kind of North Star thought process has been that we need to go about 2% PAT.

    — Sanjay Thakker

Capex

  • Capex for next year Capex · next year · High confidence INR 15-25 crores
    And fair to say that next year, the capex will be in the range of INR15 crores to INR25-odd crores, meaning substantial reduction in capex? I mean it's a little early to call that, Bhargav. But we as I told Pritesh over there, it is see, the previous year, we knew what we were doing, and we had to do that kind of current to rejuvenate our organization, get it into a growth path and have a different OE mix. This year, we don't have any such compulsion.

    — Sanjay Thakker

What to watch in Q4 FY25

Service revenue contribution from new outlets

Next few quarters
Current Half of old outlets' service contribution
Target Reach normal level (15-17% of turnover)

Why it matters

Ramping up service contribution from new outlets is crucial for improving overall gross margins and achieving historic growth trajectory for the service business.

In the service business, new outlets are currently contributing half as much as existing one, impacting gross margin. However, service revenue is steady in new outlet increasing each month. And once these outlets reach their full potential, overall gross margins are expected to improve. (Surendra Agarwal, Page 5)

Risks & concerns

  • Global auto industry uncertainty and geopolitical factors

    medium

    The global auto industry faces uncertainty due to environmental goals reset, tariff threats, and changes in guard in USA, making the situation complex.

    The global auto industry is going through quite an uncertain time currently. The change in guard in USA has resulted in environmental goals of many countries being reset. The threat of tariff has also made the situation more complex. (Sanjay Thakker, Page 3)

    Management acknowledged

  • Policy-driven nature of EV business

    medium

    The EV business is heavily influenced by government regulations on RTO tax, GST, and depreciation, which can impact adaptation.

    And but this is quite a policy-driven kind of a business. It's going to happen. The government regulations on the RTO tax, the GST, the depreciation that you get will also play a big role in the adaptation over here. (Sanjay Thakker, Page 6-7)

    Management acknowledged

  • Uncertainty in global OEM market and fuel types

    medium

    High uncertainty regarding global OEMs, fuel types, and regulations necessitates a diversified portfolio approach.

    Now there is so much uncertainty in the global market as far as the OEs are concerned globally because of the fuel type and whether the regulations and all that, that it's important to have a portfolio approach and to rejig the portfolio of our offering. (Sanjay Thakker, Page 7)

    Management addressed by diversifying portfolio

Q&A highlights

5 direct, 1 evasive
Margins on Mercedes-Benz ultra-high-end models Direct
Arnav, the margin percentage is more or less similar. So in absolute terms, we make more money. But in percentage terms, it is same.

Clarifies that while premium cars generate higher absolute profit, their percentage margin is consistent with other models, indicating no structural margin uplift from premiumization.

Asked by Arnav Sakhuja

Macroeconomic environment of EVs and global scaling back of EV plans Partial
From an Indian perspective, our penetration has been only 2% or thereabouts till last year. With the launches of mainstream players like Mahindra, Hyundai, MG, this penetration is definitely going to go up this year. Now our view is that this number will go to maybe around 7%, 8% to begin with of the overall market and kind of stabilize there.

Management acknowledges global EV uncertainties but projects significant growth in India's EV penetration to 7-8% this year due to new mainstream launches, providing a local market outlook.

Asked by Arnav Sakhuja

Gross margin contraction (800 bps YoY, 500 bps QoQ) on standalone basis Direct
What is happening is that in the new stores, which are and we have called it out in our slide, there are some 19, I think, outlets, which are classified under new 11 and 8, yes, it is 19. So now over there, the service contribution in the new outlets is as of now, half of our old outlets service contribution.

Explains that the margin contraction is a temporary effect caused by the lower service contribution from new outlets that are still in their ramp-up phase, rather than a structural issue.

Asked by Devesh Kayal

Breakup of interest cost into lease interest and normal debt interest Direct
So Devesh, the I can give you the 9-month figure I have right now available with me. It's INR54 crores in the total, INR31 crores is on account of the inventory funding, working capital funding and the INR22 crores is on account of the lease impact.

Provides a detailed breakdown of interest costs, clarifying the components contributing to the overall interest expense and its impact on profitability.

Asked by Devesh Kayal

Capital employed turn and margin on new stores at optimum business level Evasive
We can Pritesh, if you are we can maybe connect and give you that later on, if you're okay.

Management was unwilling to provide specific figures for capital employed turn or target margins for new stores during the call, suggesting these metrics are either sensitive or still being finalized.

Asked by Pritesh Chheda

Slow service revenue growth despite new workshops Direct
What has happened is that there are brands, like say, I'll give you an example of, say, Honda, which we all know that's why I'm giving you that example. In the year 2016, '17, the cars sold by the company were, if my memory serves me right, 150,000 cars. The cars that they sold that they are going to be selling this year will be in the region of 70,000 cars. Now what does it mean is that the cars coming in of the service pool, the service pool that we have, we have typically a 7-year pool, 7-, 8-year pool, the cars come in for service.

Explains that the slower service revenue growth is linked to the declining car parc of older brands (like Honda) whose sales have significantly reduced over the years, impacting the available service pool.

Asked by Sabyasachi Mukerji

Mercedes-Benz expansion plans and refurbishment of existing outlets Direct
Yes. So in our case, Lokesh, I think most of it has already happened. This is what is known as the MAR20, a new kind of a CI guidelines that they have come up with. And that has been happening. I think he is talking about a cumulative number that may have happened. In our case, that has already happened.

Management clarifies that most of the Mercedes-Benz refurbishment and CI guideline implementations are already complete for Landmark Cars, implying no significant future capex burden from this initiative.

Asked by Lokesh Manik

Profitability of other businesses (non-Mercedes) and Q4 outlook Partial
As far as MG is concerned, we are now comfortable with the Windsor coming in. And we believe that we are we have gotten into a profitability zone. Honda has been profitable for us all the time. Volkswagen will be profitable. Renault Mumbai is now profitable because of the support that we are getting from the company.

Provides an update on the profitability status of various non-Mercedes brands, indicating that MG, Honda, VW, and Renault Mumbai are now profitable or receiving support, which is positive for overall diversification.

Asked by Amar Kant Gaur

2 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Landmark Cars reported its highest quarterly EBITDA and turnover in Q3 FY25. Total pro forma revenue reached INR 1,668 crores, marking a significant 28% year-on-year growth compared to INR 1,301 crores in Q3 FY24. New vehicle pro forma sales contributed INR 1,421 crores. EBITDA stood at INR 69.5 crores, with a 5.82% margin, while PAT was INR 11.8 crores at a 1% margin, impacted by higher depreciation and Ind AS effects.

Cost Optimization and Inventory Efficiency

The company successfully implemented cost optimization initiatives, reducing personnel expenses to 3.9% and other expenses to 3.5% of pro forma revenue, achieving these targets ahead of schedule. Furthermore, Landmark Cars significantly improved its inventory management, bringing new car inventory down to a near-normal 35 days, which is considerably better than the industry average of 55-60 days.

Impact of New Outlets on Gross Margins

Gross margins experienced a contraction of 800 bps year-on-year and 500 bps quarter-on-quarter. This was primarily attributed to the ramp-up phase of 19 new outlets, particularly affecting the service business. These new outlets currently contribute only half the service revenue of established outlets, leading to a temporary drag on overall gross margins as they scale up to full operational capacity.

EV Market Outlook and OEM Partnerships

Management acknowledged global uncertainties in the EV market but expressed confidence in India's EV penetration growing from approximately 2% to 7-8% this year, driven by new launches from mainstream players like Mahindra, Hyundai, and MG. Landmark Cars continues to be a crucial partner for OEMs, with the new Kia Syros expected to boost Kia volumes by 15% this year, and BYD aiming to sell over 10,000 units in the current calendar year.

Service Business Trajectory and Future Growth

The service business, while currently experiencing slower growth due to the changing car parc of older brands (e.g., declining Honda sales impacting the service pool), is expected to regain its historic growth trajectory as new workshops achieve optimum utilization. Landmark's service revenue is projected to soon reach INR 1,000 crores per annum, marking a significant milestone.

Capital Allocation and Debt Management

Total capital expenditure for the first nine months amounted to INR 125 crores, with INR 70 crores specifically allocated to the 23 new stores. Overall debt stood at INR 560 crores, which included INR 150 crores of interest-free debt for Mercedes-Benz demo cars. The company reported an operating cash flow of INR 200 crores and a free cash generated of INR 25 crores for the nine-month period, indicating prudent financial management.

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