Ecos (India) Mobility IPO analysis

Ecos (India) Mobility IPO will open for subscription on August 28, 2024 and close on August 30, 2024. We break down the luxury car-rental provider's strengths, weaknesses, and growth prospects to help investors make an informed decision.

Ecos (India) Mobility IPO in a nutshell

• Quality : Its three-year average ROE and ROCE were 34.8 per cent and 34.4 per cent, respectively, during FY22-FY24.
  
• Growth : Its revenue and net profit leaped 94 and 151 per cent per annum, respectively, during FY22-FY24.
  
• Valuation : Post the IPO, the stock will be valued at a P/E and P/B of 32 and 11.3 times, respectively.
  
• Overview: Ecos (India) Mobility, a provider of chauffeured car rentals and employee transportation services for corporates, is expected to benefit from India's growing affluence. There remains ample upside for growth as premium services like chauffeured cars are gaining importance as key amenities in hotels and corporate offices for high-end clients and employees. However, the company operates in a highly competitive and fragmented sector where 85 per cent of the market is catered to by unorganised players.

About Ecos (India) Mobility

The company, known by the brand name ECO Mobility, is India's largest chauffeur-driven mobility provider by revenue. It operates under two segments-employee transportation services (ETS) and chauffeured car rentals (CCR). Essentially, the company offers car services with professional drivers to companies for reliable and comfortable transportation. The end-customers are the corporate customers' employees, clients, guests, and visitors. The company has a robust fleet of over 12,900 vehicles and a workforce of 8,500 skilled chauffeurs as of FY24. It operates on an asset-light model with over 90 per cent of its operating vehicles owned by different vendors. Vendors include those supplying drivers, chauffeurs, or vehicles to the company.

The company's strengths

• Market leadership: It is the largest and most profitable chauffeur-driven mobility provider in India. The company boasts the highest operating margins in comparison to its listed peers, while having the largest fleet of over 12,900 vehicles.
  
• High-end customers: The company has a prestigious client portfolio, including 42 Fortune 500 companies and 60 BSE 500 companies. Clients with more than five years of relationship with the company account for over 50 per cent of its revenue. Ecos operates in an industry where clients are sticky and competitors would have to offer a significantly lower price for customers to consider changing service. While many unorganised players can offer much lower prices, the quality, punctuality, and safety provided by organised players like Ecos gives it an edge.

The company's weaknesses

• Fragmented market with homogenous product: The chauffeur-driven mobility market has low-entry barriers, making it easy for new competitors to enter. Which is why 85 per cent of the market is made up of small, unorganised players. Ecos' service is not unique either.
  
• Tied with the economic cycle: The industry does well when the economy is doing well. But the sector is prone to suffer the most during rough times like a slowdown or recession, as businesses cut back on such services first when they need to save money.

Risk report

Company and business

• Are earnings before tax of ECO Mobility more than Rs 50 crore in the last 12 months?
  Yes. The company reported a profit before tax of Rs 82.3 crore in FY24.
  
• Will ECO Mobility be able to scale up its business?
  Yes. There is a growing need to cater to travel and commute requirements of high-end corporate clients and employees, which will help the company scale its business.
  
• Does ECO Mobility have recognisable brands with client stickiness?
  Yes. Clients do not easily change ETS and CCR service providers. They usually tend to stick for a long term, especially when it is an organised player like Ecos.
  
• Does the company have a credible moat?
  No. It operates in a very fragmented industry with low-entry barriers.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. After the IPO, the promoters' stake will be 67.7 per cent.
  
• Do the top three managers have more than 15 years of combined leadership at ECO Mobility?
  Yes. Rajesh Loomba, the chairman and managing director, has been with the company since its incorporation in 1996.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
  
• Is ECO Mobility free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  Yes. Its three-year average ROE and ROCE were 34.8 and 34.4 per cent, respectively. In FY24, its ROE and ROCE were 42.8 and 39.5 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  Yes. The company reported positive cash flow from operations (CFO) during FY22-FY24.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. Since the company was net cash positive as of FY24, its net debt-to-equity ratio was negative.
  
• Is ECO Mobility free from reliance on huge working capital for day-to-day affairs?
  Yes. The business is not working capital intensive.
  
• Can the company run its business without relying on external funding in the next three years?
  Yes. Since the company generated free cash flow in FY24 and is net cash positive, it is unlikely to require external financing ahead.
  
• Is ECO Mobility free from meaningful contingent liabilities?
  Yes. The company does not have any contingent liabilities.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. After listing, the stock will offer an operating earnings yield of 3.7 per cent on its enterprise value.
  
• Is the stock's price-to-earnings less than its peers' median level?
  No. The company is valued at a P/E of 32 times, similar to its peers' median of 31.8 times.
  
• Is the stock's price-to-book value less than its peers' average level?
  No. The company is valued at a P/B of 11.3 times compared to its peers' average of 5.4 times.

Disclaimer: This is not a stock recommendation. Investors should do their due diligence before investing.

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