Rationale

 The assigned rating considers Padmaja Motors Private Limited’s (PMPL) long track record and established position as Suzuki Motorcycle India Private Limited’s (Suzuki)sole authorised two-wheeler (2W) dealer in Visakhapatnam and Vijayawada of Andhra Pradesh and one of the authorised dealers of Suzuki 2Ws in Hyderabad, Telangana. The company has 51 sales and service outlets in Andhra Pradesh and nine outlets in Hyderabad. This apart, the company is adding five outlets in Hyderabad in the next 2-3 months. The company’s revenues witnessed a healthy CAGR of 28.3% during FY2021 – FY2024 with expansion to new geography and showroom additions; it is expected to record healthy revenue growth of low double digits, supported by robust demand for Suzuki vehicles. The rating also considers the company’s comfortable financial profile, characterised by low debt level, comfortable capital structure and coverage metrics as indicated by interest cover of 13.7 times and TD / TNW of 0.5 times in FY2024. The company’s financial profile is expected to remain comfortable, going forward as well. The ratings are, however, constrained by the company’s thin margins inherent to the dealership business. While the company’s margins are supported by healthy share of revenues from sale of spares and service, which command higher margins, margins have moderated over the past two years given the increased overheads towards expansion in the Hyderabad market and higher discounts on a few models. The ratings are further constrained by the intense competition in the automobile dealership industry in India and the limited bargaining power of dealers, with pricing decided by principal OEMs. The Stable outlook on Padmaja Motors Private Limited’s (PMPL) rating reflects ICRA’s opinion that the company will continue to witness a incremental growth in revenues and earnings while maintaining healthy debt metrics.