The Initial Public Offer (IPO) of Landmark Cars, a leading premium automotive dealership in India, has opened for subscription. The Rs 552 crore issue will be a mix of a fresh issue of shares and an Offer for Sale (OFS) where existing investors will be selling their stake.

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As is the case with every company, Landmark Cars has highlighted certain risk factors to the company's prospects. Here are some major ones to look at:

Business Concentration

A large portion of the company's business operations are concentrated in two states of Gujarat and Maharashtra. For the three months that ended on June 30 this year, half the number of vehicles sold and total consolidated revenue came from dealerships in Gujarat.

Similarly, 22.6 percent of new cars sold and 21 percent of the company's consolidated revenue came from dealership operations in Maharashtra.

Nearly three-quarters of the company's overall business comes from these two states. Their RHP states that any adverse development in either of them would significantly impact business operations.

Joint Venture With BYD

Landmark Cars' subsidiary WCPL has signed a Letter of Intent with BYD India Pvt. Ltd. to become their dealer in Mumbai and the National Capital Region (Delhi) for their electric vehicles.

"The electric vehicle market in India is not as well developed as in other countries and there is uncertainty as to whether there is sufficient demand for electric vehicles to make a standalone electric passenger vehicle dealership a success," according to the company's RHP.

The company says that demand for electric vehicles may be dampened if consumers perceive there are insufficient charging stations. As per a CRISIL report, future growth in EVs will depend on the incentives given by the government and the establishment of battery charging infrastructure.

Inflation Worries

In case of high inflation, the company expects a rise in the cost of rent, wages, raw materials and other expenses. High fluctuation in inflation can make it difficult for the company to accurately estimate or control its costs, according to the RHP.

"Any increase in inflation in India can increase our expenses, which we may not be able to adequately pass on to our clients, whether entirely or in part, and may adversely affect our business and financial condition," the company said.

An increase in costs will impact the company's margin going forward.

Impact On Margins

The company provides after-sales services and repairs through 53 after sales-services and spare outlets. As per their dealership agreements, the OEMs that the company has partnerships with are entitled to determine the maximum price that the company can charge for certain types of repairs and services undertaken at their authorised service centers.

The OEMs are also entitled to change the prices, discounts offered without prior notice and without any prior liability towards Landmark Cars.

Although the company has not experienced any such price changes in financial year 2022 and the three months that ended on June 30, there is no assurance that such an instance may not happen in the future, which in turn will impact the company's margin going forward.

One of the company's OEM fixes the maximum per hour labour charge for service and repair work which varies from city to city. While such caps are not applicable to collision repair service, there is no guarantee that such a cap may not be introduced in the future.

Landmark Cars also cannot undertake or sell services that are not approved by their OEMs.

Competition from dealers and unauthorised service centers has also been highlighted by the company as an additional risk.

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