IPO Size: Rs. 601 cr 

• Entirely Offer for Sale (OFS) by promoter (98% holding to drop to 68% post IPO)

Price band: Rs. 318-334 per share

M cap: Rs. 2,004 cr, implying 30% dilution

IPO Date: Wed 28^th Aug to Fri 30^th Aug 2024, Listing Wed 4^th Sep 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Transport Service Business

Ecos (India) Mobility provides chauffeured car rentals and employee transportation services under B2B2C model to 1,100 corporates, with the business verticals accounting for 45% and 55% of revenue respectively. While the Delhi-headquartered company operations pan-India, 4 cities (Bengaluru, Gurgaon, Mumbai, Hyderabad) contribute to 57% of Rs. 554 cr revenue.

Asset Light Business Model

Company operates a fleet of 12,900 vehicles across economy to luxury range of cars and vans. It owns only 6% of the fleet and balance is operated through vendors making the business model asset-light. This yields a high RoE of 43%. On networth of Rs. 177 cr, fixed assets were only Rs. 38 cr, with cash and equivalents of Rs. 96 cr. Thus, core RoE is much higher at 70%.

FY24 Profits Cannot be Extrapolated

On FY24 revenue of Rs. 554 cr, operating profit (excluding other income) stood at Rs. 90 cr, translating into 16% operating margin. Company earned other income of Rs. 14 cr in FY24, comprising Rs. 7 cr gain on sale of property and Rs. 6 cr treasury income.

Moreover, G20 assignment also augmented revenue and profit for the year, mainly in H1FY24. Chauffer car rental revenue stood at Rs. 129 cr in H1FY24 which dropped to Rs. 112 cr in H2FY24. This also reduced operating profit (excluding other income) from Rs. 47 cr in H1FY24 to Rs. 43 cr in H2FY24. Thus, FY24 earnings cannot be extrapolated into the future.

Fully Priced for Short Term

FY24 PAT stood at Rs. 63 cr, post low depreciation charge of only Rs. 19 cr. Net margin stood at 11% and excluding other income, net margin would be 9%. FY24 EPS stood at Rs.10.42.

For FY25E, estimating EPS at about Rs.11.75, the IPO price is discounted by a PE multiple of 28.5x on a current year basis. On 13^th Aug 2024, promoters undertook a Rs. 45 cr pre-IPO sale of 2.25% stake, at Rs. 333.3 per share, similar to upper end of IPO price. There are no listed mainboard peers. Wise Travel and Shree OSFM are SME-listed, clocking 6-7% net margin and ~16% RoE, rule at PE multiples of 25-28x.

Thus, in the short term, IPO of Ecos India is fully priced, as the scale of operations are small and industry highly competitive lacking product differentiation.

However, asset light business model leading to high single digit net profit margin makes it promising over the long term.