Ecos Mobility offers exposure to fast growing car rental business in the country

Ecos (India) Mobility and Hospitality, a provider of corporate car rental services, plans to raise ₹601 crore through an offer for sale by promoters, which will reduce their stake from 98% to 68%. The company has access to over 12,500 vehicles, ranging from economy to luxury cars, but only 6% of the fleet is owned by the company. This asset-light business model supports high Return on Equity (RoE). The growing share of the organized market for employee transportation services driven by the expansion of global capability centers (GCCs) augurs well for the company. Given these factors, investors may consider the IPO.

Business

Founded in 1996, New Delhi-based Ecos Mobility operates in two segments: Employee Transportation Services (ETS), which contributes two-third to the revenue and the rest is from Chauffeur Car Rentals (CCR). The company provides services across 109 cities in India, although nearly 60% of the revenue comes from four metro cities: Bengaluru, Gurugram, Mumbai, and Hyderabad. The company’s clients include InterGlobe Aviation, HCL Corp, Safexpress, Deloitte, IndusInd Bank, and HDFC Life Insurance. Over 57% of the clients have been with the company for more than five years. The combined market size for ETS and CCR in India is approximately Rs 1 lakh crore, with organized players capturing 15% and 22% of the respective markets.

Financials

Revenue increased by 94% annually to Rs 554 crore between FY22 and FY24. Net profit rose to Rs 62.5 crore from Rs 9.8 crore while earnings before interest, tax, depreciation, and amortisation (EBITDA) grew by 123% to Rs 89.9 crore during the period, achieving an EBITDA margin of 16.2%. It had a return on equity (RoE) of 70% in FY24.

Risks

The ETS and CCR market is highly competitive with low barriers to entry, providing little competitive moat. Ecos Mobility’s business relies on relationships with vendors who supply vehicles and chauffeurs; any adverse changes in these relationships, or inability to establish new ones, could negatively impact the business.

Valuation

The company seeks a price-earnings (P/E) multiple of 32 based on FY24 numbers. While there are no directly comparable listed players on the main board, Wise Travel and Shree OSFM, which are listed on the SME platform, trade at 25-28 times earnings but with lower RoE.