ECOS (India) Mobility & Hospitality Limited IPO (ECO Mobility IPO)

About the Company:

ECOS (INDIA) MOBILITY & HOSPITALITY LIMITED specializes in providing chauffeured car rentals (CCR) and employee transportation services (ETS), serving corporate clients, including Fortune 500 companies in India, for over 25 years.

The company’s CCR segment (43.29% of revenue from operations in Fiscal 2024) operates as a B2B2C model, where corporate clients are the direct customers, while the end-users are their employees, clients, guests, or visitors. And ETS segment (54.71% of revenue from operations in Fiscal 2024) offers solutions for managing employee home-to-office transportation, and its revenue share has been increasing over the years.

As of March 31, 2024, the company has a presence in 109 cities across 21 states and 4 union territories in India, with 14 cities having company-owned offices and 95 cities served through vendor vehicles. In Fiscal 2024, ECOS completed over 3.1 million trips, averaging more than 8,400 trips per day through its CCR and ETS segments.

The company operates a fleet comprising 750 owned vehicles and 12,166 vendor-operated vehicles, ranging from economy to luxury cars, mini vans, and luxury coaches. It employs an asset-light model, maintaining a significantly lower number of owned vehicles compared to those sourced from vendors.

IPO Details:

Objects of the Offer:

The issue is entirely an Offer for Sale. Promoters are selling 30% stake. Therefore, the company will not receive any proceeds from the Offer.

The company’s objectives of the Offer are to

• achieve the benefits of listing the equity shares on the Stock Exchanges; and
• carry out the Offer for Sale of up to 18 million equity shares by the selling shareholders; and
• enhance visibility, brand image and provide liquidity to shareholders by public market access for the equity shares in India

Key Strengths and Opportunities:

• India’s largest and most profitable chauffeur driven mobility provider: ECO Mobility is the market leader in the chauffeur driven mobility provider market. According to the Frost & Sullivan (F&S) Report, it is the largest and most profitable chauffeur-driven mobility provider to corporates in India, based on revenue from operations and profit after tax for Fiscal 2023.
• Synergy across business segments: The company’s two business segments create synergy by delivering a seamless transportation experience to corporate clients and providing opportunities to cross-sell services between segments. In Fiscal 2024, Fiscal 2023 and Fiscal 2022, 72.45%, 63.33% and 62.00% of its ETS customers also availed CCR services. Such cross selling of services reduces the marketing cost and cost of customer acquisition. CCR and ETS divisions leverage shared systems and administrative infrastructure to generate substantial benefits.
• Strong and upward-trending financial performance: The company has reported Rs. 5,544.11 million (+31.17% YoY) revenue and Rs. 625.31 million (+43.45% YoY) profit in Fiscal 2024, reflecting an upward trend in financial performance. Return on Equity has taken a robust leap from 14.80% in Fiscal 2022 to 42.75% in Fiscal 2024.
• Comprehensive technology ecosystem enabling operational superiority: Technology tools has enabled the company to better manage service offerings and improve operating efficiencies by integrating service functions and ensuring accuracy, reliability and swiftness in operations. The outsourced technology team has developed various applications which company employs in business, such as Online Booking Tool, Chauffeur Mobile Application, Customer Mobile Application, CabDrive Pro and RentNet application.
• Long-standing customer relationships with reputed clients: In Fiscal 2024, we provided CCR and ETS to 42 Fortune 500 companies and 60 BSE 500 companies. Its customers include InterGlobe Aviation, HCL Corporation, Deloitte Consulting, IndusInd Bank, HDFC Life Insurance, Thomas Cook, Grant Thornton Bharat LLP, WM Global Technology Services etc. Customers with whom the company has had a relationship of more than five years account for 57.14% of the total revenue from operations in Fiscal 2024.

Risks:

• Loss of client if lapse in service quality: The company is held to high-quality service standards and is governed by the terms and conditions outlined in its contracts with customers. Failure to adhere to these standards or contractual terms could result in the cancellation of existing and future bookings, potentially damaging the company’s reputation and business performance.
• Dependency on vendor relationships: The company's business relies heavily on relationships with vendors who supply vehicles and chauffeurs. Any negative changes in these relationships or an inability to establish new ones could negatively impact the company's operations and financial performance.
• Revenue dependency on key customers: A substantial portion of the company’s revenue comes from a few key customers (Top 15 customers contributed over 40% of revenue in Fiscal 2024), and not all of these customers are bound by long-term contracts. If any of these customers decide to discontinue using the company’s services or terminate their agreements, it could adversely impact the company’s business and cash flows.
• Risk of accident and employee and chauffeur misconduct: The company’s brand image may be adversely affected by the number of vehicular accidents involving its vehicles, which were 121 in Fiscal 2024, 177 in Fiscal 2023, and 128 in Fiscal 2022. Also, misconduct by employees and contracted chauffeurs may be challenging to detect and could potentially damage the its reputation.
• Risk of increase in vendor and vehicle operation costs: The company incurs significant expenses related to vendors and vehicle operations. In Fiscal 2024, the cost of services for CCR and ETS accounted for around 80% of total expenses. An increase in the factors influencing the pricing of services provided by vendors or the cost of operating vehicles could adversely affect the company’s business, financial condition, and operational results.

Financial Snapshot:

Conclusion:

The market for chauffeured car rentals and employee transportation services is currently experiencing growth, driven by the transition from remote to in-office work, an increase in corporate air travel, the expansion of office space, and the development of tier-II and tier-III cities. ECO Mobility is the industry leader, leveraging a wide network of vendors pan India and an asset-light model to achieve scalability and flexibility. The company's revenue and profit are on an upward trend. Its Return on Capital Employed and Return on Equity, both exceeding 40%, demonstrate effective resource utilization by management to maximize shareholder value.

However, from a valuation perspective, the share is priced at a Price-to-earnings (P/E) multiple of 32.05 at the upper end of the price band, which is higher than the industry average P/E multiple of 22.28. Despite this, considering the company’s strong growth prospects and other positive factors, we recommend investors to subscribe to the issue for long-term gains.