Stocks Profiting from the Rise of the Luxury Class in India

Apr 26, 2024

Stocks Profiting from the Rise of the Luxury Class in India

As per a Fortune India article, in FY24, one in every four Mercedes-Benz cars sold in India was a top end vehicle, costing over Rs 1.5 crore.

What's more, the company posted its highest ever sales in India in the March quarter.

The management was not prepared for this it seems. Their challenge is that they are down to the last units of their best-selling luxury sedan in India. They may run out of stock soon. The new E class is expected to come only by the end of the year.

The rise of the luxury class in India has taken everyone by surprise. Demand has outstripped supply.

Luxury vehicles sold in India grew 20% YoY in 2023. The growth could have been more if the supplies were planned better.

This is a broad trend.

SUVs sales are racing past the overall passenger vehicle category volume growth. SUV's share in personal vehicles is expected to rise from 51% to 62% by FY25.

Overall, the average selling price of a passenger vehicle is up 50% in last five years.

And it's not just cars.

The personal luxury market is expected to grow at 12% as per industry reports. That beats GDP growth by a decent margin.

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The opportunity is not lost on Western luxury brands like Gucci, Louis Vuitton, Cartier, and others. They are renting space in luxury retail malls and have even signed leases in Jio World Plaza.

The domestic sales volume of luxury houses priced at Rs 4 crore or more was up 75% YoY in 2023.

Once looked down upon as a land of snake charmers, India is now hogging limelight for beating other developed nations in adding billionaires. Mumbai has taken over Beijing in China on this stat.

And there is more. Last week, 471,000 passengers travelled by air - recording the highest single day air traffic ever in the country.

Such news across different sectors suggest a trend you should take note of.

While FMCG companies are fretting over inflation and slowdown in the growth, the 'premiumisation' and luxury theme is gliding well on lubricated wheels.

With a favourable demographic dividend and aspiring millennials, luxury and premiumisation are likely to be structural growth trends.

You see, when the income and affordability rise, discretionary consumption takes a disproportionate leap. Money becomes a way to not just meet basic needs, but aspirations, pleasure, and vanity.

People switch to brands. Consolidation happens. Value migration and premiumisation unfold.

For investors, this could throw up great investment opportunities.

In an earlier video on this theme, I had highlighted the opportunity in Pricol.

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But there are more businesses riding this theme that you should put on your watchlist. Consider Ethos, Brand Concepts, and Titan.

As I started this article highlighting luxury cars, I would like to spend some time on the company named Landmark Cars - India's premier dealership for premium and luxury cars.

Around 80% of its revenue comes from new vehicle sales. The other 20% is from aftersales, preowned vehicles sales, and finance and insurance.

Landmark Cars is number one partner for brands like Mercedes, Volkswagen, Renault, and BYD. It's well on its way to on-board MG Motors and Mahindra SUV.

Diversification across multiple brands is good in case launches in a particular brand slow down, and to mitigate cyclicality. With 12 new launches, it expects significant growth in Mercedes brands itself this year.

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The company has been a prominent player in North and West India. And is now expanding presence in the South.

Its preowned car business is profitable and is expected to double in a year.

In last two years, i.e., from FY21-23, revenue has grown 73% and net profit is up 667%. The business is asset light. The debt-to-equity ratio is at 0.7 times. The stock is trading at a PE (price to earning) of 44x.

Please note that none of the stocks mentioned in this article imply any Buy, Hold or Sell view.

The purpose is to make you aware of potential plays on themes that are doing well.

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Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

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