Mumbai: Mahindra and Mahindra (M&M) group's multi-brand used-car business First Choice has sold 10 per cent in the business for Rs80 crore ($19 million) to private equity firm Phi Advisors.
The funds infused as a result of the stake sale will be utilised for expanding First Choice's reach to 300 owned and franchise outlets across India. First Choice has set a target of selling around 100,000 used vehicle units through the expansion by 2013. Of the 300 outlets, 30 would be franchise super stores, with each of which will having a stock of more than 200 cars on display.
Presently, the pre-owned car market is estimated at 1.5 million cars per year, with predictions of exponential growth over the next few years on account of increasing disposable incomes of the burgeoning Indian middle-class families. According to a company release, the industry size is expected to touch Rs50,000 crore in about five years.
M&M's holding in First Choice will come down to 60 per cent after the stake sale, according to media reports. Some time ago, M&M had also offloaded a small 3.68 stake to Goldman Sachs. Other partners in the business are HDFC, which holds nine per cent, and Sah & Sanghi, which holds 11 per cent.
First Choice is already one of the largest organised used-car players in the country, and reported to be looking at going pubic soon, as well as looking at tie ups with global players in the used car business.
The average stock at a First Choice outlet is around 60 cars. The company has a turnover of around Rs225 crore, and sells around 10,000 cars per annum. Once its plans of increasing turnover to 100,000 cars by the year 2013 come into place, it would account for a turnover of around Rs2,000 crore.
First Choice presently has around 70 outlets, and is looking to increase this count to around 115 by the end of the year. Industry sources say that the used car business is continuing to grow at eight to 10 per cent, despite the slowdown in the new car segment, and rising interest rates.
The used car business in India is dominated by the unorganised sector, which resells around 1.5 million compact cars, a number that is said to be growing towards 2.5 million by 2013.
Market sources say that though the global ration for sales of new and used cars is 1:2, in India it is still at 1:1.