Lumi stock valuation based on balance sheet, investor demand: CEO

Azfar Shakeel, CEO of Lumi

The valuation of Lumi Rental Co.’s stock was based on various factors, such as the company’s balance sheet, its ability to deliver growth, the sector status, economic conditions and investor demand, Azfar Shakeel, CEO of Lumi, told Argaam in an interview.

The total value of Lumi’s assets surpassed SAR 2.24 billion as of June 30, 2023, compared to SAR 1.84 billion as of Dec. 31, 2022. The company’s net income came in at SAR 100 million in the first half of 2023, a rise of 38.8% year-on-year (YoY).

Lumi’s strategy is focused on three key pillars: First, growing its fleet size, and entering into vehicle lease contracts with corporate and government clients.

Second, expanding its branch network, providing end-to-end logistics and fleet management support to large-scale events across the Kingdom.

Lumi also plans fleet disposal at maximized purchase price recovery through its existing used vehicle sales showroom in Riyadh and Jeddah, digitizing its existing closed bidding process for used vehicles and opening used vehicle sales showrooms in Dammam.

Here’s the full interview with Shakeel:

Q: Can you give us insight into the company’s incorporation and evolution?

A: Lumi, a leading car rental company in Saudi Arabia, was established in 2006 with a unique and diverse offering, including lease services to corporate and government sector clients, car rentals via digital channels and a network of 35 airport and city branches across the Kingdom, and used car sales.

It holds a 7% share in a large and growing market. The sector is expected to maintain growth in the next few years, on the back of various drivers, such as mega projects (The Red Sea, NEOM, AMAALA, Qiddiya, etc.) and tourism growth in the Kingdom.

Lumi has a very strong maintenance infrastructure, including three inhouse workshops, mobile workshops, contract with the third-party service providers and 24/7 roadside assistance for car rental customers and vehicle lease clients.

In 2016, the parent company, Seera Group Holding rolled out a transition program. Since then, Lumi has witnessed high growth, increasing its fleet from 3,603 vehicles in 2016 to 24,730 as of April 30, 2023.

Q: What is the difference between car rentals and leases? What is the most profitable segment in the company?

A: Leases, or long-term lease, are generally provided for two to five years, under a business model that targets institutions, mainly corporate and government clients.

Through rentals, Lumi rents cars to individuals for short, specific periods ranging from a few days up to one year.

Q: Does the company incur additional costs or expenses from rentals compared to leases?

A: The rentals model requires a large number of points-of-sale, especially in major cities and at airports, which requires more capital expenditure.

We are proud of our growth, as we secured a strong foothold at the most important airports and major urban centres in the Kingdom. While rentals primarily target individual clients, the lease contracts are conducted directly between the company and corporate or institutional clients.

Q: Do rentals receive stronger demand than leases during certain periods of the year? How does the company deal with such demand fluctuations?

A: The company's rental rates for individual customers are set annually and reviewed on a quarterly basis. Promotions are offered during different seasons, such as school holidays, Ramadan, and local entertainment events.

Q: What are your expectation on the volume of contracts by the end of 2023?

A: Lumi provides car rental services to its individuals, corporate and government clients. Currently, our customer base includes a large number of more than 200 corporate and government customers, in addition to over 300,000 individual clients.

We plan to continue expanding our fleet size within the framework of our growth strategy, while focusing strongly on securing new lease contracts with corporate and government customers. We currently have a strong portfolio of government and semi-government lease agreements that will be disclosed in due course.

We also signed a 34-month lease agreement worth SAR 42 million with the Saudi Post, effective from May 2023, to provide a fleet of 855 cars.

Q: How can the company improve its customer experience in both leases and rentals?

A: Fleet purchases are based on customer requirements and supported by our strong relationships with dealers in terms of best prices and priority delivery.

As for rentals, we purchase the fleet based on customer preferences, while for the lease segment, we purchase the fleet after winning contracts and deliver cars based on customer orders.

Lumi is continuously digitizing all its operations to boost customer experience and its operational efficiency.

The lease management portal enables the company's customers to order car maintenance and repairs, as well as view all relevant lease documents, or submit fleet reports.

The rental products include a smartphone app and website that allow customers to register all their information, upload required documents, and create instant bookings.

We also plan to launch a digital portal to provide closed bids for the used car sales segment.

Q: What is the importance of the used car sale segment? What is the expected impact of the segment on future business?

A: Lumi caters to a broad customer base via leases and rentals as well as used car sales, while delivering the highest levels of customer service in our business segments through cutting-edge omnichannel platform.

We are working to recover the highest revenue from our fleet sales through used car showrooms in Riyadh and Jeddah, as well as by digitizing the closed bidding processes for used cars. We also have a plan to open another used car showroom in Dammam.

Used car sales revenue played an important role in offsetting the negative impact of the COVID-19 pandemic on car rental, while long-term leasing showed a more solid performance during that period.

The continued success of the used car sales segment has further supported the growth and profitable fleet cycle of the business, through the opening of used car showrooms in the Kingdom.

Q: How was the company's financial performance during the current year compared to previous years?

A: Lumi achieved revenues of SAR 782.6 million in 2022, with an annual growth of 50.1%, while revenues reached SAR 500 million in the first half of 2023, an increase of 48.6% YoY.

The company reported earnings before interest, tax, depreciation and amortization (EBITDA) of SAR 437.3 million with an EBITDA margin of 55.9% in 2022, a YoY growth of 37.7%. EBITDA reached SAR 271.7 million, with an EBITDA margin of 54.3% in H1 2023, a surge of 28.9% YoY.

Net profit increased by 35.4% YoY to SAR 143.7 million in 2022 (with a net profit margin of 18.4%). In H1 2023, net profit increased by 38.8% YoY to SAR 100 million (with a net profit margin of 20%).

The total value of the company's assets as of June 30, 2023 stood at SAR 2.23 billion from SAR 1.84 billion as of Dec. 31, 2022.

Q: What are the company’s plans for future growth?

A: Lumi’s growth strategy is based on three main pillars: enhancing the growth and flow of future revenues and assets through long-term leases; achieving savings based on volume of operations; achieving growth, profitability and capturing the greatest return from the sale price of used vehicles.

First, we plan to continue to increase the size of our fleet with long-term leases with corporate and government clients.

The company also intends to expand its distinguished branch network, providing comprehensive logistical support and fleet management to enable beneficiaries to navigate major events across the Kingdom.

Finally, we plan to recover the highest return from our fleet sales through used car showrooms in Riyadh and Jeddah, in addition to the planned showroom in Dammam, as well as by digitizing the closed bidding processes for used cars.

Q: Is the company going to adopt a dividend policy, or would it prefer to keep its profit to finance its growth from its own resources?

A: The board will announce the company’s profit and recommend dividends upon the shareholders’ approval. We maintain a balanced policy to finance growth on one hand, and pay dividends on the other, with an aim to enhance total returns to shareholders.

Q: What criteria were used for Lumi’s stock valuation?

A: The valuation was determined based on a comprehensive pre-deal investor education (PDIE) process to drive price exploration. Furthermore, the process was followed by price range identification and book-building process. Our rating reflects the fair value of our business, the positive market environment, and the multiples at which our domestic and international peers trade.

Besides, the valuation was determined based on the company's financial position, our ability to achieve growth, the sector’s status, economic conditions and investor demand.

It is a true opportunity for Seera Group to realize value from their long-term support to Lumi, while providing a chance for the supportive market performance following the sale to new shareholders.

It is a pleasure to invite new shareholders to participate in Lumi's future journey. The significantly high demand for the initial public offering, which 94.5 times exceeded the target value, reflects our leading position in the land transportation sector across the Kingdom’s market, which is already witnessing a significant and rapid growth.

It is the ideal time to invite investors to join us in the company’s development journey.

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