Marcopolo (BVMF:POMO4) is one of the greatest bus body manufacturers in the world. The naming was not by chance: the famous Venice merchant inspired the company to reach distant regions and conquer the world. It is an amazing history of a simple business that turned into a state-of-the-art technology provider for the bus industry.
Italian immigrants started the company in a poor garage by converting trucks to buses in a very manual process. More than 30 years ago, even though leading a small business at that time, the directors decided to play a global role. They went to Japan and learned the principles of total quality, starting an operational revolution inside the company. Managers led the company to be focused on efficiency and quality, and today it has very clear and organized processes.
In the past, Marcopolo got new clients by customizing the buses to attend their individual needs, building a strong shield against competitors. Flexibility brought loyalty. This is one of the reasons why the market share has been above 35% in Brazil in the last 10 years. Moreover, its quality of the buses is notably higher than its competitors, which makes reselling prices higher and value depreciation for used buses lower.
This innovative behavior appeared during an downturn in the market. The authorities reduced the supervision on public transportation, fostering the competition of clandestine players that used mainly vans and Kombis. With customers lacking incentives to improve the fleet, Marcopolo faced difficulties to keep growing sales. The reaction was to develop a new sort of Mini buses called Volare. This new kind of bus became a best seller, being nowadays the leader of the market and representing 23% of the company's sales.
Launching and commercializing this new type of vehicle was complex. Mini bus customers used to buy it directly from the auto dealers, and Marcopolo (BVMF:POMO4) did not have one. The company developed several partnerships and built a new subsidiary focused on dealing in retail market, which is bringing and will keep bringing even more dividends. Besides Volare, the company is also investing in new projects of public transportation such as the long buses called BRT`s - Bus Rapid Transit.
As a customer-oriented company, Marcopolo has a dominant position in the market, what makes me confident to invest and suggest the stock. Recent stock price makes the investment even more attractive.
And I have a secret to tell you. Probably, you have watched the last 2 world cups - in Germany and in Brazil - and followed the teams being transported by beautiful and customized buses provided by the official sponsor Hyunday ( KRX ). This was fake, the buses were from Marcopolo. The competitor wisely decided to use the best buses of the world.
Business and Operations
Marcopolo (BVMF:POMO4) has the same production concept as Coca Cola Company . They produce and export the skeleton of the bus to be assembled in the local market. There are 4 factories in Brazil and 12 abroad. The business expanded globally in a very organized way through strategic investments or joint ventures. Good examples are in Canada, where Marcopolo (BVMF:POMO4) owns 20% of New Flyer (CN:NFI) as an strategy to enter in the American market, and also in India, where it has a joint venture with Tata Motors .
In the last conference call, the CEO - Jose de La Rosa - affirmed that his personal wealth is concentrated in our bus company and that he does not have any other stock. He has been in this management position for the last 14 years.
Brazilian market represents 70% of Marcopolo's revenues. Concessionaires of public transportation are the main clients and, according to the contracts signed with govern, they must keep the maximum age of the fleet in 10 years. This provides recurrent revenue to bus manufacturers and creates a predictable market. Besides the current market, there are new opportunities in the radar. Last year, the protests in Brazil began due to the increase of bus fare, but it was "not only because of the 20 cents". Population claimed for better public transportation, which has been neglected while government gives lots of incentives to the automotive industry. After the elections, I expect that public and private investments will be realized in public transportation and Marcopolo (BVMF:POMO4) will reach more than 9% of EBITDA margin and 20% of and Return on Equity (ROE).
During the last 2 years, the market conditions were hard but the company performed the impressive Return on Investment (ROI) of 21%.
The Foolish Bottom Line
Although Marcopolo is a global company, the political situation in Brazil has been retarding the investments in public transportation and impacting the business. After elections, several opportunities will open in the market and provide higher volume. There is a huge pent-up demand for bus renewals and Marcopolo (BVMF:POMO4) will be able to attend the market and add even more value to investors and passengers.
The article Why You Should Think Buses In Brazil originally appeared on Fool.com.
Paulo Marchetti has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
