Brazil’s Localiza seeks internationalization and digital tools to ensure growth

RIO DE JANEIRO, BRAZIL – Localiza (RENT3) is awaiting the outcome of its merger with Unidas (LCAM3), but for the medium and long term the car rental company wants to maintain its growth trajectory and also enter new markets and services.

This includes the launch of a specific company to serve app drivers, Zarp, and international expansion.

The car rental and fleet management company is the winner of the Melhores da Bolsa (Best of the Stock Market) consumer category, organized by InfoMoney in partnership with Stock Pickers based on an exclusive ranking prepared by Economática financial services provider and Ibmec business school.

“In a period of 5, 10 years, we will also consider (as one of the avenues for growth) the company’s internationalization. The combination of business with Unidas may catalyze these existing plans,” said Bruno Lasansky, Localiza’s CEO since April.

Localiza is currently present abroad, but limited to 4 countries in South America. The company had a partnership with Hertz, but it was terminated in August last year after the American company went into receivership in the United States, one of the consequences of the Covid-19 pandemic.

The business combination with Unidas hinges on the merger announced in September being approved by the Administrative Council for Economic Defense (CADE). The antitrust regulatory agency has stated that it is a complex operation, given the potential for concentration in the rental and vehicle markets. Localiza has a fleet of 289,193 vehicles, leader in Brazil, and Unidas has 134,921 cars.

While the decision is still pending, Localiza has been working on other fronts and showing results. The company posted revenue of R$2.797 billion (US$562 million) in the first quarter, stable in comparison with the same period last year. However, profit more than doubled, reaching R$482.3 million.

Part of these results reflect the efforts in innovation and new services. In 2020, the company intensified the offer of its vehicle subscription service, Meoo. This year, it launched the Zarp brand, in addition to testing products and services developed by Localiza Lab.

Lasansky states that the use of technology and data intelligence has allowed Localiza to develop solutions that can better serve customers. In the case of Zarp, the company realized the need to offer app drivers an exclusive service that could simplify the management of fines and maintenance scheduling.

It was also the use of technology that enabled the creation of an unlocking service of a rented car through a cell phone app, without the need for interaction between the customer and store attendants.

“We want to combine technology and the use of data with the company’s operational strength, which is scale asset management,” the CEO said.

Opportunities also exist in traditional markets. Lasansky says that in Brazil, 80% of companies manage their own fleets (considering those that need more than 10 vehicles).

“For these companies it is more convenient to outsource the service, so we see that there is plenty of room for growth,” he said.

At the start of the pandemic, Localiza followed the path of other large companies, focusing on preserving capital and making efforts to adjust the workforce to the new reality.

In the second stage, when the company realized it would have enough cash to cope with any scenario, it was time to look again at digitalization and growth plans in the medium and long term. That was when the acceleration of Meoo occurred, and investments in the expansion of Localiza Lab. It was also during this time that the company announced the merger with Unidas.

The CEO said that the current stage is taking into account a greater economic reopening, which will be propitiated by the progress of vaccination.

Localiza, as well as the other vehicle leasing companies, was one of the hardest hit at the start of the Covid-19 pandemic. In March 2020, the company’s stock dropped as much as 50% amid announcements of mobility restrictions. Shares closed that month at R$23.15. Recovery was gradual, accelerating with the merger announcement. Currently, these shares are traded at R$64, higher than before the start of the pandemic.

Henrique Alvarez, co-founder of Neo Investimentos, a management company with Localiza shares in its portfolio, recalled that after the scare, investors looked again at the companies’ fundamentals, which explains the rebound of the car rental company’s shares.

The Best Companies on the Stock Market ranking adopted quantitative and qualitative criteria to analyze publicly traded companies. The analysis considered a 3-year period, from December 31, 2017 to December 31, 2020. The quantitative data was assessed by Economática, and the qualitative data by Ibmec.

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