Budget Saudi says AutoWorld takeover bodes well for market share, cost savings

Logo of United International Transportation Co. (Budget Saudi)

United International Transportation Co.’s (Budget Saudi) market share is anticipated to grow from approximately 12% to around 18% following its buyout of Al Jazira Equipment Co. Ltd. (AutoWorld), according to a company statement picked up by Argaam, citing data from a credible report issued by an independent source.

Under this takeover deal, AutoWorld's 14,000-vehicle fleet will be merged with Budget Saudi's existing fleet of nearly 49,300 vehicles, based on the 2023 financials. This is considered a strategic step towards strengthening Budget Saudi's position in the car rental market and enhancing service quality in the dynamic transportation sector of the Kingdom.

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AutoWorld's acquisition is expected to bolster Budget Saudi's market share in both the business-to-business (B2B) and business-to-government (B2G) sectors. The latter’s management predicted substantial growth opportunities in this regard, driven by the market trend towards transitioning from asset ownership to usage models through lease contracts.

It is also seen to enable Budget Saudi to offer competitive pricing, thereby positively impacting profitability over the medium to long terms.

Moreover, Budget Saudi highlighted that this buyout would expand its customer base by tapping into new sectors such as oil & gas, leveraging on AutoWorld's strong presence in these and other critical sectors.

This is in addition to enabling Budget Saudi to diversify its portfolio, hence stepping up its capacity to meet a wide range of customer needs with different requirements. This diversification is bound to help the company adapt to market fluctuations and the changing customer preferences.

Post-acquisition, Budget Saudi plans to merge its "Payless" brand, which is focused on short-term car rentals, with AutoWorld. This move shall attract a broader customer base seeking affordable rental options, including residents, business travelers, and leisure tourists, thereby contributing to further customer diversification and growth.

Budget Saudi’s AutoWorld takeover is also expected to generate significant cost savings, reduce redundancies, and achieve economies of scale, which bode well for medium-to-long-term profitability. Additional benefits include optimizing fleet utilization, underpinning procurement processes, strengthening negotiation powers with key suppliers, insurers, and other vendors, and streamlining administrative functions.

The newly-formed resulting entity will capitalize on the enhanced operations and shared resources. This shall in turn fuel reduced excess costs, increased flexibility, and elevated responsiveness to market demands.

Budget Saudi forecasts a positive impact on the post-merger earnings per share, expecting cost savings on AutoWorld's current debts through improved debt terms negotiations. With operational integration and cost savings achieved, Budget Saudi projects net profit growth for AutoWorld, which is likely to boost future consolidated net earnings and profit margins.

Fawaz Danish, President and CEO of Budget Saudi, emphasized that the strategic acquisition of AutoWorld would unlock substantial avenues for future growth. This is attributed to the Kingdom's robust and growing economy, coupled with the pivotal changes in the transportation sector and the continuous growth in tourism.

He added that this buyout sets the stage for launching future strategic initiatives, aimed at driving sustainable growth, buttressing competitive edges, and delivering added value to shareholders.

According to data compiled by Argaam, Budget Saudi's shareholders approved on June 24 the board of directors’ recommendation to raise capital through issuing new shares to complete AutoWorld’s full acquisition.