Stock that was valued at Rs 495 by the company seven months ago is now being offered at Rs 866!
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VEDANT FASHIONS OFFER AT A GLANCE |
|
| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 3,149 Cr |
| Fresh Issue | Nil |
| Offer for Sale | 3,63,64,838 equity shares (Rs 3,149 Cr) |
| Face Value | Re 1 |
| Price Band | Rs 824 – 866 |
| Min Quantity | 17 Nos. |
| Implied M-Cap | Rs 21,017 Cr |
| Equity Cap | Rs 24 Cr |
| Free Float | 15.09% |
| Lead Manager | Axis Cap, Edelweiss Fin, ICICI Sec, IIFL Sec and Kotak Mahindra Cap |
| Registrar | Kfin Technologies |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :4-Feb-2022 | Closing :8-Feb-2022 |
| Allotment :11-Feb-2022 | Refunding :14-Feb-2022 |
| Demat Credit :15-Feb-2022 | Trading :16-Feb-2022 |
The Offer
The Kolkata-based Vedant Fashions Ltd (VFL) is entering the capital market with an offer for sale of 3,36,64,838 equity shares (Rs 3,149 Cr). The offer is being made through the book-building route with a price band of Rs 824-866 for Re 1 paid-up share. The objects of the IPO are to carry out the Offer for Sale by the selling shareholders and achieve the benefits of listing on the stock exchange.
Applicants for the IPO should bid for a minimum quantity of 17 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Wednesday, February 16, 2022.
Axis Capital, Edelweiss Financial, ICICI Securities, IIFL Securities and Kotak Mahindra Capital have been roped in as book running lead managers to the offer. Kfin Technologies is acting as the registrar to the issue. The bidding opens on Friday, February 4, 2022 and closes on Tuesday February 8, 2022.
Lineage
Headquartered in Kolkata, VFL is the largest company in India in the men’s wedding and celebration wear segment in terms of revenue, EBIDTA and profit after tax. VFL’s ‘Manyavar’ brand is a category leader in the branded Indian wedding and celebration wear market with a pan-India presence. The company has established a multi-channel network and introduced brands by identifying gaps in the under-served and high-growth Indian wedding and celebration wear category. VFL claims to offer a one-stop destination with a wide-spectrum of product offerings for every celebratory occasion and aims to deliver an aristocratic yet seamless purchase experience to its customers through its aesthetic franchisee-owned exclusive brand stores.
Incorporated in May 2002, VFL took over the business of the promoter’s proprietary firm in June 2002. Further, in June 2017, the company acquired the business undertaking of the Hyderabad-based New Meena Bazaar International Private Ltd along with the trademark “Mebaz”. A year later Rainbow Iron & Steel Private Ltd was amalgamated with VFL. Having established more than 400 EBOs, the company logged Rs 500 Cr revenue in 2017.
Key Management
VRL is led by its founder, Chairman and Managing Director, Ravi Modi (44), a first generation entrepreneur who has proven his flair for the art of brand building and retailing. Founder’s spouse, Shilpi Modi (43), designated as Co-promoter and Whole-time Director, who has been associated with the company since its inception, handles the digital strategy and product lifecycle of the company.
Since 2017 VRL has also benefited from the support, guidance and expertise of marquee investor, Kedaara Capital, through Kedaara Capital Alternative Investment Fund – Kedaara Capital AIF 1 and Rhine Holdings Ltd. Co-CEO and managing partner of Kedaara Capital, Sunish Sharma (47), is serving on VRL’s board as a nominee Director.
Stakeholders
The promoters, whose cost of acquisition was negligible before the offer for sale, will hold nearly 85% after the IPO at a negative cost. The private equity investors, whose cost of acquisition was Rs 166 a share, will pocket a hefty gain from the OFS by offloading their entire holdings. Thus, as against the promoters’ extremely negative cost of holding of 85%, the public will hold 15% at an exorbitant price of Rs 866 a share at the cap price.
Business
VFL’s product portfolio includes a diverse range of attires and accessories, each conceptualized by the company’s in-house designers. The company’s products are made by artisans having an abundance of expertise in the Indian wedding and celebration wear market, supplemented by the company’s own ingrained knowledge of the demands of Indian festivals and weddings. Its wedding portfolio also includes different ranges of creations for different members of the wedding entourage, besides unique personalization for the bride and the groom. Over the years, the company claims to have built longstanding relationships with vendors and artisans, which have been critical in commanding a dominant position in a field that was conventionally an unorganized market.
As regards the company’s reach, at the end of September 2021, it had a retail footprint of 1.2 million square feet covering 535 EBOs (including 58 shop-in-shops) spanning across 212 cities and towns in India, and 11 EBOs overseas across the United States, Canada and the UAE, which are countries with a large Indian diaspora. In addition to its offline retail presence, VFL’s consumers also have the option of placing orders through the company’s website, its mobile application and through leading lateral e-commerce platforms.
As VFL’s offline and online channels are integrated, customers can place orders for the products either offline or online, and have the flexibility of buying products at one store and returning at another or browsing the product catalogues and placing orders online with doorstep delivery. The company also operates a QR-code enabled digital catalogue at many of its stores so that its customers can select a product of their choice from VFL’s entire range of offerings.
In the six months period ended September 2021, about 45% of the sales was generated by the franchisee-owned EBOs from Tier I cities, 39% from Tier II cities and 13% from Tier III cities. The remaining 3% was derived from international markets. In fiscal 2021, more than 44% sales were generated by franchisee-owned EBOs from Tier I cities, 42% from Tier 2 cities and 12% from Tier 3 cities. The remaining around 2% was generated from international markets.
Financial Track
VFL is asset-light in respect of its plant, property and equipment. With a substantial part of its sales being generated through franchisee-owned EBOs, the company does not need to invest in developing manufacturing facilities or distribution system. Thus, by using economies of scale, it is able to optimize several costs such as production and procurement costs, distribution costs and employee costs. As a result, the company is enjoying an attractive profit margin. Its EBIDTA margin is as attractive as 48.5%!
The 2002-registered VFL achieved a peak turnover of about Rs 950 Cr in fiscal 2020. But, in fiscal 2021 turnover slumped to Rs 625 Cr and the company’s net profit crashed from Rs 237 Cr to Rs 133 Cr. However, despite the fall in revenue, the company’s EBIDTA margin surged from 45% to 48.5% though ROCE, which was close to 48% in 2020, became less than a half in September 2021! The company attributes the recent sluggish performance to the pandemic which caused lockdowns, curfews and other restrictions.
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Vedant Fashion Consolidated Financials (in Cr) |
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| Period Ended |
Sep-21 |
Mar-21 | Mar-20 |
Mar-19 |
| Months |
6 |
12 | 12 |
12 |
| Revenue |
360 |
565 | 916 |
801 |
| Operating Profit |
160 |
243 | 394 |
336 |
| OPM% |
44.6 |
43.0 | 43.0 |
41.9 |
| Other Income |
27 |
60 | 32 |
19 |
| EBIDTA |
188 |
303 | 426 |
355 |
| EBIDTA % |
48.5 |
48.5 | 45.0 |
43.3 |
| Interest |
12 |
26 | 26 |
20 |
| Depreciation |
43 |
96 | 89 |
64 |
| Net Profit |
98 |
133 | 237 |
176 |
| Equity |
24 |
24 | 25 |
25 |
| Reserves |
944 |
944 | 1041 |
858 |
| Fixed Assets |
457 |
444 | 491 |
424 |
Valuation
VFL has fixed a price band of Rs 824-866 for Re 1 paid-up share. As there is no fresh issue from the company, the entire IPO premium of Rs 2992-3145 Cr will go to the selling shareholders. It is worth noting here that the private equity funds, whose average cost of holding was Rs 166, are completely exiting the company through the IPO. Also, seven months ago the company had valued the share at Rs 495 for its buy-back offer. The IPO cap price is 75% higher than the company’s buy-back offer price. Moreover, the pandemic has created a lot of uncertainties for the company in the immediate future as its main business is celebration wear.
Considering the risks attached to the pandemic, the exorbitant valuation of the IPO (at an ultra high P/E multiple of 158x, Price/EBIDTA of 69x, Price/Revenue of 37x and Price/Book Value of 22x) when the capital markets are ruling almost at their peak, appears to be a risky proposition for the investing public.
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HOW VEDANT COMPARES WITH SELECT LISTED BRANDED GARMENT RETAIL PLAYERS |
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Financials |
||||||
| (Amount in Cr) |
Vedant |
Go Fash | TCNS | Kewal Kir | Cantabil |
Monte Carlo |
| Market Cap |
21018 |
5148 | 4451 | 1382 | 1312 |
1275 |
| Borrowing |
0 |
10 | 18 | 46 | 14 |
30 |
| Fixed Assets |
444 |
268 | 302 | 82 | 240 |
226 |
| Revenue |
565 |
251 | 636 | 303 | 252 |
622 |
| Other Income |
60 |
6 | 49 | 17 | 17 |
20 |
| EBIDTA |
303 |
78 | 51 | 36 | 76 |
136 |
| Interest |
26 |
21 | 36 | 7 | 25 |
14 |
| Net Profit |
133 |
-4 | -56 | 19 | 10 |
66 |
| Equity Cap |
24 |
54 | 12 | 62 | 16 |
21 |
| Reserves |
944 |
335 | 600 | 371 | 108 |
583 |
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Stock Features |
||||||
| Current Price (Rs) |
866 |
953 | 723 | 224 | 804 |
615 |
| Face Value (Rs) |
1 |
10 | 2 | 10 | 10 |
10 |
| Book Value |
39.88 |
72.01 | 99.45 | 70.23 | 75.97 |
291.38 |
| Promoter Stake % |
84.91 |
52.79 | 32.30 | 74.25 | 74.70 |
73.17 |
| Debt/Equity |
0 |
0.03 | 0.03 | 0.11 | 0.12 |
0.05 |
|
Profitability |
||||||
| OPM % |
43.0 |
18.5 | 0.4 | 6.2 | 23.6 |
18.6 |
| Net Margin % |
21.3 |
-1.3 | -8.2 | 5.9 | 3.6 |
10.3 |
| Cash EPS |
9.41 |
10.53 | 5.77 | 4.18 | 29.86 |
48.4 |
| Earnings Per Share |
5.48 |
-0.67 | -9.16 | 3.09 | 5.92 |
31.91 |
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Return |
||||||
| RONW % |
12.2 |
0 | 0 | 4.4 | 7.8 |
11.0 |
| ROCE % |
19.0 |
7.7 | 0 | 6.1 | 26.8 |
16.0 |
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Discounting |
||||||
| Price/Earnings |
158.1 |
– | – | 72.6 | 135.8 |
19.3 |
| Price/Cash EPS |
92.0 |
90.5 | 125.3 | 53.7 | 26.9 |
12.7 |
| Price/Book Value |
21.7 |
13.2 | 7.3 | 3.2 | 10.6 |
2.1 |
| Price/EBIDTA |
69.3 |
66.1 | 86.6 | 38.3 | 17.2 |
9.4 |
| Price/Revenue |
37.2 |
20.5 | 7.0 | 4.6 | 5.2 |
2.1 |
| Price/Fixed Assets |
47.4 |
19.2 | 14.7 | 16.9 | 5.5 |
5.6 |
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Distribution |
||||||
| Dividend % |
0 |
0 | 0 | 230 | 10 |
150 |
| Yield % |
0 |
0 | 0 | 0.9 | 0.1 |
2.4 |