Bloated equity base for a non-dividend-paying trading company could be detrimental to capital appreciation prospects in the post lock-in scenario.
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ELECTRONICS MART OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Fresh Issue | Rs 500 Cr (847.46 lakh equity shares) |
| Face Value | Rs 10 |
| Price Band | Rs 56 – 59 |
| Mkt/Bid Lot | 254 Nos. |
| Implied M-Cap | Rs 2270 Cr |
| Implied Equity Cap | Rs 384.74 Cr |
| Free Float | 22.03% |
| Lead Manager | Anand Rathi Advisors, IIFL Securities and JM Financial |
| Registrar | KFin Technologies |
| Listing At | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :04-Oct-2022 | Closing :07-Oct-2022 |
| Allotment :12-Oct-2022 | Refunding :13-Oct-2022 |
| Demat Credit :14-Oct-2022 | Trading :17-Oct-2022 |
The Offer
Hyderabad-registered Electronics Mart India Ltd (EMIL) is coming out with its maiden public issue valued Rs 500 Cr. The IPO is a fresh issue of 8,47,45,763 equity shares by the company. The offer is being made through the book-building route with a price band of Rs 56-59 for Rs 10 paid-up share.
Applicants should bid for a minimum lot of 254 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on October 17, 2022. Anand Rathi Advisors, IIFL Securities and JM Financial are acting as managers to the offer while and Karvy’s new avatar, Kfin Technologies, plays the role of registrar to the issue. The bidding opens on Tuesday, October 4 and closes on Friday, October 7, 2022.
The company proposes to utilize the net proceeds towards funding for expansion and opening of stores and warehouses (Rs 111.44 Cr), funding incremental working capital requirements (Rs 220 Cr) and repayment of loans (Rs 55 Cr). The balance amount is earmarked for general corporate purposes.
Lineage
Originally formed as a proprietorship under the banner of Bajaj Electronics in 1980, the firm was converted into a partnership in 2011. The partnership firm was converted into a public limited company in 2018 and the partners staked in the share capital of the company in the same proportion that they had in the partnership firm. Thus, pursuant to subscription to MoA, 300,003,000 equity shares were allotted to the partners. Pavan Kumar Bajaj got 152,057,999 shares or 50.69%, Karan Bajaj had 147,878,566 shares or 49.29%. Renu Bajaj, Astha Bajaj, Sameer Kalra, Isha Sameer Kalra and Devina Bhardwaj were allotted 13,287 shares each. Though there were seven partners in Bajaj Electronics, only the large two stake holders, Pavan Kumar Bajaj and Karan Bajaj, are presented as promoters of EMIL.
Are the promoters connected to the famous Bajaj conglomerate? There seems to be no connection between them. On the contrary, EMIL is currently involved in legal proceedings against Bajaj Electricals Ltd (BEL) who have filed a suit against EMIL, its promoters and Astha Bajaj, who is a Director of EMIL, alleging infringement of the trademark “BAJAJ ELECTRICALS”.
In the suit, BEL has prayed for a perpetual order to restrain EMIL, its directors, subsidiaries and other associated persons or entities from infringing and passing off its said registered trademarks by manufacturing, marketing, selling and/or dealing in any products bearing the said trademark or using any name/mark containing the word “BAJAJ” for any goods/products or service/ business activity including on any e-commerce/online platform, except for using the trade mark/trading name “BAJAJ ELECTRONICS” for the electronic retail business/retail stores in the State of Andhra Pradesh and Telangana, alone.
Further, BEL has also prayed Court to direct EMIL to withdraw the trademark application no. 4038570 under Class 9 of the Trade Marks Act, 1999 with immediate effect; and pay damages amounting to Rs 20 lakh to BEL. Subsequently, an interim application seeking ad-interim reliefs against EMIL was also filed by BEL. The suit and interim application are currently pending before the Bombay High Court. If the legal proceedings are not decided in EMIL’s favour, the company may not be able to use the trademark “BAJAJ ELECTRONICS” outside the states of Andhra Pradesh & Telangana.
EMIL is claimed to be the 4th largest consumer durables and electronics retailers in India and as of Fiscal 2021, it is said to be the largest regional organised player in the southern region in terms of revenue. As on August 31, 2022, EMIL reportedly operated 112 stores across 36 cities. Majority of its stores are presently concentrated in Andhra Pradesh and Telangana. Though EMIL sells nearly two dozen brands, a large part of its revenue (more than 61%) is derived from just five brands. Also, mobiles are the single largest contributor to the company’s sales.
Key Management
EMIL’s management is in the hands of the promoter family. The senior member of the family, Pavan Kumar Bajaj (67), is the chairman and managing director of the company. His son and co-promoter Karan Bajaj (35) is the Chief Executive Officer and Whole-time Director. Karan Bajaj’s spouse, Astha Bajaj (32) is designated as “Executive Director & Whole-time Director”.
Stakeholders
Currently the promoters are holding almost the entire equity capital of Rs 300 Cr. Post public issue the two promoters would collectively hold about 78% (300 million shares) of 20% is locked-in for a period of 18 months and the balance 58% is locked for six months.
Business Track
EMIL reportedly offers a diversified range of products with focus on large appliances (air conditioners, televisions, washing machines and refrigerators), mobiles and small appliances, IT and others. The company’s business model is a mix of ownership and lease rental model, as it focuses to secure retail spaces which ensure high visibility and easy accessibility to customers. Under the ownership model, EMIL owns the underlying property including the land and building and in lease rental model, it enters into a long-term lease arrangement with the property owner(s). As of August 31, 2022, out of the total 112 stores that it operates, 11 stores are owned, 93 stores are under long-term lease rental model and eight stores are partly owned and partly leased. EMIL’s has three business channels namely retail, wholesale and e-commerce.
Of the 112 stores operated by the company, 100 stores are Multi Brand Outlets (MBOs) and 12 stores are Exclusive Brand Outlets (EBOs). The Company operates 89 MBOs under the name Bajaj Electronics in Andhra and Telangana, eight MBO under the name of Electronics Mart in the NCR region, two specialized stores under the name “Kitchen Stories” which caters to the kitchen specific demands of the customers and one specialised store format under the name “Audio & Beyond” focusing on high end home audio and home automation solutions.
EMIL offers products under three categories viz. large appliances, mobiles and small appliances. Large appliances include refrigerators, televisions, air conditioners and washing machines. This category accounts for nearly 54% of the company’s sales. The company claims to sell large appliance products from leading brands including LG, Panasonic, Philips, Sony, Godrej, IFB, Daikin, Symphony and Voltas among others. Mobile phones, tablets, smart watches and fitness trackers which account about 34% of the sales are sourced from leading brands including Oppo, One Plus and Vivo among others.
The small appliances, IT and other products include items that typically compliment the above-mentioned products, laptops, personal computers, printers, cables, screen guards, headphones, bluetooth speakers, coolers, geysers, ceiling fans, personal care devices and kitchen appliances such as kitchen hobs, chimneys, water purifiers and other allied appliances. EMIL retails small appliances, IT and other products from Dell, Sony, AO Smith, Ariston Thermo, Butterfly, Miele, Preethi, Havells, Kaff, Orient, Liebherr and Franke Faber among others.
The company is also engaged in the wholesale business of consumer durables, where it supplies products to single shop retailers in Andhra Pradesh and Telangana regions. Also, since 2017, it has diversified its operations by venturing into the e-commerce space through their website. The company’s e-commerce website currently functions as a catalogue for the products it retails at its stores.
Financial Track
EMIL has been one of the fastest growing consumer durable & electronics retailers in the country with revenue CAGR of around 18% between fiscal 2016 and 2021. Despite the disruption caused by the pandemic, the company’s top line has steadily moved up in last three years.
The company has a relatively large equity capital of Rs 300 Cr which will be further enlarged to Rs 385 Cr post-IPO. Adequately servicing such a large equity base is certainly an uphill task for the company which has not paid any dividend till date.
However the bulging equity base and hefty borrowing are backed by tangible real estate assets, mainly of land and buildings, which should fetch capital gain in the long run.
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Electronics Mart Financials (in Cr) |
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| Period Ended |
Jun-22 |
Mar-22 | Mar-21 | Mar-20 |
Mar-19 |
| Months |
3 |
12 | 12 | 12 |
12 |
| Revenue |
1408 |
4349 | 3202 | 3172 |
2824 |
| Operating Profit |
97 |
292 | 204 | 228 |
216 |
| OPM% |
6.9 |
6.7 | 6.4 | 7.2 |
7.6 |
| Other Income |
1.8 |
3.76 | 5.49 | 6.54 |
2.45 |
| EBIDTA |
99 |
296 | 209 | 234 |
218 |
| EBIDTA % |
7.0 |
6.8 | 6.5 | 7.4 |
7.7 |
| Interest |
24 |
85 | 72 | 63 |
53 |
| Depreciation |
20 |
71 | 58 | 51 |
42 |
| Tax |
16 |
42 | 26 | 35 |
50 |
| Net Profit |
41 |
104 | 59 | 82 |
77 |
| Equity Capital (implied) |
385 |
300 | 300 | 300 |
300 |
| Reserves (implied) |
754 |
297 | 192 | 133 |
40 |
| Borrowing |
476 |
594 | 536 | 511 |
368 |
| Fixed Assets |
954 |
809 | 278 | 226 |
199 |
Valuation
EMIL has kept a price band of Rs 56 -59 for Rs 10 paid up share which discounts the company’s current earnings about 22 times and proposed book value just 2.2 times. As compared to the valuation of listed peers like Aditya Vision, the pricing may appear reasonable.
Nonetheless, as the average cost of acquisition of the promoters’ holding is only one sixth of the public cost, in the absence of dividend distribution, should the promoters turn sellers in the post lock-in period, the price is unlikely to hold the IPO level.
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HOW EMIL COMPARES WITH PEER |
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Financials |
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| (Amount in Cr) |
Electonics Mart |
Aditya Vision |
| Market Cap |
2270 |
1710 |
| Borrowing |
594 |
115 |
| Fixed Assets |
809 |
39 |
| Revenue |
4349 |
899 |
| Other Income |
4 |
1 |
| EBIDTA |
296 |
68 |
| Interest |
85 |
15 |
| Net Profit |
104 |
37 |
| Equity Cap |
385 |
12 |
| Reserves |
754 |
75 |
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Stock Features |
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| Current Price (Rs) |
59 |
1421 |
| Face Value (Rs) |
10 |
10 |
| Book Value |
29.59 |
72.67 |
| Promoter Stake % |
77.97 |
73.68 |
| Debt/Equity |
0.93 |
1.31 |
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Profitability |
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| OPM % |
6.7 |
7.4 |
| Net Margin % |
2.4 |
4.1 |
| Cash EPS |
4.55 |
33.42 |
| Earnings Per Share |
2.70 |
30.43 |
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Growth |
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| CAGR 3Yr Sales % |
15.7 |
15.2 |
| CAGR 3Yr EBIDTA % |
10.6 |
57.1 |
| PEG (P-E Growth %) |
0.2 |
1.0 |
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Return |
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| RONW % |
16.3 |
41.9 |
| ROCE % |
18.2 |
31.6 |
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Discounting |
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| Price/Earnings |
21.8 |
46.7 |
| Price/Cash EPS |
13.0 |
42.5 |
| Price/Book Value |
2.0 |
19.6 |
| Price/EBIDTA |
6.0 |
25.3 |
| Price/Revenue |
0.4 |
1.9 |
| Price/Fixed Assets |
2.2 |
43.7 |
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Distribution |
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| Dividend % |
0 |
60 |
| Yield % |
0 |
0.4 |
| Pay-out % |
0 |
19.7 |
Concerns
- Competition from online retailers like Amazon who are able to offer products at competitive prices and are also able to offer wide range of products.
- Statutory Auditors have drawn attention to certain properties that were transferred to the company as a result of conversion of the partnership firm, the title deeds of which are still in the name of the erstwhile firm.
- Further, Auditors have included certain qualifications, relating to delays in deposit of statutory dues, default in repayment of loans / borrowings and difference in the amounts of inventories in their reporting under CARO 2020 and CARO 2016.
- Some of the lease agreements have irregularities such as inadequate stamping and/or non-registration of deeds and agreements and improper execution of lease deeds. Out of total 278 lease deeds entered into for stores, warehouses and storage spaces in NCR and in the States of Telangana and Andhra Pradesh, 210 lease deeds are unregistered. The effect of inadequate stamping and non-registration is that the document is not admissible as evidence in legal proceedings, and parties to that agreement may not be able to legally enforce the same. In the event of any dispute arising out of such unstamped or inadequately stamped and/or unregistered lease agreements, the company may not be able to effectively enforce its leasehold rights and might need to vacate the premises immediately which may have a material and adverse impact on the business of the company.