Vedant Fashions Ltd (Manyavar) IPO Review


  • VFL is the market leader in the Indian ethnic wear space
  • It has posted rising profits alongside increasing top lines.
  • OFS is being done only for 15% of the total paid-up equity.
  • It’s a debt-free company.
  • Based on financial parameters, the issue is done for approx. 3149 Cr at upper band priced
  • Valuation at higher-end and also its OFS. Currently, multiple options are available with investors in the secondary market.

INTRODUCTION

Indian Ethnic wear is a market to look forward to. The design, embroidery, and weaving techniques that are a part of a traditional ensemble don’t just grab eyeballs, but also represent Indian traditions and culture.

Marriage is a social norm, an almost compulsory stage of an Indian’s life. India celebrates about 10 million weddings per year with an average expenditure of ₹ 10 lakh to ₹ 20 lakh for a single-day function. Coupled with the rising incomes of the Indian people and the fact that families start saving for marriage very early, it is needless to say that the Indian wedding market is something with tremendous scope for growth.

ABOUT THE COMPANY

With a pan-India reach, the ‘Manyavar’ brand is a segment leader in the branded Indian wedding and celebration apparel industry.

For an organization that got going with Rs. 10,000 in seed capital right back in 1999, Manyavar has progressed significantly. Manyavar began its journey in 1999 and by 2010, it had crossed the 100th store mark. By 2013, it reached 300 doors across 100 Indian cities

Manyavar began selling its traditional wedding wear through bigger retailers like Pantaloons. However, founder Ravi Modi’s vision was at that point set up. In 2002, he consolidated Vedanta Fashions Private Limited (VFPL), and the organization set up its first store in Bhubaneshwar in 2008. Today, Manyavar has become an ethnic wear behemoth.

As of 30 June 2021, the company had a retail footprint of 1.1 million sq. ft covering 525 exclusive brand outlets (EBOs), including 55 shop-in-shop, spread across 207 cities and towns in India and 12 EBOs across the US, Canada, and the UAE.

The firm aims to double its national footprint over the next few years.

Financially speaking, Manyavar is also the leading firm in India in the men’s Indian wedding and celebration wear category, in respect of sales, OPBDIT, and profit after tax for the Financial Year 2020. (According to the CRISIL report.)

ISSUE DETAILS:

To explore listing benefits and providing exit to some of its stakeholders, ABSLAMC is coming out with a maiden IPO by way of Offer for Sale (OFS) of 36,364,838 equity shares of Rs. 1 each with a price band of Rs. 824 -866 per share. At the upper price band, the company mulls raising Rs. 3,149 cr. The issue opens for subscription on February 4, and will close on 8th February . Minimum application is to be made for 17 shares  per lot Post allotment, shares will be listed on BSE and NSE. The issue constitutes 15.00% of the post issue paid-up capital of the company. It has allocated _50% for QIBs, 15% for  non- institutional investor and 35% for retail investors.

The Book Running Lead Managers (BRLMs) to this issue are Axis Capital Limited, Edelweiss Financial Services Limited, ICICI Securities Limited, IIFL Securities Limited, Kotak Mahindra Capital Company Limited while KFin Technologies Pvt. Ltd. is the registrar to the issue. 

THE MARKET

According to CRISIL Research, the ethnic apparel retail market, estimated at approximately Rs 1,800 billion in Financial Year 2020,

“The large wedding market and festivals throughout the year are strong fundamental drivers of the organized ethnic wear market in India for the long term. With long-term growth factors remaining intact and celebrations continuing to drive ethnic-wear sales, the concept of pent-up demand is very relevant in Indian wedding and celebration wear, unlike other consumer categories, therefore driving growth higher,” the firm’s DRHP said. CRISIL Research expects the ethnic apparel industry to grow at a 14% to 15% CAGR over Financial Years 2022 to 2025, reaching Rs 2,350 billion to Rs 2,400 billion by Financial Year 2025. The organized market is about 10-12% of the overall market. The organized market will grow at a CAGR of approx. 30% in the ethnic market.

It is expected to continue growing strongly in the future, due to the increasing trend of multi-day weddings, wider acceptance of traditional outfits during festival celebrations and the emergence of brands in the Indian wedding and celebration wear market, which has been highly unorganized.

Brands such as Manyavar, Mebaz, Swayamvar, Jade Blue, Manthan and Twamev have further boosted the market sentiment within men’s ethnic wear.

GROWTH PROSPECTS

The company is well established in Men’s wear and is looking to increase its presence in women’s wear – which is the biggest market in the ethnic wear segment. It has aggressive growth plans of doubling its store area and opening more overseas stores. These factors will also drive growth in the coming years.

Now that there is an unlock phase across India, CRISIL expects a 48-50% jump in the market. With restrictions easing, destination weddings are also slowly getting back.

E- COMMERCE

India e-commerce sector will reach US$99 billion by 2024 from US$30 billion in 2019, expanding at a 27% CAGR, with grocery and fashion/apparel likely to be the key drivers of incremental growth.

Huge investments from global players—such as Facebook, which is investing in Reliance Jio—are being recorded in the e-commerce market. In the past few years, the e-commerce market has seen a boost in terms of sales and acceptance.

With the increasing overall sales, the Indian ethnic wear sector has also seen growth, making e-commerce a valuable sector adding value to ethnic wear segment in terms of sales.

Manyavar provides uniform pricing and experience to its customers country-wide. Customers can place orders through its website, mobile app, and e-commerce platforms, with the flexibility to research products online and the option to visit stores for trials & fittings. As the pricing of products is uniform across channels throughout India, customers have the flexibility to purchase/return/replace their products online and offline.

Due to this, Manyavar’s ecommerce sale has been going great, with almost 5% of total sale made via ecommerce channels as on 30-6-2021.

With ethnic wear category being 33% of total apparel sales during 2020, it’s evident that people feel comfortable buying ethnic wear online.

PEERS

Vedant Fashions does not have any listed peers. However, almost every retail apparel brand deals in ethnic wear. Moreover, it faces competition from FabIndia (also aiming for an IPO), Biba Apparels, Nalli, and others in the private space.

However, besides ethnic wear, FabIndia also sells many other products – home linen, cutleries, furniture, beauty products, and food items. On the other hand, most private players dealing in ethnic wear (like Biba, Nalli, Soch) deal only in women’s clothing. At the same time, Vedant Fashions generates most of its revenue by selling men’s clothing and is currently expanding its women’s portfolio. Large retail conglomerates are trying to foray into this space as well.

  • Reliance Retail announced the launch of its ethnic wear brand Avantra. It has also purchased a stake in luxury brands Ritu Kumar and Manish Malhotra as well as partnering with Nalli, Pothys, turning into on of its biggest rivals.
  • Flipkart’s stake purchase in ABFRL and ABFRL’s stake purchase in eponymous ethnic labels like Tarun Tahiliani and Sabyasachi makes it quite the formidable opponent as well.
  • Titan Company, too, is engaged in a renewed push of its ethnic range under Taneira.
  • Beside this, there are many homegrown brands popping up that are eyeing a piece of this huge unorganized market.

VALUATION

The company was able to make a turnover of almost 915 crores before the pandemic hit, slumping down by 38% to 565 crores in FY 21. However, considering the following factors such as the  

  • Pent up demand and the loosening of restrictions,
  • Fact that dressing in Indian wedding and celebration wear instead of Western formals and casual attire is now a common trend at weddings and country-wide festivals such as Diwali, Navratri, Rakhi, and Eid.
  • Rising income levels, higher discretionary spending, changing consumer lifestyle, and growing brand awareness among consumers

As per our computations for valuing the company,We project the company to make 2.5 times of Pre-COVID sales i.e. 2,500 approx crores by the end of the projected period. In the valuation, Manyavar’s primary revenues would continue to come from customers looking to purchase ethnic wear for an occasion and the number of occasions increasing, and that notwithstanding its global ambitions, India will remain its main market.

Their inventory holding period stood at around 150 days pre-pandemic, rising to almost 275 days in FY 21. Given the company’s ambitions to double its store count within the next few years as well as the increased need to house more designs, we expect the company to slowly rein the holding period to 180 days by the end of the projected period.

The same goes for debtor days as well.

We have assumed an average capex of 5% of operational sales, which is in line with that of previous years. The same goes for Sales promotion expenses, standing at 7%

They have not offered any end-of-season sales or discounts. The current operating margins are at 43% with a PAT at 26%. This indicates strong pricing power and scaling benefits.

Liquidity is satisfactory, upheld by solid collection and managed CAPEX. The money credit limit remained unutilised over the year through March 2020, consequently giving extra monetary adaptability. Additionally, the organization keeps surplus liquidity at any point in time.

No doubt competition is the biggest risk for the company. It faces a lot of competition not only from unorganised players but also from large conglomerates. However, that has been the case for many years, and still, it has been able to grow its business, that too, without giving any discounts.

The franchise business model in which the company operates has enabled it to stay resilient and help sustain its margins in an environment where the profitability of other players declined during the pandemic. Therefore we expect the company to sustain their margins throughout the projected period, on the back of

  • Efficient inventory utilization,
  • Their capacity to exercise pricing controls with suppliers and job workers
  • Also, their ability to pass on the increase in prices to customers

After considering the above parameters the valuation works out to around 350 per share which is much lower than the issue price. Hence calls for a thorough analysis by any investor.

CONCLUSION

This offer was eagerly awaited by investors across the board. Though it has been posting the growth for both bottom and top lines on the financial parameters, the issue is highly-priced. With multiple options available in the market and the price volatility of recent issues, the investor has to take a call considering the earning potential and market volatility. VFL being a leader in the segment provides scope for upside with caution on current pricing.  A post-issue investment may also be thought about.

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception.

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