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IPO

Manyavar IPO: Will investors find the right fit?

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The initial public offering (IPO) rush shows no signs of abating. The IPO market has set a new record as more than 40 companies have submitted their documents with the market regulator Securities and Exchange Board of India (SEBI) seeking permission to launch their IPO.

39 companies have already raised close to ₹ 64,000 crores, while one more will be raising funds this week. Markets witnessed similar IPO rushes in 2007, 2010, and 2017. We recently looked at data on the stock performance of companies that went public in past bull markets – The IPO rush: Lessons from the past

Recently, Vedant Fashions Ltd., which owns and operates the ethnic wear brand Manyavar, filed its draft prospectus with the market regulator for an IPO of at least ₹ 1,800 crores.

In this post, we dwell upon its business and see how the numbers stack up.


The IPO will be a complete OFS with two investors – Rhine Holdings and Kedaara Capital – completely exiting from the company, while the promoter selling a partial stake. The PE investor had invested in 2017 in Vedant at ₹ 166 per share. Two months back, Vedant Fashions did a couple of corporate actions – buyback and stock split. The buyback price was at ₹ 990 apiece, and the stock split was in the ratio of 1:2.

At least the buyback and stock split give us the base price at which each share will be offered, i.e., ₹ 495. This means that the IPO size will at least be ₹ 1,800 crores, valuing the company at ₹ 12,000 crores.

Manyavar IPO: Will investors find the right fit?

Betting on traditional attire

Headquartered in Kolkata, the company opened its first outlet in 1999 in Kolkata, focusing only on traditional wear. Conservative for the first decade of its existence, Vedant Fashions has since become aggressive in its expansion plans. It is now the largest traditional men’s wear maker in India.

Vedant Fashions – an apparel brand that mainly thrives on Indian cultural celebrations and festivities – operates five brands across different positioning.

Manyavar IPO: Will investors find the right fit?

Manyavar is a category leader in the branded Indian wedding and celebration wear market with a pan-India presence. Twamev and Manthan, which have been recently launched, are present in the premium and value segments of the men’s Indian wedding and celebration wear. It competes in the women’s Indian wedding and celebration wear market through the brand Mohey, launched in 2015. In FY18, it acquired Mebaz, a regional legacy brand catering to the entire family, present in Andhra Pradesh and Telangana.

The company sells its products through franchise-owned exclusive brand outlets, multi-brand outlets, large format stores, and online platforms – website and mobile application.

As the company generates most of its sales through franchise-owned EBOs, it is an asset-light company. The franchise model has been successful as nearly 70% of franchisees have been operating the stores for three or more years. Approximately 61% of the company’s revenue is from franchisees having two or more stores.

As of June 30, 2021, the company had 525 EBOs across 207 cities and towns in India and 12 EBOs in the US, Canada, and the UAE – countries with large Indian diaspora.

Manyavar IPO: Will investors find the right fit?

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.

Given their season-agnostic designs and aspirational brand appeal, they adopt consistent pricing of their creations across India. They have not offered any end-of-season sales or discounts.

Expansion led growth

The company has more than doubled its retail presence from 0.5 million square feet to 1.1+ million square feet in the last five years. Over the next few years, it aims to double its national footprint and expand its international presence in markets with the large Indian diaspora and high spending power such as the US, UK, Canada, the Middle East, South-East Asia, and Australia.

The company also plans to scale its emerging brands – Twamev and Mohey. And also expanded its addressable market by increasing the trend of dressing in Indian ethnic wear at weddings, festivals, and other occasions.

Indian ethnic wear industry

The apparel retail market was around ₹ 5.6 lakh crore in FY20, and ethnic wear accounted for approximately 32%. A large portion of the ethnic wear market remains unbranded, with the branded segment accounting for 30% to 35% of the overall ethnic-wear retail market. However, the branded segment is growing faster than the unbranded segment due to a superior customer experience, a better merchandise mix, standardized pricing, brand strength and further expansion beyond tier-II cities. It is likely to grow at a CAGR of 18% to 20% till FY25 owing to increasing brand presence, while the overall branded apparel sector is expected to grow at 12% to 13%.

In India, nearly 95 lakh weddings occur annually, with an average expenditure of ₹ 10 lakh to ₹ 20 lakh for a single-day function. There is also an increasing trend of elaborate multi-day and multi-event wedding celebrations. 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. Thus, the large wedding market and festivals throughout the year are strong fundamental drivers who will continue to drive the growth of the organized ethnic wear market.

Lockdowns in Q1 restricted consumer spending, and the second wave of COVID-19 in Q4 impacted the apparel sector demand throughout FY21. Pandemic-led restrictions caused wedding functions to be much-reduced, leading to a 45% decline in the Indian wedding and celebration category. Looking ahead, the Indian wedding and celebration wear market is expected to rebound strongly with 50% to 60% growth in FY22, according to CRISIL. The growth will be led by multiple factors – a low base, faster vaccination drives, recession-proof nature of the Indian wedding and celebration wear market, greater relaxations towards public gatherings, rising income levels, higher discretionary spending, changing consumer lifestyle, and growing brand awareness supported by the waning impact of the pandemic.

Financially sound

As of June 30, 2021, the company’s net worth was ₹ 1,137 crore, which translated into a book value of ₹ 47 per share. Vedant Fashions is a debt-free company with ₹ 576 crores of cash balance on its book as of June 30, 2021. Total cash and cash equivalents form nearly 35% of the total asset size.

FY21 turned out to be a bad year because of Covid-19. So, there is no point in comparing growth till FY21. Over FY16-20, the company’s revenue/net profit grew at a CAGR of 16%/27%, respectively. In FY21, the fall in its financials was much lower for Vedant Fashions compared to the industry.

Manyavar IPO: Will investors find the right fit?

This was because of the sharp turnaround in business witnessed in H2FY21. Recovery in H2 was around 82% of FY20 revenue. In Q1FY22, despite the second wave, the company generated a revenue of ₹ 160 crore – 75% of Q1FY20 revenue. Though revenues declined in FY21 and Q1FY22, company gross and EBITDA margins were healthy and sustained.

The franchisee 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. They were able to negotiate on rentals, save on advertisement and travel costs.

Manyavar IPO: Will investors find the right fit?

Employee costs were lower due to cut in salaries, while job charges were lower due to lower manufacturing levels. Rent expenses were negotiated lower due to temporary closures of certain stores because of lockdowns. Selling and distribution expenses were lower due to reduced advertising spend.

Though its receivables remain high, the company maintains 25-30% of the receivables as security deposits received from debtors, which is equivalent to the cost of goods sold to them and protects the company from any inventory losses. Over the period, the company’s inventory days have also increased. The increase in FY21 could be attributable to Covid-19 related lower sales.

Manyavar IPO: Will investors find the right fit?

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.

For comparison, we considered TCNS Clothing, a women’s ethnic wear retailer, and Aditya Birla Fashion, a branded apparel retailer.

Now over FY16-20, TCNS Clothing’s revenue grew at a much faster rate compared to peers on the back of expansion and discount-led sales. However, Vedant Fashions’ profit growth was much better on the back of cost efficiencies and strict pricing policy.

Manyavar IPO: Will investors find the right fit?

Vedant Fashions saw a lower impact than its peers from the pandemic. Similarly, in Q1FY22 – hit by the second wave – sales recovery for Vedant Fashions was much faster than pre-pandemic.

Manyavar IPO: Will investors find the right fit?

Valuations – No discounts

At the buyback price, considering FY20 financials, the Vedant Fashions issue is expensive compared to peers.

Manyavar IPO: Will investors find the right fit?

Final Thoughts

Well, yes, the valuations are expected to be on a higher side. Not only because it’s a bull market and because the company has been consistently growing and making profits, which has not been the case with peers. Moreover, it is a debt-free company with high cash on its book.

The chances of the company quickly achieving pre-pandemic level sales is high as the number of weddings is expected to be higher in FY22 due to postponement of weddings from FY21, availability of auspicious dates for weddings throughout the year, and increased vaccination and festive season sales. The company benefits from its healthy brand recognition, pan-India presence, and established market position.

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.

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.

Right now, the company has just filed its DRHP. We will get a clearer picture of how sales have panned out ahead of the festive season.

We will offer an opinion on the IPO when the company announces IPO price bands.


For comments and questions, reach out to @soumeet_sarkar and @capitalmind_in

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This article is for information only and should not be considered a recommendation to buy or sell any stocks. 

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