Vedant Fashions IPO Fundamental Analysis (Avoid)

Key Business Highlights

Incorporated in the year 2002 in West Bengal, Vedant fashions (the Issuer) with its brand ‘Manyavar’ 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.
The Issuer operates through EBOs (exclusive brand outlets), (LFS) Large format stores, MBO (multi-brand outlets), online platforms, and mobile apps. The product portfolio includes a diverse range of attires and accessories; manufactured by artisans having an abundance of expertise in the Indian wedding and celebration wear market, supplemented by knowledge of the demands of Indian festivals and weddings. The wedding portfolio includes different ranges of creations for different members of the wedding entourage, besides unique personalization for the bride and the groom.
The company launched its brand ‘Mohey’ in the year 2015 catering to the women’s Indian wedding wear market. ‘Twamev’ and ‘Manthan’ are other brands that cater to the premium segment of the men’s Indian wedding wear market. Issuer acquired Mebaz in FY18 which is a regional legacy brand catering to the entire family with a rich heritage and established presence in the states of Andhra Pradesh and Telangana. Thus, through its multiple brands, the Issuer caters to the varying financial budgets of the Indian consumers.
The majority of the sales are generated through franchisee-owned EBOs. As a result, the company remains asset-light and does not invest in developing manufacturing facilities or a distribution system which results in optimizing several costs like production and procurement costs, distribution costs, and employee costs leading to improved profitability.
Under the franchisee-based model, 73% (for 6MFY22) of the franchisees have operated the stores for three or more years, and 65% of the sales of franchisee-owned EBOs is derived from franchisees having two or more stores. The Issuer has a network of over 300 franchisees as of 6MFY22 and the company has a track record of commanding high initial capital commitment from the franchisees and in return, providing all necessary support in connection with identifying and approving potential locations for new stores, managing multi-channel advertising on a national and regional basis, store development and inventory management, management of the supply chain and provide detailed training programs for store staff and franchisees. The Issuer incurs lease cost in connection with EBOs operated by franchisees on leased premises.
The Issuer had a retail footprint of 1.2 msg covering 535 EBOs (including 58 shop-in-shops) spanning 212 cities and towns in India, and 11 EBOs overseas across the United States, Canada, and the UAE as at the end of 6MFY22.
Ravi Modi is the founder, Chairman and Managing Director. Since 2017, the Issuer has 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 Limited.

Vedant Fashions IPO Financial Review

Vedant Fashions has a strong financial profile in terms of its turnover and margins. The company posted a total income of Rs 387.29 crore during 6MFY22 and PAT of Rs 98.41 crore for the same corresponding year. The Issuer’s revenues reduced 34% for FY21 to Rs 625.02 crore from Rs 947.98 crore for FY20; the decrease was due to the reduced sales during the pandemic. The company has robust profitability margins, EBITDA margin being in the range of 43-48% throughout the last three fiscals. Net margins have also remained strong as seen in the table.

Debt to equity ratio is negligible and Return on equity is 11.45%, 12.18%, 22.20% and 19.99 % for 6MFY22, FY21, FY20, FY19 respectively.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Title	6 Months FY22	FY2021	FY2020	FY2019
Total Revenue	387.29	625.02	947.98	819.8
Other Income	27.45	60.2	32.43	19.06
PAT	98.41	132.9	236.64	176.43
EBITDA	187.82	303.27	426.18	354.87
Total Assets	1445.5	1625.65	1591.55	1318.51
Cash generated from operations	60.70	252.62	243.45	234.87
EBITDA Margin	48.50%	48.52%	44.96%	43.29%
Net Margin	25.41%	21.26%	24.96%	21.52%

Valuation and Peer Comparison

The Issue is priced at 107.98x with annualized EPS of 8.02 times (6MFY22) and calculated at the upper price band of Rs 866 per share. P/E for the IPO is 162x with earnings of FY21 (EPS 5.36). The Issue appears aggressively priced and the valuations are stretched. P/BV is 0.49x with a NAV of Rs 1759.30 as of the end of 6MFY22. The company has no peers as per the RHP.

The Issue Snapshot

Vedant Fashions IPO (Rs 3150 crore) opens on 4^th Feb 2022 with a price band of Rs 824-Rs 866 per share. It’s purely an offer for sale, the retail quota is 35% and they can apply for minimum of 17 shares amounting to Rs 14722. The offer closes on 7^th Feb and is expected to list on 16^th Feb 2022.

The OFS comprises sale of up to 1.74 crore shares by Rhine Holdings Ltd; up to 7.23 lakh shares by Kedaara Capital Alternative Investment Fund-Kedaara Capital AIF I, and up to 1.81 crore shares by Ravi Modi Family Trust.

Conclusion and Investment Strategy

The Issuer operates in the Indian wedding and celebration wear market and has a strong brand positioning with the Manyavar brand. It has a multi-brand product portfolio offering for men, women, and kids catering to all occasions across price points. Vedant Fashions has a robust financial profile with strong profitability margins.

Though there are no listed peers of the Issuer it faces competition from various unorganized players and there exists a risk of design copy in the ethnic wear. Also, there may be scalability issues from this point in the future as it operates in a very niche and seasonal /celebration /wedding segment; the returns may not be as lucrative in the long run. Thus, the negative points that emerge are the expensive valuations and the offer being an entire offer for sale. Hence considering these factors one may Avoid this IPO.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 24th Jan 2022

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

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 prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.