Electronics Mart India IPO Fundamental Analysis (Subscribe)

Electronic Mart India Limited IPO Review

Electronic Mart India Limited (EMIL) is the fastest growing consumer durables and electronics retailer in India and it is the largest regional organized player in the southern region in revenue terms with dominance in the states of Telangana and Andhra Pradesh for FY21. The Issuer commenced its business operations in 1980 and is a growing consumer durable & electronics retailer in India with a revenue CAGR of 17.90% from FY16 to FY21.

EMIL offers a diversified range of products with a focus on large appliances (54% sales) (air conditioners, televisions, washing machines, and refrigerators), mobiles (31% sales), and small appliances, IT, and others (15% sales). The offering includes more than 6,000 SKUs across product categories from more than 70 consumer durable and electronic brands.

The Issuer operates 112 stores, out of which, 11 stores are owned, 93 stores are under the long-term lease rental model and eight stores are partly owned and partly leased as of Aug 31, 2022.

The company operates through three channels- retail, wholesale, and e-commerce.

Retail:Out of the 112 stores, 100 stores are Multi Brand Outlets (MBOs) and 12 stores are Exclusive Brand Outlets (EBOs). 89 MBOs operate under the name “ Bajaj Electronics” in Andhra and Telangana, eight MBOs under the name of “ Electronics Mart” in the NCR region, and two specialized stores under the name “ Kitchen Stories” which cater to the kitchen-specific demands of customers and one specialized store format under the name “ Audio& Beyond” focusing on high-end home audio and home automation solutions. The revenue from the retail channel represented 90.65% (Q1FY23), 91.01% (FY22), 91.55% (FY21), and 91.38% (FY20), of the total revenue from operations.
Wholesale: Under this, the Issuer supplies products to single shop retailers in Andhra Pradesh and Telangana regions. The revenue from this channel represented 1.44% (Q1FY23) 1.48% (FY22), 1.66% (FY21), and 1.59% (FY20)of the revenue from operations.
E-Commerce: The Issuer diversified into e-commerce space through its website. The website currently functions as a catalog for the products retailed at our stores. The Issuer is associated with the largest domestic and international players in the e-commerce market in the year 2019. The revenue from e-commerce channel represented 1.10% (Q1FY23), 0.92% (FY22), 1.39% (FY21) and 0.88% (FY20) of the revenue from operations.

Financial Profile

Total revenue for Q1FY23 was Rs 1410.25 crore and the Issuer posted PAT of Rs 40.66 crore for the respective quarter. The revenues for FY22 rose by 36% to Rs 4353.07 crore from Rs 3207.37 crore in FY21. This was due to the increase in sales of products as new stores set up in the last quarter of FY21 started generating sales in FY22. PAT increased by 77% to Rs 103.9 crore in FY22 from Rs 58.62 crore during FY21. EBITDA margins have remained consistent since the last three fiscals remaining on an average at 6%.

Return on net worth is 6.37% (Q1FY23), 16.28% (FY22), 9.83% (FY21) and 16.59% (FY20) respectively. The debt to equity ratio is at a higher side of 0.75x and further, the Issuer would continue to incur lease rentals as it expands.

Table 1 - Financials and Ratios (Amount in Rs Crore)
Particulars	Q1FY2023	FY2022	FY2021	FY2020
Total Revenue	1410.25	4353.07	3207.37	3179.01
Revenue from operations	1408.45	4349.32	3201.88	3172.48
PAT	40.66	103.89	58.62	81.61
EBITDA	98.85	295.69	209.37	234.18
Total Assets	1755.58	1824.74	1523.52	1347.6
Net cash generated from operations	283.03	121.6	64.01	36.01
EBITDA Margin	7.02%	6.80%	6.54%	7.38%
Net Margin	2.32%	5.69%	3.85%	6.06%

Valuation and Peer Comparison

The Issue is priced at 10.85 times with annualized EPS of 5.44 for Q1FY23 calculated at the upper price band of Rs 59 per share. The Issue is priced at 17.05x with EPS of 3.46 for the year ended 31st Mar 2022. Listed peer (Aditya Vision) P/E was 32.47x (on 29th Sep'22) which indicates that the Issue is reasonably priced. The Issuer has unlisted peers like Reliance Retail, Croma, and one listed peer Aditya Vision. The listed and unlisted peer comparison table can be seen below

Table 2 - Listed Peer Comparison
Parameters	Aditya Vision	EMIL
Face Value/share	10	10
Total Income for FY22 (Cr)	899.11	4349.32
EPS (FY22)	44.48	3.46
NAV per share	72.67	19.88
Return on net worth	41.88%	17.42%
P/E (12 Sep 22)	32.47	NA
P/B	19.88	NA
Current market value	1432	NA

Table 2 - Listed & Unlisted Peer Comparison
Parameters	Reliance Retail	Croma	Aditya Vision	EMIL
Revenue (in crore, FY22)	169400	8210	4350	900
Employee Cost	0.90%	4.20%	1.80%	3.20%
Operating Margin	6.10%	-1.40%	6.70%	7.40%
PAT Margin	2.90%	-5.40%	2.40%	4.10%
Inventory Days	46	70	55	92
Working Capital Days	7	-29	-15	NA
ROCE	23.50%	-17.40%	-19.10%	31.00%
ROE	31.60%	NA	17.40%	17.42%

Issue Details

Electronic Mart IPO (fresh Issue of Rs 500 crore) opens on 4th^th Oct- 7^th Oct ‘22 with a price band of 56-59 per share. The retail quota is 35% and investors can apply with a minimum bid of 54 shares (Rs 14,686). The objects of the offer include repayment of borrowings (Rs 55 crore), funding working capital (Rs 220 crore), and development and expansion (111 crores). The promoters are Pavan Kumar Bajaj (50.70% ownership) and Karan Bajaj (49.29% ownership).

Conclusion and Investment Strategy

The organized retail sector has seen growth in India but the sector has its own challenges in the form of limited margins. The difference in profitability amongst peers is due to cost factors like discounts offered, employee costs, lease rentals, and selling and distribution costs.

Some of the other key factors that result in the sustainability of margins are better inventory and space management, strong relationships with manufacturers/distributors, and trained staff enhancing the customer experience.The presence of various online platforms giving lucrative offers is also a limiting factor for retail players.

EMIL is an electronic retail player based in Hyderabad with 30+ outlets across India offering well-diversified products in consumer durable and electronic category goods like television, washing machines, laptops, mobiles, and others. The Issuer has consistent and reasonable profitability margins and appears to be reasonably priced. Hence one may subscribe for a short to medium term and as the Issuer expands its stores, one needs to be cautious about whether it is able to sustain its margins.

Reviewer recommends Subscribe to the issue.

Review By CA Priyanka Choudhary on 23rd Sep 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.