Baazar Style Retail IPO review (Avoid)

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Review By Dilip Davda on August 27, 2024

•    The company claims to be the fastest growing fashion retailer in north eastern regions.
•    It has posted steady growth in its top and bottom lines for the reported periods. 
•    The company follows effective cost control method to increase its margins.
•    Based on FY24 earnings, the issue appears exorbitantly priced. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Baazar Style Retail Ltd. (BSRL) is a value fashion retailer with a market share of 3.03% and 2.22%, respectively in organized value retail market in the states of West Bengal and Odisha, respectively as per The Technopak Report. The Company was the fastest growing value retailer between 2017 to 2024, in terms of both store count and revenue from operations, when compared to V2 Retail Limited and V-Mart Retail Limited ("Listed Value Retailers") as per The Technopak Reports. 

BSRL has the largest retail footprint in Eastern India when compared to the Listed Value Retailers in Fiscal 2024 as per The Technopak Report. As of March 31, 2024, it operated 162 stores spread across over 1.47 million square feet located in 146 cities. A majority of its stores are operated under the brand name 'Style Bazaar'. It has developed brand 'Style Bazaar' over the years, through a wide range of products, which has resulted in strong customer loyalty and recognition.

Its offerings are bifurcated under the apparels and general merchandise verticals. Within the apparels vertical, it offers garments for men, women, boys, girls and infants, whereas general merchandise offerings include both non-apparels and home furnishing products. Its target customer segment is the aspiring middle class comprising of households. it focuses on providing a family-oriented shopping
experience, offering quality products and strive to offer every Indian stylish merchandise at an affordable price.

By providing a family-oriented shopping experience, BSRL is a one-stop shop catering to the requirements of the
entire family by providing a quality product portfolio at an affordable price as per The Technopak Report. Owing to its product portfolio, Average Transaction Value was Rs. 1038.69, Rs. 1040.88 and Rs. 1026.17 for the Fiscals 2024, 2023 and 2022, respectively, with its Average Transaction Value for Fiscal 2024 being the second highest when compared to that of the Listed Value Retailers in India.

Its merchandise sales have increased consistently, registering sales equivalent to 33.69 million units, 24.95 million units and 17.58 million units in the Fiscals 2024, 2023 and 2022, respectively wherein each unit represents one article of apparel or general merchandise products. It ventures into untapped markets with high potential by offering multiplicity of brands, wide range of apparels and general merchandise, customized product range catering to the local preferences, brand specific counters highlighting specific products and brands such as Sparky and K-Lounge counter, where BSTL offers branded products for the Killer brand. Its private label brands, where it has a greater control over quality and product assortment, have contributed 37.93%, 31.43% and 24.72% of its total revenue from operations for the Fiscals 2024, 2023 and 2022, respectively.

Its strategically located stores with their attractive layout coupled with diverse and affordable product offerings allow it to successfully cater to the demands of this growing segment of our population. Its stores are operated on a cluster-based expansion model in which a new store is opened and operated within the same or nearby districts in which it operates existing stores. This enables it to increase efficiencies in supply chain and inventory management processes, strengthen its brand visibility in local markets, optimize marketing expenditure, efficient utilization of human resources and provides it with an incisive understanding of customer preferences at a micro market level.

It is able to attract high footfall of customers to its stores by virtue of stores being located predominantly in high street areas and endowed with an appeal equivalent to shopping malls.

As of March 31, 2024, its stores had an average size of 9046 square feet with trained staff to enhance customer experience. Its Sales Per Square Feet for the Fiscal 2024 was Rs. 7758. At its centralized warehouse, it has adopted technology and modern equipment extensively, which has led to process efficiencies and optimization of costs. As a result, it is able to procure merchandise optimally and manage inventory levels efficiently to better respond to customers' changing preferences and needs while also ensuring that prices are kept affordable. As of March 31, 2024, it had 2,616 permanent employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden/combo IPO of fresh equity shares issue worth Rs. 148.00 cr. (approx. 3804627 shares at the upper cap), and an Offer for Sale (OFS) of 17652320 equity shares (worth Rs. 686.68 cr. at the upper cap). The company has announced a price band of Rs. 370 - Rs. 389 per equity shares of Rs. 5.00 each. The overall size of the issue will be approx. 21456947 shares worth Rs. 834.68 cr. The issue opens for subscription on August 30, 2024, and will close on September 03, 2024. The minimum application to be made is for 38 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 28.76% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 113.77 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The company has reserved shares worth Rs. 1.00 cr. for its eligible employees and offering them a discount of Rs. 35 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% HNI, and not less than 35% Retail investors.

The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., Intensive Fiscal Services Pvt. Ltd., and JM Financial Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 12.50 - Rs. 518.00 per share (based on Rs. 5 FV), between February 2014, and August 2024. It has also issued bonus shares in the ratio of 12 for 5 in February 2018, and 6 for 1 in May 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.53, Rs. 1.25, Rs. 1.37, Rs. 1.44, Rs. 1.49, Rs. 1.58, Rs. 1.81, Rs. 2.62, Rs.3.14, Rs. 3.80, Rs. 5.78, Rs. 10.88, Rs. 19.87, Rs. 36.99, Rs. 41.18, Rs.44.39, Rs. 45.30, Rs.56.65, Rs. 74.00, Rs. 114.41, Rs. 114.75, and Rs. 124.50. 

Post-IPO, its current paid-up equity capital of Rs. 35.41 cr. will stand enhanced to Rs. 37.31 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 2902.55 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 561.14 cr. / Rs. - (2.04) cr. (FY22), Rs. 794.39 cr. / Rs. 5.10 cr. (FY23), and Rs. 982.83 cr. / Rs. 21.94 cr. (FY24). The company is confident of continuing the trends in coming years.

For the last three fiscals, the company has posted an average EPS of Rs. 1.61 and an average RoNW of 5.11%. The issue is priced at a P/BV of 12.78 based on its NAV of Rs. 30.43 as of March 31, 2024, and at a P/BV of 7.30 based on its post-IPO NAV of Rs. 53.28 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 132.31. Thus the issue appears relatively exorbitantly priced. 

The company reported PAT margins of - (1.43) % (FY22), 0.64% (FY23), 2.23% (FY24), and RoCE margins of 6.59%, 13.77%, 18.39% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown V-Mart Retail and V2 Retail as their listed peers. They are trading at a P/E of NA and 107 (as of August 27, 2024). However, they are not truly comparable on an apple to apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 61 pubic issues in the past three fiscals, out of which 15 issues closed below the offer price on the listing date. 

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