Credo Brands (Mufti) IPO review (May apply)

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Review By Dilip Davda on December 16, 2023

• CBML is in the business of providing wardrobe solutions for men.
• The products are marketed under the brand name of "Mufti".
• It operates on third party contract model of business.
• It posted robust growth in its bottom lines for FY22 and FY23.
• Based on FY24 annualized earnings, the issue appears fully priced.
• Well-informed investors may park funds for the medium to long term rewards.

ABOUT COMPANY:

Credo Brands Marketing Ltd. (CBML) is engaged in providing a meaningful wardrobe solution for multiple occasions in a customer's life, with its product offerings ranging from shirts to t- shirts to jeans to chinos, which caters to all year-round clothing. Its products are designed to provide a youthful appearance while keeping up with the ongoing fashion trends. The company is engaged in the retail sale of garments and accessories, and it does not manufacture any apparel.

Its prime brand "Mufti" was launched 25 years ago with a vision to redefine menswear. The brand was created as an alternative dressing solution and was designed to deliver a casual alternative with a focus on creative, bold, and expressive clothing for the contemporary Indian man who wanted something more stylish than what was commonly available.

As per the Technopak Report, the share of organized market for men's apparel is expected to increase from ~ 45% in Fiscal 2022 to reach ~60% by Fiscal 2027. Further, men's western wear market contributes to nearly 94% of the total Indian men's apparel market and rest ~6% of the market is contributed by Indian men's ethnic wear (Source: Technopak Report). As per the Technopak Report, India's predisposition towards casual wear has grown exponentially over the last few years. Some of the factors that has accelerated the rise of casualization of men's wear are increasing urbanization, social media connectivity, growth and influence of mobile internet and increased buying propensity amongst consumers and the concept of Friday dressing (casual Fridays) in the corporate world. Also, for time pressed consumers today, casual western wear is easy to maintain and wear, and thus becomes a more preferred lifestyle choice (Source: Technopak Report).

As a result, the categories such as denim, active wear, casual shirts, athleisure, and loungewear are growing at a CAGR greater than 20% (Source: Technopak Report). Further, as per Technopak report, the casual led men's western wear are likely to outpace the growth of formal led men's western wear growing at an expected CAGR of 22% vis-à-vis 18% for the latter from FY 22 to FY 27. In order to keep pace with these evolving fashion trends, CBML's product mix has evolved significantly over the past several years from consisting of only shirts, t-shirts and trousers in the year 1998 to a wide range of products including sweatshirts, jeans, cargos, chinos, jackets, blazers and sweaters in relaxed holiday casuals, authentic daily casuals to urban casuals, party wear and also athleisure categories as on date.

Its products are available through a Pan-India multichannel distribution network that it has built over the years comprising of its exclusive brand outlets ("EBOs"), large format stores ("LFSs") and multi-brand outlets ("MBOs"), as well as online channels comprising of website and other e-commerce marketplaces.

As of September 30, 2023, the company had 1807 touchpoints operating in 591 cities. Debtor days' period of 113 days and inventory days' period of 198 days raise concern. As of September 30, 2023, it had 224 employees on its payroll and 1139 contract personnel at its various points of operations.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with its maiden book built route secondary issue of 19634960 equity shares of Rs. 2 each and has announced a price band of Rs. 266 - Rs. 280 per share. It mulls mobilizing Rs. 549.78 cr. at the upper cap. The issue opens for subscription on December 19, 2023, and will close on December 21, 2023. The minimum application to be made is for 53 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 30.54% of the post-IPO, paid-up capital of the company. Since this is a pure secondary issue, no fund is going to company. This issue is made for unlocking the listing benefits and providing exit to some of its stakeholders.

The joint BRLMs for this issue are Dam Capital Advisors Ltd., ICICI Securities Ltd., and Keynote Financial Services Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20 - Rs. 61.95 between April 2006, and July 2022. It has also issued bonus shares in the ratio of 7 for 5 in July 2005, 5 for 4 in October 2006, and 3 for 1 in April 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.16, Rs. 5.71, Rs. 7.75, Rs. 8.48, and Rs. 46.99 per share.

Post-IPO, CBML's current paid-up equity capital of Rs. 12.86 cr. will remain same as this is an OFS. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 1800.45 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, the company posted a total income/net profit of Rs. 261.15 cr. / Rs. 3.44 cr. (FY21), Rs. 354.84 cr. / Rs. 35.74 cr. (FY22), and Rs. 509.32 cr. / Rs. 77.51 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 8.58 cr. on a total income of Rs. 119.43 cr. The sudden boost in its bottom lines for FY22 and FY23 raise eyebrows, while Q1-FY24 performance indicates downtrends.

For the last three fiscals, the company reported an average EPS of Rs. 7.97 and an average RoNW of 20.86%. The issue is priced at a P/BV of 6.21 based on its NAV of Rs. 45.08 as of June 30, 2023.

If we attribute annualized FY24 earning to post-IPO paid-up equity capital of the company, then the asking price is at a P/E of 52.53 and based on FY23 earnings the P/E stands at 23.24. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 1.41% (FY21), 10.48% (FY22), 15.56% (FY23), 7.24% (Q1-FY24), and RoCE margins of 5.86%, 17.31%, 28.16%, 3.44% respectively.

DIVIDEND POLICY:

The company paid a dividend of 1000% for FY23 and has adopted a dividend policy in June 2023 based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:

As per the offer document, the company has shown Aditya Birla Fashion, Go Fashion, Arvind Fashions, and Kewal Kiran as their listed peers. They are trading at a P/E of 00, 81.59, 112.58, and 33.54 (as of December 15, 2023). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:

The three BRLMs associated with the issue have handled 68 issues in the past three fiscals, out of which 24 issued closed below the IPO price on listing date.

Mufti Menswear IPO FAQs