Vedant Fashions (Manyavar) IPO review (May apply)

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Review By Dilip Davda on January 29, 2022

•    VFL is the largest organized player in men's India wedding and celebration wears.
•    Over the period, it has increased its product portfolio to include women and kids wears.
•    Though it suffered a setback for FY21, it maintained its margins.
•    The issue is priced aggressively based on its latest annualized financial performance.
•    It is a "High Risk - High return" bet for a long term reward.

PREFACE:
Off late we are witnessing fancy valuations for many new aspirants that are entering the primary market. With Vedant Fashions, we have yet another aggressively priced secondary offer. However, considering its past track records and future prospects with more sops likely from the forthcoming budget, investors may consider an investment with a long term perspective.  We might see outperforming debut from this profit-making company compared to a loss-making Go Fashion that surprised one and all. 

ABOUT COMPANY:
Vedant Fashions Ltd. (VFL) is the largest company in India in the men's Indian wedding and celebration wear segment in terms of revenue, OPBDIT and profit after tax for the Financial Year 2020 (Source: CRISIL Report). According to CRISIL, its 'Manyavar' brand is a category leader in the branded Indian wedding and celebration wear market with a Pan-India presence, as of Financial Year 2020. It 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 (Source: CRISIL Report). 

It focuses on spreading India's vibrant culture, traditions and heritage through aspirational yet value for money brands at a diverse range of price points. The company offers a one-stop destination with a wide spectrum of product offerings for every celebratory occasion and aim to deliver an aristocratic yet seamless purchase experience to customers through its aesthetic franchisee-owned exclusive brand stores. VFL is focused on further enhancing leadership position in the organized Indian wedding and celebration wear market and establishing dominance in the premium and value segments of the men's Indian wedding and celebration wear market through its brands, Twamev and Manthan, respectively, and in the women's Indian wedding and celebration wear market through brand, Mohey, launched in 2015. 

Through its diverse portfolio of leading and differentiated brands, including the acquisition of Mebaz in the financial year 2018, a regional legacy brand catering to the entire family with a rich heritage and established presence in the states of Andhra Pradesh and Telangana, it is able to better cater to the needs of customers and the aspirations of the entire family yet remain value for money and service the varying financial budgets of Indian consumers.

VFL is an asset-light in respect of plant, property and equipment which enables it to achieve a high return on capital employed, primarily due to the nature of its sourcing and manufacturing operations, with a substantial majority of sales being generated through franchisee-owned EBOs.

As of September 30, 2021, it had a total retail space (across EBOs and shop-in-shops) aggregating to over 1.2 million square feet across 212 cities and towns in India and 8 cities internationally, and a retail footprint of 535 EBOs in India (including 58 shop-in-shops) and 11 EBOs overseas across the United States, Canada and the UAE, which are countries with a large Indian diaspora. Between Financial Years 2016 to 2021, it has increased its EBO retail space footprint from approximately 0.50 million square feet to over 1.1 million square feet and aims to double its national footprint over the next few years.

As of September 30, 2021, it had 740 employees on its payroll. It operates a multi-channel retail 146 distribution network across India and sells products through EBOs, MBOs, LFS and the online channel. The company also sells its products in overseas markets through EBOs and online platforms. During the six months ended September 30, 2021, its products were available across 145 LFSs in 20 states and 43 cities across India. As of September 30, 2021, it has over 458 vendors registered on its vendor portal and from whom it regularly sources fabrics and other materials including finished goods. 

By virtue of its established presence and leadership position in the industry and longstanding relationships with vendors, the company believes that it has developed significant recognition and goodwill in the market and is able to place large purchase orders directly with suppliers. All orders placed by VFL are based on internal demand projections, carried out over in advance of the estimated delivery date of the final product. The company has an extensive sourcing network from over 43 cities as of September 30, 2021, to manage inventory and support product development teams.

At the time of commencement of operations, it entered a largely unorganized market and played a leading role in developing the Indian wedding and celebration wear market. Over the years, it has expanded product offerings beyond wedding wear to festive and celebration wear, and have acquired a leadership position in the Indian Men's Indian wedding and celebration wear market. Its products compete with local retailers, online retailers, non-branded products, economy brands and products of other established brands.

ISSUE DETAILS/CAPITAL HISTORY:
For listing benefits and providing exit to some of its existing stakeholders, VFL is coming out with a book-building process IPO consisting of a pure offer for sale of 36364838 equity shares of Re. 1 each. The company has fixed a price band of Rs. 824 to Rs. 866 per share. At the upper cap, VFL mulls mobilizing Rs. 3149.20 cr. Minimum application is to be made for 17 shares and in multiples thereon, thereafter. The issue opens for subscription on February 04, 2022, and will close on February 08, 2022. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 14.98% of the post issue paid-up capital of the company. VFL has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail investors 

The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., Edelweiss Financial Services Ltd., ICICI Securities Ltd., IIFL Securities Ltd., and Kotak Mahindra Capital Co. Ltd., while KFin Technologies Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity at par, the company issued further equity in the price range of Rs. 1 to Rs. 343.91 per share (on the basis of FV - Re. 1) between October 2003 and October 2021. It has also issued bonus shares in the ratio of 2 for 1 in December 2006 and 1 for 1 in December 2017. The average cost of acquisition of shares by the promoters and selling stakeholders is Rs. NIL, Rs. 0.10 and Rs. 166.27 per share. 

This being a pure secondary offer, VFL's current paid-up equity capital of Rs. 24.27 cr. will remain the same. At the upper price band of the IPO, the company is looking for a market cap of Rs. 21017.37 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals on a consolidated basis, VFL has posted turnover/net profits of Rs. 819.80 cr. / Rs. 176.43 cr. (FY19), Rs. 947.98 cr. / Rs. 236.64 cr. (FY20) and Rs. 625.02 cr. / Rs. 132.90 cr. (FY21). For the first half of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 98.41 cr. on a turnover of Rs. 387.29 cr. 

VFL has been posting average gross margins of above 60% and net margins above 22% for the reported periods of financial performance. Management is confident of maintaining the trends going forward.

For the last three fiscals, VFL has posted an average EPS of Rs. 7 and an average RoNW of 16.83%. The issue is priced at a P/BV of 24.43 based on its current and post IPO NAV of Rs. 35.45 per share. 

If we annualize FY22 earnings and apply it to post IPO paid-up equity capital, then the asking price is at a P/E of around 106.78, thus it is priced aggressively. 

DIVIDEND POLICY:
The company paid a dividend of 200% for FY20 only and for the rest of the reported financial period under RHP it has not paid any dividend. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, VFL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORDS:
The five BRLMs associated with the offer have handled 44 public issues in the last one year, out of which 13 issues closed below the offer price on the listing dates respectively. 

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