Manyavar owner Vedant Fashion IPO: Brokerages have mixed ratings

Vedant Fashion's IPO will be open for subscription from February 04 to February 08, in the price band of Rs 824 to Rs 866 per share.

The ‘Manyavar’ brand owner, Vedant Fashions, incorporated in 2002, is known as a one-stop destination with a wide spectrum of product offerings for celebratory occasions. Apart from its flagship brand ‘Manyavar’, the company is also enhancing its leadership in premium and value segment of men’s Indian wedding wear with ‘Twamev’ and ‘Manthan’, at the same time focusing on expanding presence in the women’s wear with ‘Mohey’.

The company generates healthy gross margins of over 72 per cent with no end of sale season or discounts offered on MRP. It follows an asset light business model with production outsourced on a job work basis. It operates a fully integrated supply chain with high-end quality control standards in the procurement of fabric and other essential components.

According to the ICICI note, the Indian wedding and celebration wear market is pegged around RS 1,020 billion (15-20 per cent) branded penetration) while the branded space is expected to grow at a CAGR of 18-20 per cent by FY25.

Vedant Fashions plans to raise up to Rs 3,150 crore through its initial public offering (IPO), in the price band of Rs 824 to Rs 866 per share, during the offer period, February 04 – February 08. Investors can apply for the IPO in multiples of 17 shares. 

The IPO is purely OFS (Offer For Sale) from the promoters hence the company will not receive any proceeds from the offer. Post issue, the promoters shareholding will go down to 84.9 per cent from present 92.4 per cent.

The company expects the proposed listing to enhance visibility and brand image. 

Here’s what the brokerages have to say about Manyavar owner Vedant Fashions maiden share sale:

ICICI Direct Research 

Rating: Unrated

Positives: 

- Plans to expand footprints within and outside India

- Scaling up emerging brand through increased up-selling, cross-selling initiatives

- Disciplined approach towards acquisitions

Concerns:

- High dependence on wedding and celebration wear

- Inability to maintain and scale up brands

- Dependence on third party for manufacturing the products

The brokerage believes that with the company’s strong brand franchise, it looks to tap the large and growing Indian wedding and celebration wear market driven by increased spending. At the upper end of the price band, it is valued at 22.5x, 36.3x EV/sales for FY20, FY21, respectively, and 89x, 158x P/E for FY20, FY21, respectively. The brokerage, however, has assigned an UNRATED rating on the IPO.

Anand Rathi 

Rating: Not Rated

Positives:

- Category leader in Indian wedding, celebratory wear

- 90 per cent of sales through EBOs (Exclusive Brand Outlets)

- Tech-based supply chain helps to effectively monitor and manager stocks levels at EBOs

Concerns:

- Mounting competition in men’s celebration wear from Aditya Birla Fashion, Reliance etc.

- Keener competition in women’s celebration wear, especially from the informal market

- Slowdown in consumption due to further restrictions on account of Covid-19

The brokerages says the issue is priced at around 52x EV/ EBITDA and around 92x P/E at the top end of the price band as per FY20 earnings. The consumer retail sector quotes at an average EV/ EBITDA of 19.9x/ 17x FY23e/ FY24e, and average P/Es of 56.4x/ 38.9x.

Angel One

Rating: Neutral

Positives: 

- Market leader, diverse portfolio of brands catering to the aspirations of the entire family

- Unique business model combining asset-light brand play along with seamless purchase experience

- Experienced and professional leadership team

Concerns:

- Slowdown in economy

- Increased competition

As per the brokerage, in terms of valuations, the post-issue TTM P/E works out to 84.4x (at the upper end of the issue price), which is considering Vedant Fashion’s historical top-line CAGR of around 10 per cent, over FY18-20. They believe that the current positives are captured in the valuations commanded by the company, hence have a ‘Neutral’ rating on the issue.

KR Choksey 

Rating: Subscribe

Positives: 

- Attractive marketing initiatives of creating connections through emotions

- Market leader in celebration wear

- Omni-channel presence

Concerns:

- Unable to predict acquisition patterns due to demand volatility

- Inability to drive customer delight to increase retention

- No inter-operability increases acquisition costs

The brokerage likes Vedant Fashions’ focus on growth by doubling its foot print in both domestic as well as international market in the near term. Basis on its strong balance sheet with no debt and its asset light model the brokerage recommends to ‘Subscribe’ rating for long-term gains.

Choice

Rating: Subscribe with Caution

Positives: 

- Market leader in Indian celebration wear market with a diverse portfolio of brands

- Differentiated business model combining the strength of retailing with branded consumer play

- Omni-channel network with the seamless integration of offline and online channels

Concerns:

- Pandemic led business uncertainties can impact business severely

- Business is highly concentrated and vulnerable to variations in demand

- Risk of maintaining margin level amid building inflationary pressure in the economy 

As per the brokerage firm, recommends ‘Subscribe with Caution’ rating on the IPO. In the note its states, at the higher end of the price band (Rs 866), the demanded valuation of Rs 21,017 crore is derived at P/S of 37.2x on FY21E and 29.2x on FY22E annualized sales. On P/E front, the issue is valued at P/E of 106.8x on FY22 annualized EPS basis.