Purple Style Labs IPO: Analysts see risk reward unfavourable; bid or skip?

Purple Style Labs IPO review: The initial public offering (IPO) of Purple Style Labs Ltd, the parent company of Pernia’s Pop-Up Shop, received a muted response at open on Monday, with the issue garnering bids for just 0.05 per cent the shares on offer.

 

The three-day IPO subscription window will close on September 2.

 

Purple Style Labs IPO price band

 

The price band for the issue has been fixed at ₹546-575 per share. The ₹680 crore IPO comprises a fresh issue of equity shares aggregating up to ₹680 crore, with no offer-for-sale 

 

At the upper end of the price band, the issue values Purple Style Labs at a market capitalisation of over ₹4,600 crore.

 

 

Purple Style Labs IPO review 

 

Analysts have shared negative views on Purple Style Labs, saying "risk reward remains unfavourable".

 

Antique Stock Broking has recommended 'Avoid' on Purple Style Labs IPO as it sees the 7.4-7.6x EV/sales comparatively higher than the peers trading at 0.4 1.2x EV/sales.

 

Additionally, lower gross/ Ebitda margin of 38 per cent/ 3.8 per cent compared to peers gross/ Ebitda margin of 40-60 per cent/ 8-16 per cent and negative operating cash flows provide little confidence for a near-medium term improvement. 

Purple Style Labs financials

 

The brokerage noted that Purple Style Labs' revenue grew at a slower pace 5.2 per cent CAGR to ₹557.8 crore on account of the consolidation of brands. Going forward, improvement in profitability margins, reduction in high-cost debt and stronger operating cash flow are key monitorables. 

 

Meanwhile, Religare Broking said that Purple Style Labs faces challenges from volatile financial performance, negative profitability and weak margins, limiting visibility on sustainable earnings  growth. Operational efficiency also remains under pressure and the rising cash conversion cycle points to increasing working-capital requirements and potential  pressure on cash flows. 

 

Furthermore, negative ROE reflects weak returns generated for shareholders and inefficient capital utilisation. 

 

"Although the company has growth opportunities in the luxury fashion market, these financial and operational concerns create uncertainty around its near-term performance and earnings potential. Hence, we assign a Neutral rating," the brokerage said.

 

Purple Style IPO GMP

 

Meanwhile, Purple Style Labs' unlisted shares are commanding in a small premium in the grey market. According to several website that track grey market activities, Purple Style shares traded at ₹603, reflecting a GMP of ₹28 or 4.87 per cent above the upper end of the price band.

 

Purple Style Labs has plans to utilise ₹371.13 crore of the IPO proceeds for investment in its wholly-owned subsidiary PSL Retail towards lease liabilities of experience centres and back-end offices in India, while ₹138.90 crore will be used for sales and marketing expenses. The remaining proceeds will be used for general corporate purposes.

 

Purple Style Labs, founded in 2015, operates a multi-brand luxury fashion omni-channel platform and is promoted by Abhishek Agarwal. It currently offers more than 2 lakh products from over 1,300 designers through its digital platform and 14 experience centres.

 

Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.