Kolkata: Vedant Fashions Limited IPO opens for subscription on Friday, February 4, 2022 and will close on Tuesday, February 8, 2022. The price band is Rs. 824 – Rs. 866 per equity share. Let us take a look at the key points before subscribing.
As per a CRISIL report, Vedant Fashions Limited (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 FY2020.
Some of the leading brokerage houses through their IPO notes have recommended applying for the Vedant Fashions’ IPO for the long term. While Emkay Global has given an APPLY recommendation; Canara Bank Securities has recommended to SUBSCRIBE the issue for long term considering its operating margins and strong balance sheet backed with higher brand recall for celebration wear.
AUM Capital has also recommended that investors with long term view can SUBSCRIBE to this issue considering a plethora of positive factors like VFL being an asset-light company with zero debt despite 546 EBOs. Religare Broking in its IPO note has mentioned that while the valuations look stretched, Vedant Fashions’ long term growth prospects remain promising. Choice Securities has recommended “SUBSCRIBE (with Caution)” and KRChoksey Research has recommended SUBSCRIBE for long term gains.
VFL’s flagship brand Manyavar is a category leader in the branded Indian wedding and celebration wear market with a pan-India presence and is in the mid-premium price range with a comprehensive product portfolio. The product portfolio consists of Kurtas, Indo-westerns, Sherwanis, jackets and accessories.
Twamev, launched in 2019 is the premium brand and Manthan, launched in 2018 is the value brand in the men’s Indian wedding and celebration wear market. Mohey, launched in 2015 caters to the women’s ethnic and celebration wear market with a product mix including a range of lehengas and sarees. Mebaz is a south India-focused celebration and wedding ethnic wear brand acquired by VFL in Financial Year 2018, Mebaz provides a ‘one-stop-shop’ for the ethnic celebration needs of the whole family.
VFL operates a multi-channel retail distribution network across India and sells products through franchise-owned exclusive brand outlets (EBOs), multi-brand outlets (MBOs), large format stores (LFSs) and online platforms, including website (www.manyavar.com) and mobile application.
It also sells products in overseas markets through EBOs and online platforms. VFL opened its first EBO in Bhubaneshwar, Odisha in 2008, and as of September 30, 2021, had a retail footprint of 1.2 million square feet covering 535 EBOs (including 58 shop-in-shops) spanning across 212 cities and towns in India, and 11 EBOs overseas across 8 cities internationally in the United States, Canada and the UAE, which are countries with a large Indian diaspora.
Asset-light Business Model:
VFL is 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 sourcing and manufacturing operations, with a substantial majority of sales being generated through franchisee-owned EBOs. In Financial Year 2021, over 90% of the Sales of its Customers was generated by EBOs.
As a result, VFL does not need to invest in developing manufacturing facilities or a distribution system and by using economies of scale, is able to optimize several costs such as production and procurement costs, distribution costs and employee costs, thereby leading to improved profitability.
Vedant Fashions had reported strong growth and return ratios with FY17-20 PAT CAGR of 31% and EBITDA margin of 48.9% in H1 FY22 and PAT margin of 27.3% in H1 FY22. Even in FY20, Vedant Fashions had INR 237 crore of PAT in spite of full lockdown in the last 10 days which hit sales and profitability. In FY21, VFL’s revenue from operations was impacted in H1 FY21 due to Covid-19 pandemic. Even in this scenario, it had a PAT of Rs. 133 crore in FY 2021. Hence FY21 isn’t the right year for valuation given COVID-related lockdown in H1.
As of Sep 2021, the LTM (last twelve months – Oct 2020 to September 2021) PAT is Rs. 249 crore in spite of temporary complete closure of stores during Q1 FY22 due to lockdowns imposed in various parts of India. Vedant Fashions’ ROCE for Financial Years 2019, 2020 and 2021 and the six months ended September 30, 2021 was 48.24%, 47.80% and 34.07%, and 22.16% respectively.