Evaluating Baazar Style Retail Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Baazar Style Retail Ltd and present you with the exclusive IPO details.

About the issue 

Baazar Style Retail Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the IPO details.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company

2. General corporate purposes.

Promoter holding  

Pradeep Kumar Agarwal, Rohit Kedia, Shreyans Surana, Bhagwan Prasad, Rajendra Kumar Gupta, Sabita Agarwal, Rajendra Kumar Gupta (HUF) and Sri Narsingh Infrastructure Pvt Ltd are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 55.03 per cent in the company.

Company profile  

The company is a value fashion retailer with a notable market share in the organised value retail sector, primarily focusing on West Bengal, Odisha, Assam, and Bihar as its core markets, while Jharkhand, Andhra Pradesh, Uttar Pradesh, Tripura, and Chhattisgarh are its focus markets.

As of March 31, 2024, the company operated 162 stores across 146 cities, covering over 1.47 million square feet. Most of these stores operate under the brand name 'Style Bazaar.'

The company's offerings are divided into two main categories: apparel and general merchandise. The apparel category includes garments for men, women, boys, girls, and infants, while the general merchandise category covers non-apparel items and home furnishing products.

The target customer segment is the aspiring middle class, including fashion-conscious youth and young families who seek value and quality, representing a significant portion of the Indian population's purchasing power.

Financials  

Despite the company's consistent revenue growth, there were concerns about its profitability. In FY22, the company reported losses due to the lingering effects of the pandemic, coupled with significant finance costs and depreciation expenses. However, it managed to deliver a notable performance afterwards.

It is important to note that a substantial portion of the IPO's net proceeds (82 per cent) will go to selling shareholders instead of directly benefiting the company, which currently has a total debt of Rs 178 crore.

Valuation and outlook  

The issue is priced with a P/BV ratio of 12.78 times, calculated using its Net Asset Value (NAV) of Rs 30.43 as of March 31, 2024.

When calculating the PE ratio for the company based on FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 124. Therefore, the issue seems to be highly overpriced.

The company operates in the highly competitive retail industry, which demands constant analysis of market trends and staying up-to-date with consumer preferences. This environment requires not only a deep understanding of evolving customer needs but also sufficient funding to adapt quickly and innovate to maintain a competitive edge.

Given the industry dynamics and associated risks such as credit risk, pay-as-you-go risk, and discount risk, this investment appears to be quite expensive. Investors may consider avoiding this costly bet.