IPO Analysis: Vedant Fashions Ltd (Manyavar)

Here's what you need to know about Manyavar IPO!

IPO Rating: Avoid 

About the issue: 

Vedant Fashion (Manyavar) specializes in men’s clothing for weddings and other celebrations which is getting popular in India. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 1 per equity share. The maiden offer comprises an offer for the sale of shares worth Rs 3,149.19 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 824 to Rs 866 per equity share. The IPO opening date is February 4, 2022, while it will be closing on February 8, 2022. The issue will be listed on the exchange on February 16, 2022. The IPO market lot size is 17 shares. A retail-individual investor can apply up to a maximum of 13 lots (221 shares or Rs 191,386).    

The objects of the offer are:    

To achieve the benefits of listing the equity shares on the stock exchanges; and, 

To carry out the Offer for Sale of up to 36,364,838 equity shares by the selling shareholders. 

Manyavar IPO Details: 

About the company: 

Vedant Fashions Limited caters to the Indian celebration wear market with a diverse portfolio of brands. The company offers a one-stop destination with a wide-spectrum of product offerings for every celebratory occasion to its customers. 

The company's brands include (i) Manyavar, (ii) Mohey, (iii) Mebaz, (iv) Manthan, and (v) Twamev. Vedant Fashions was the largest 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. 

The company operates its business through franchise-owned exclusive brand outlets (EBOs), with the remaining by multi-brand outlets (MBOs), large format stores (LFSs), and online platforms, including its website (www.manyavar.com) and mobile application. 

As of September 30, 2021, the company had a retail footprint of 1.2 mn sq. ft covering 535 EBOs (including 55 shop-in-shops) spanning 212 cities and towns in India, and 11 EBOs overseas across the United States, Canada, and the UAE. 

Competitive Strengths: 

Market leader in the Indian celebration wear market 

Large and growing Indian wedding and celebration wear market 

Omni-channel network of seamlessly integrated business 

Technology-based strong supply chain and inventory systems 

An experienced and professional leadership team 

Company Financials: 

In financial year 2021, 44.22 per cent of the sales of its customers was generated by its franchisee owned EBOs from Tier I cities, 42.05 per cent from Tier 2 cities and 12.31 per cent from Tier 3 cities. The remaining 1.42 per cent of the sales of its customers by its franchisee owned EBOs was generated from international markets. Its EBITDA for financial years 2019, 2020 and 2021 was ₹337.95 crore, ₹398.76 crore and ₹281.7 crore, respectively, and its ROCE for financial years 2019, 2020 and 2021 was 48.24 per cent, 47.80 per cent and 34.07 per cent, respectively. 

Recommendation: 

The share of men’s wear is projected to attribute approximately 44 per cent of the retail apparel market in Financial Year 2025, clocking the highest growth rate of nearly 20 to 22 per cent between Financial Years 2022 and 2025. The apparel industry is characterized by the highest margins; low procurement cost enables competitive pricing for customers and better margins for the retailer. Changing fashion trends and a rise in consumer incomes are primary demand drivers.  

According to CRISIL Report, Manyavar 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 and the ‘Manyavar’ brand is a category leader in the branded Indian wedding and celebration wear market with a pan-India presence. It has an asset-light business model with respect to its 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 its sales being generated through its franchisee-owned EBOs.  

As of June 30, 2021, approximately 70 per cent of its franchisees have operated its stores for three or more years, and 61 per cent of the sales of its customers by its franchisee-owned EBOs is derived from franchisees having two or more stores. With the IPO proceeds, it intends to focus on physical retail footprint expansion by increasing the number of its franchisee-owned EBOs. To conclude the note, although the company appears to have great opportunities in the future, the financials are not looking so attractive. The issue is coming out with purely offer for sale and no fresh issue and hence we recommend to AVOID investing in the IPO.