IPO Analysis: Electronics Mart India

IPO Rating: Invest for listing gains and long term

Electronics Mart India Ltd (EMIL), the 4th largest and one of the fastest growing consumer durables and electronics retailers in India is coming out with its initial public offering (IPO) of equity shares with the face value of Rs 10 per equity share. The price band of the issue has been fixed at Rs 56 to Rs 59 per equity share. The issue size is Rs 500 crore at a higher price band.

The IPO opening date is October 4, 2022, and it will be closing on October 7, 2022. The issue is likely to be listed on the exchange on October 17, 2022. The IPO market lot size is 254 shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (330 shares or Rs 194,818) at the upper price band.

Objects of the Issue

To partially finance its needs for working capital (Rs 220.00 crore), repayment/prepayment of certain borrowings (Rs 55.00 crore), capital expenditure for the development and establishment of stores and warehouses (Rs 111.44 crore), and general corporate purposes.

Promoter holding 

The pre issue shareholding is 100 per cent, and post the IPO the promoter stake will be 77.97 per cent.

About the company:

Electronics Mart India Ltd (EMIL) is the 4th largest and one of the fastest growing consumer durables and electronics retailers in India and as of Financial Year 2021, it is the largest regional organized player in the southern region in revenue terms with dominance in the states of Telangana and Andhra Pradesh.

The company started operating in 1980, and since then, operating revenue has been steadily increasing. With a revenue CAGR of 17.90 per cent from the financial year 2016 to the financial year 2021, it has been among India's sellers of consumer electronics & durables that has experienced the greatest growth.

The company had 112 locations as of August 31, 2022, spread in 36 cities or metropolitan agglomerations, with a 1.12 million square foot retail business area. It provides a wide variety of items with a concentration on mobiles and small appliances, IT, and other things, as well as major appliances (such as air conditioners, televisions, washing machines, and refrigerators). More than 70 consumer durable and electrical brands are represented by more than 6,000 SKUs across all product categories in the EMIL offering. 

In total, it operates 112 stores as of August 31, 2022, of which 93 are under a long-term lease rental model, eight are partially owned and partially leased, and one is held outright. Retail, wholesale, and online commerce are the three business channels used by EMIL. It had 2091 workers on its payroll as of August 31, 2022. It provides a wide variety of items with a concentration on mobiles and small appliances, IT, and other things, as well as major appliances (such as air conditioners, televisions, washing machines, and refrigerators). More than 70 consumer durable and electrical brands are represented by more than 6,000 SKUs across all product categories in the EMIL offering.

 Electronics Mart India Limited business models:

 Ownership Model: The company owns the underlying property including the land and building.

 Lease Rental Model: The company has entered into a long-term lease arrangement with the property owner(s). As of August 15, 2021, out of the total 99 stores which the company operates, eight stores are owned, 85 stores are under the long-term lease rental model and six stores are partly owned and partly leased.

Electronics Mart India Supply chain 

Retail: As of August 15, 2021, out of 99 stores, 88 stores are Multi Brand Outlets ("MBOs") and 11 stores are Exclusive Brand Outlets ("EBOs"). The revenue from the retail channel was Rs 2,931.28 crore, Rs 2,899.13 crore and Rs 2,580.17 crore for Financial Year 2021, 2020 and 2019, respectively.

Wholesale: The company is also engaged in the wholesale business of consumer durables, where the company supplies products to single-shop retailers in Andhra Pradesh and Telangana regions. The revenue from the wholesale channel was Rs 53.05 crore, Rs 50.52 crore and Rs 46.58 crore for Financial Year 2021, 2020 and 2019, respectively.

E-Commerce: The e-commerce website currently functions as a catalogue for the products that the company retail at stores. The revenue from the e-commerce channel was Rs 44.45 crore, Rs 28.01 crore and Rs 21.27 crore for Financial Year 2021, 2020 and 2019, respectively.

Financial 

EMIL has (on a consolidated basis) reported turnover/net profits of Rs 3179.02 crore/Rs 81.61 crore (FY20), Rs 3207.37 crore/ Rs 58.62 crore (FY21), and Rs 4353.07 crore/ Rs 103.89 crore (FY22). It had a net profit of Rs 40.66 crore for the first quarter of FY23 on sales of Rs 1410.25 crore. As a result, for the given periods, both its top and bottom lines have increased.

EMIL has reported average EPS of Rs 2.84 and an average return on the net worth of 15.82 per cent during the past three fiscal years.

*Standalone Basis

Valuation and Outlook

The company's revenue is increasing at a CAGR of 38 per cent during the past three years. The PAT growth between FY2021 and FY2022 was a healthy 76 per cent from Rs 59 crore to Rs 104 crore. From Rs 377 crore in FY19, the borrowing has escalated to Rs 475 crore in FY2022. Rate comparisons of the goods with e-commerce stores pose one of the largest threats to the industry, as they could eventually hurt in-person sales and reduce margins at in-person businesses. With its solid financials, the IPO appears appealing. The asking price has a P/E of about 13.95 x if we annualize FY23 earnings and attribute them to the fully diluted equity capital base acquired after the IPO. The P/E ratio is 21.85x based on earnings for FY22. The company has identified Aditya Vision as a peer which is trading at current PE of 31.95. Investors may apply for the IPO for listing gains and the long term due to attractive valuation and strong fundamentals.