Diverse portfolio of brands:
The company has established brands such as Manyavar, Mohey, Manthan, Twamev, Mebaz.
The company is focused on enhancing its leadership position and establishing dominance
in the premium and value segments of the men’s Indian wedding and celebration
wear market through own brands, Twamev and Manthan. On the other hand, VFL is also
focused on expanding its presence in the women’s Indian wedding and celebration
wear market through own brand, Mohey. VFL intends to capture the entire value-chain
through these brands. Its brands comprise a range of attires and accessories, with
creations for members of the wedding entourage, besides bride and groom personalization.
Asset light business model:
The company has an asset-light model. Its EBOs are predominantly operated by franchisees
across India. In H1FY22, ~88% of its sales to customers were generated by EBOs.
VFL has two operating models; a) company pays the leases while franchise owner bears
all the other expenses & b) franchise owner bears all the expenses including
leases.
Omni-channel network with the seamless integration of offline and online channels:
VFL operates an omni-channel network and engages with customers through an integrated
platform serviced by online and offline channels. This enables VFL to deliver a
deeper connect with customers and deliver a superior customer experience. The seamless
integration between offline and online channels also ensures that company products
are available to customers through their preferred mode. The company has all-India
multi-channel operations with ~90% of sales to customers (FY21) through its exclusive-brand
outlets (EBOs). E-commerce platforms contributed ~4% of sales in H1FY22. Going ahead,
VFL plans to double its footprint (1.2 mn sq.ft. as of today) over the next few
years along with increasing online presence.
Increased up-selling and cross-selling initiatives
By owning multiple brands catering to the Indian wedding and celebration wear market
and operating each within the same omni-channel network, VFL is able to significantly
up-sell and cross-sell their products through existing retail channels. The company
is able to leverage the strong brand recall and established presence of Manyavar
brand to introduce customers to VFL emerging brands such as Twamev and Mohey. As
a result, they are able to up-sell Twamev brand products to Manyavar customers who
may be looking for a premium offering, or cross-sell Mohey brand products at Manyavar
stores, thereby achieving an increase in order value.
Efficient inventory management through use of technology:
VFL’s business model is driven by the strength of technology infrastructure,
established systems and processes and longstanding relationships with vendors. Their
entire supply chain and inventory management process is system-driven and algorithmically
managed with every stage in supply and distribution chain driven through data analysis
and automation, including the procurement of materials, warehouse inventory management,
store replenishment and new store opening fill. VFL is able to utilize sales data
to track and manage inventory on a real-time basis and analyse consumer buying behaviour,
to better understand the preferences of its consumers. The algorithm-based inventory
management system provides VFL with a real-time view of store inventory and the
ability to effectively monitor and manage inventory levels at EBOs, thereby minimizing
dead stock.
New covid variant can impact business operations:
The company’s business operation is dependent on wedding, celebration wear,
and festive season. Covid-19 had severely impacted the wedding & festive season
which impacted VFL’s overall business. Any new covid variant can delay the
recovery of business operations.
VFL warehouse, factory and a majority of jobbers are based in a single geographical
region:
VFL warehouse, factory and a majority of jobbers are exclusively based in a single
geographical region in and around Kolkata, India, and VFL depends on jobbers for
a significant portion of the manufacturing processes. Change in regulatory policies,
natural disasters, workforce disruptions etc in that particular area could severely
impact manufacturing operations.
Highly competitive market:
The industry in which VFL operates is highly competitive. Competition from private
labels is on the rise which creates pricing pressure on VFL. Continued pricing pressure
can significantly impact operating margins of the company. VFL has not taken any
price hike in H1FY22 despite inflationary pressures.
Buyback of shares at an effective price of Rs 495:
The company did a buyback on 16th July 2021 at an effective price of
Rs 495 and now is coming out with an OFS at Rs 866 with no change in fundamentals
or logical explanation to justify higher valuation.
The issue is purely an OFS:
The issue is purely an OFS and company will not get any capital from this issue.
All proceeds will go to such selling investors.
Vedant Fashions Limited (VFL) 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 is the largest player in India in the men's Indian wedding and celebration wear segment in terms of revenue, operating profit, and profit after tax for FY20 (source: Crisil). 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.
The company is focusing on building brands apart from Maanyavar so as to cater to all categories of ethnic wear. Also, focus on technology is on a higher side so as to design products according to tastes & preferences of people in particular state/city & minimize dead stock. They prefer local franchise partner who understand the local tastes & preferences. These unique points can help the company grow in an efficient manner in a highly fragmented market. However, the issue is purely an OFS and company will not get any capital from this issue.
At the upper price band of Rs 866, the IPO is valued at 158x of FY21 earnings & 37x FY21 sales, which looks highly priced with not much upside potential left for the investors. Hence, we recommend “AVOID” subscribing to the IPO.
Peer Comparison:
Peer comparison (Rs crore) | FY19 | FY20 | FY21 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Company | Revenues | EPS | ROE (%) | Revenues | EPS | ROE (%) | Revenues | EPS | ROE (%) | PE ratio | PS ratio |
Vedant Fashions | 801 | 7 | 9% | 916 | 10 | 10% | 565 | 6 | 12% | 157 | 37 |
Go Fashion (India) | 285 | 6 | 14% | 392 | 10 | 18% | 251 | (1) | - | - | 22 |
ABFRL | 8118 | 4 | 23% | 8788 | (2) | - | 5249 | (8) | - | - | 5 |
Trent Ltd | 2630 | 3 | 7% | 3486 | 4 | 7% | 2593 | (2) | - | - | 15 |
Use of Proceeds:
The total issue size is of Rs. 3,149 crore is fully an OFS constituting offer for
sale of up to 3.63 crore equity shares by investors. Company will not get any capital
from this issue. All proceeds will go to such selling investors.
Book running lead managers:
Axis Capital Limited, Edelweiss Financial Services Limited, ICICI Securities Limited,
IIFL Securities Limited, Kotak Mahindra Capital Company Limited (India) Private
Limited
Management:
VFL is led by Mr. Ravi Modi, Founder, Chairman & MD who has proven his flair for
the art of brand building and retailing with the success of VFL brands. He has more
than two decades of experience in the garment industry. Mr. Modi is supported by
an experienced management team with rich functional experience in the consumer,
apparel and retail industry.
Yr End March (Rs Cr) | FY19 | FY20 | FY21 |
---|---|---|---|
Net Sales | 800.00 | 916.00 | 565.00 |
Material Cost | 223.00 | 251.00 | 146.00 |
Employee Cost | 47.00 | 53.00 | 38.00 |
Other Expenses | 195.00 | 217.00 | 137.00 |
EBITDA | 335.00 | 395.00 | 244.00 |
EBITDA Margin | 42.00% | 43.00% | 43.00% |
Depreciation & Amortization | 64.00 | 89.00 | 96.00 |
EBIT | 271.00 | 306.00 | 148.00 |
Other Income | 19.00 | 32.00 | 60.00 |
Interest & Finance Charges | 20.00 | 26.00 | 26.00 |
Profit Before Tax - Before Exceptional | 270.00 | 312.00 | 182.00 |
Tax Expense | 94.00 | 76.00 | 49.00 |
Effective Tax rate | 35.00% | 24.00% | 27.00% |
Net Profit | 176.00 | 236.00 | 133.00 |
Net Profit Margin | 22.00% | 26.00% | 24.00% |
EPS | 7.04 | 9.45 | 5.36 |