IPO Size: Rs.500 cr - entire fresh issue
- Working capital Rs. 220 cr
- Capex Rs. 111 cr
- Debt repayment of Rs. 55 cr of net debt of Rs. 450 cr
Price band: Rs. 56-59 per share
M cap: Rs. 2,270 cr, implying 22% dilution
IPO Date: Tue 4th Oct to Fri 7th Oct 2022, Listing Mon 17th Oct 2022
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
India’s 4th Largest Physical Retailer for Consumer Durables
Electronics Mart sells (i) large consumer appliances (55% of revenue) like TV, AC, refrigerator, washing machine (ii) mobile phones (32% of revenue) (iii) small household appliances, through 112 stores branded ‘Bajaj Electronics’ comprising 1.1 million square feet in retail space across 36 cities, in Telangana (80% by revenue), Andhra Pradesh and NCR.
40 of 112 Stores opened during Covid
Company had 71 stores as of 31.3.20, which rose to 112 as of 31.8.22, implying 21% CAGR in store addition. In other words, 45% stores are less than 3 years vintage. As these stores mature, topline growth will accelerate.
In addition to this, fresh issue proceeds will fund new warehouse in NCR region in FY24 and 58 new stores by FY25E, implying 50% growth from present levels. Rs. 145 cr has already been spent in Q1FY23 on land purchase in NCR, providing heathy growth visibility.
Strong Revenue Growth
Need for tactile experience (touch and feel) and one-on-one advisory during purchase ensured 15% revenue CAGR between FY19-22, with Rs. 4,300 cr revenue in FY22, despite summer being impacted in FY22 due to covid 2.0. Company has grown nearly 1.9x industry, which may continue, on the new store pipeline. Consumer durables industry in India is likely to grow at 10-12% over the next 5 years, implying high double digit revenue growth visibility for the company.
Healthy RoE of 17% in FY22
Given intense online competition and most of company stores on lease (over ownership for some peers), net margins stand between 2-3%. Pre-covid, in FY19, net margins were 2.7% with 22.6% RoE, which margin maintained at 2.4% even in covid year of FY22. Company’s inventory turnover ratio of 7x is seen healthy and the debt equity ratio will shrink to a comfortable 0.47:1 post listing.
Thanks to a healthy summer season, after two adverse years of covid, Q1FY23 revenue rose to Rs. 1,400 cr, with PAT of Rs. 41 cr and net margin of 2.9%. FY22 EPS of Rs. 3.46 jumped to Rs. 1.36 in Q1FY23.
Having clocked Rs. 40 cr PAT in Q1FY23, company looks comfortable to post Rs. 140 cr PAT for FY23E, leading to an EPS of about Rs. 4.2 for the current year. This leads to a PE multiple of 14x which is seen attractive, even for a regional player. Shares are priced at a revenue multiple of only 0.5x, on historic basis, which can be termed as a ‘sale’ or discounted price.
The current volatility in the secondary markets may have prompted the company to adopt such a ‘somber’ pricing, as even Bihar-based listed electronics retailer Aditya Vision, with Rs.1,200 cr revenue and 3-4% net margin is trading at a PE multiple of over 20x. Although not comparable, third-party consumer durable manufacturers like Dixon and Amber are ruling at PE multiples of 90x and 40x respectively, although much larger, but similar net margins.