Rs. 1,014 cr IPO –
- 88% is OFS, mainly by 2 funds, Sequoia and ICICI Ventures, halving their 29% and 13% stakes respectively
- Rs. 125 cr is fresh issue for working capital (Rs. 61 cr) & 120 new stores (Rs. 34 cr).
Price band: Rs. 655- Rs. 690 per share
Mcap: Rs. 3,727 cr, implying 27% dilution
IPO Date: Wed 17 Nov to Mon 22 Nov 2021, Listing: Tue 30 Nov 2021
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
- 450 Exclusive Brand Outlets, under Go Colors, account for 2/3rd of company’s Rs. 392 cr revenue in FY20, with half coming from South India. But, covid reduced revenue by 36% YoY in FY21 to Rs. 251 cr and further to Rs. 31 cr in Q1FY22, with net loss of Rs. 4 cr and Rs. 19 cr respectively, as fixed rental costs remained under-absorbed.
- Double Digit Margins: Company’s gross margin are strong at 60% with net margin of 11-13% pre-covid. RoE for FY19 and FY20 stood at 14% and 18% respectively, before contracting to negative in FY21.
- Rs. 13,500 cr women’s bottom-wear market growing in double-digit due to shift to branded apparel.
- Limited Scope to Increase Prices, despite branded play: Average selling price nearly stagnant from Rs. 559 in FY19 to Rs. 584 in FY21 (lower than inflation rate), highlights limitation of presence only in bottom-wear and competitive industry with large format retailers aggressively launching private labels and lingerie makers diversifying into bottom-wear.
- Highly Working Capital Intensive: Given the large number of stock keeping units (SKUs) leading to lower inventory turn, company carried high inventory even pre-covid, at 3.2 months as of 31.3.20, which shot up to 3.9 months as of 31.3.21,.
- Pricey Valuation: Company expects negative effects of covid to continue into FY22, thus EPS of Rs. 10 clocked in FY20 may be achieved only in FY23, and not FY22. This leads to PE multiple of 70x and revenue multiple of ~9x on one year forward earnings, which is extremely aggressive for small topline of Rs. 400 cr.