Vedant Fashions Ltd, owner of the popular ethnic wear brand Manyavar, has launched its initial public offering (IPO) today— Feb 4. This will be the third public issue of 2022. In this article, learn about the company’s business and its IPO.
Company Profile – Vedant Fashions Ltd
Incorporated in 2002, Vedant Fashions Ltd (VFL) offers a wide range of ethnic wear. Its ‘Manyavar’ brand is a category leader in the branded Indian wedding and celebration wear market with a pan-India presence. They have established a strong multi-channel network and launched various brands to serve this specific market. Mohey (women’s ethnic wear), Mebaz, Manthan, and Twamev are four other brands of the company. VFL focuses on spreading India’s vibrant culture and traditions through these brands.
As of Sept 30, 2021, Vedant Fashions’ retail footprint stood at 1.2 million sq. ft., covering 535 exclusive brand outlets (EBOs) across 212 cities and towns in India. You may have seen its EBOs at major malls in your locality. VFL also operates 11 EBOs across the United States, Canada, and UAE. Most of these EBOs are owned and operated by franchisees. Its sales network also includes 825 multi-brand outlets (MBOs), 145 large-format stores (LFS), and online platforms.
The company also runs impressive advertising campaigns. They have roped in Amitabh Bachchan, Virat Kohli, Ranveer Singh, Alia Bhatt as its brand ambassadors.
About the IPO
Vedant Fashions’ public issue opens on February 4 and closes on February 8. The company has fixed Rs 824-866 per share as the price band for the IPO.
The IPO is entirely an offer for sale (OFS) of 3.6 crore equity shares by promoters and early investors, aggregating to Rs 3,149.19 crore. Individual investors can bid for a minimum of 17 equity shares (1 lot) and in multiples of 17 shares thereafter. You will need a minimum of Rs 14,722 (at the cut-off price) to apply for this IPO. The maximum number of shares that can be applied by a retail investor is 221 equity shares (13 lots).
The main objective of the IPO is to provide an exit strategy (or liquidity) to VFL’s promoters. The company aims to achieve the benefits of listing the equity shares on NSE and BSE. The total promoter holding in the company will decline from 92.4% to 84.9% post the IPO.
Financial Performance
Vedant Fashion’s financial performance has been severely impacted by the Covid-19 pandemic. The company reported a 43.8.% YoY decline in net profit to Rs 132.9 crore in FY21. Its revenue from operations fell 38% YoY to Rs 564.8 crore during the same period. VFL derived 90.14% of its sales from franchise-owned exclusive brand outlets (EBOs) in FY21. It has posted average gross margins of above 60% over the past three years.
However, revenue has recovered significantly in the first half of the current financial year (H1 FY22) as mobility improved and state-wide restrictions eased. In H2 FY22, revenue jumped 401% YoY to Rs 359.8 crore. ~88.09% of its sales revenue was derived from EBOs. Net profit stood at Rs 98.4 crore in H1 FY22, compared to a loss of Rs 17.65 crore in H1 FY21.
VFL has a strong balance sheet with no debt and an asset-light model.
Risk Factors
- VFL primarily depends on a single discretionary product category— Indian wedding and celebration wear. Thus, the demand for its products is highly dependent on the frequency and volume of weddings. The company’s business is also characterised by rapidly-changing customer preferences.
- The inability to maintain or enhance the recognition and reputation of its brands may adversely affect the company’s business.
- Vedant Fashions outsources a significant proportion of its production processes and activities to third parties. A slowdown or disruption in the operations and performance of third parties (or inability to retain them) could severely impact VFL’s business.
- The company’s warehouse, factory, and a majority of its third-party suppliers are exclusively based in a single geographical location- Kolkata. This exposes VFL’s supply chain to regional risks.
- Any failure in quality control processes may adversely impact the company’s overall operations.
IPO Details in a Nutshell
The book-running lead managers to the public issue are Axis Capital, Edelweiss Financial Services, ICICI Securities, Kotak Mahindra Capital, and IIFL Securities. Vedant Fashions Ltd had filed the Red Herring Prospectus (RHP) for its IPO on Jan 22. You can read it here. Out of the total offer, 50% is reserved for Qualified Institutional Buyers (QIBs), 15% for Non-Institutional Investors (NIIs), and 35% for retail investors.
Ahead of the IPO, VFL raised Rs 944.75 crore from anchor investors. The marquee investors include the Government of Singapore, Fidelity, Nomura, Morgan Stanley Asia (Singapore) Pte. It also includes HDFC Life Insurance Company, SBI Mutual Fund (MF), Axis MF, and Aditya Birla Sun Life MF.
Conclusion
According to CRISIL, India’s branded wedding wear market is estimated to grow at a CAGR of 18-20% to reach Rs 8.2 lakh crore by FY25. This is primarily due to an increase in the availability of brands catering to celebratory occasions and rising disposable income. Vedant Fashions will continue to focus on growth by doubling its footprint in the domestic and international markets in the near term. The company aims to penetrate deeper into the existing markets and also identify inorganic growth opportunities.
However, it would be difficult to maintain margins due to heavy competition from local retailers, online retailers, and non-branded products. Inflationary pressures have also weighed in. Since VFL’s business is highly concentrated on wedding and celebration wear, it is vulnerable to demand variations.
The company has not received much interest in the grey market. VFL’s IPO shares are trading at a premium of just Rs 40-45 in the unofficial market. Before applying to this IPO, we will wait to see if the portion reserved for institutional investors gets oversubscribed. As always, consider the risks associated with the company and come to your own conclusion.
What are your views on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.