After two golden years for investors, namely 2020 and 2021, this year has been full of ups and downs in the stock markets due to rising inflation, tightening of interest rates and other macroeconomic uncertainties. As a result, companies are cautiously tracking the market mood to identify the opportunistic time to come out with their IPOs. In the context of these highlights, an electronics retailer from South India has come up with its IPO. Provided below are full details you need to know about the company’s IPO! The company will raise ₹500 crore through the IPO, which is fully a fresh issue of shares.
About the company
Electronics Mart India Limited counts itself as a key player among the consumer durables and electronics retailers in India as of FY21. The company is the largest regional organized player in southern India in revenue terms, and has a dominating presence in the states of Telangana and Andhra Pradesh. The company commenced business operations in the year 1980.
The company sells large appliances including televisions, refrigerators and ACs, which contribute nearly half of their total revenues. Mobile phones and smart watches contribute 34% towards their revenues, whereas small appliances such as headphones, laptops, and speakers contribute 15% towards revenues. The company has a total of 112 stores, including a small presence in the Delhi NCR region.
Electronics Mart India Limited IPO
|Issue Open Date||October 4, 2022|
|Issue Close Date||October 7, 2022|
|Issue Type||Book Built Issue|
|IPO Size||₹ 5000 Cr (approx.)|
|Fresh Issue||₹ 5000 Cr (approx.)|
|Face Value||₹ 2 Per Equity Share|
|Price Band||₹56 to ₹59 Per Equity Share|
|Listing Exchanges||BSE and NSE|
Objectives of the IPO
Following are the key objectives of the company’s IPO:
- To fund capital expenditure for expansion and opening of stores and warehouses.
- To fund incremental working capital requirements.
- To repay in full or part, borrowings of the company
- To meet general corporate expenses
Following are the key risks in the company’s business:
The company’s revenue is geographically concentrated in the sense that 88% of its revenue comes from the state of Telangana alone. The company’s revenues might go for a toss if any adverse event happens in the state.
The company’s revenues are also concentrated in terms of product categories. Its top five brands contribute 62% to its total revenues, while the top two brands contribute 37% to the total. This poses a revenue risk if these top five brands lose their appeal to the customers.
Electronic Mart operates its stores in Andhra Pradesh and Telangana by the name ‘Bajaj Electronics’, but does not have a trademark on its name. The company has filed a lawsuit for infringement of the trademark. If the company loses this lawsuit, it will have to give up this name, thus impacting its brand recognition.
Going into the future, a major competition for the company will be the rising share of e-commerce sales in the consumer durables segment.
Following are the key strengths in the company’s business:
- Electronics Mart India Limited is the fourth largest consumer electronics retailer in India and is also the largest organized player in South India. The company has a recognized brand name in Andhra Pradesh and Telangana.
- The company has a long standing relationship with 70+ brands for more than 15 years.
- In FY21, the year of pandemic, the company was able to open 22 new stores, representing unhindered growth.
Fundamentals of the company
Following are the fundamentals of the company:
- The company’s revenue has grown at 17% CAGR over the last three years.
- The company’s profit after tax stood at ₹104 crore for FY22, while revenues for the same period were ₹4349 crore.
- The company had total debt worth ͭ₹476 crore on its balance sheet as of FY22.
- The company’s operating cashflows were positive during the last three financial years.
- The company’s return on equity stood at 17% and the return on capital employed stood at 19% for FY22.
- The company has high working capital needs. Also, the company is free from any contingent liabilities.
- Promoters of the company will hold 78% stake in the company post the IPO.
Following are the valuation details of the company’s IPO:
- At the IPO issue price band of ₹56-59 per share, the company’s PE ratio comes out to be at 21.8x.
- It will trade at 2 times its book value at the IPO issue price.
- The company’s IPO issue price demands a market capitalization of ₹2270 crores.
According to the company prospectus, it has one listed peer by the name Aditya Vision Limited. This peer company currently has a market capitalization of ₹1712 crores and trades at a PE of 32x and 16.2 times its book value. Based on these ratios, Electronics Mart India has come out with its IPO at a relatively cheaper price.
This was all about the Electronics Mart India Limited IPO. The company possesses certain strengths with a couple of weak points. A positive thing in the IPO is that it is fully a fresh issue of shares and promoters are not offloading any stake through the IPO, which reflects the promoter’s confidence in their company’s future. However, investors should do thorough analysis and invest only according to their risk appetite.