Vedant Fashions (Manyavar) IPO: Information analysis

Incorporated in 2002, Vedant Fashions is India's largest company in the men's wedding celebration wear segment. Best known for its flagship brand Manyavar, the company sells its merchandise under various other brands such as Mohey, Mebaz, Manthan, and Twamev. Under the brands Mohey and Mebaz, it also caters to women's wedding wear. The company primarily operates through EBOs (Exclusive Brand Outlets), where they generated 90 per cent of the sales as of FY21. The remaining came from MBOs (Multi Brand Outlets), which accounted for 6 per cent, LFS (Long Format Stores), which accounted for 1 per cent, and the remaining from online channels.

As of September 2021, the company had a total retail space of 1.2 million square feet across 212 cities in India and eight cities internationally. It has 535 EBOs in India and 11 EBOs across countries like the United States, Canada, and UAE. Since the EBOs are operated by the franchises, the company is asset-light, which helps achieve a high return on capital. To sustain this, Vedant Fashions outsources its manufacturing to third parties or 'jobbers'. It is expected to follow the same model in the future since 73 per cent of its franchisee stores have operated for over three years.

By 2025, the Indian apparel market's projected growth is 18 per cent CAGR, with the wedding and apparel retail market expected to grow by 15 per cent. And with many weddings happening each year, an underpenetrated men's wedding wear segment, and increasing household income, the company will likely benefit from using its brand as leverage.

Strengths:

1) Strong brand presence: 'Manyavar', the company's flagship brand, is the leader in branded wedding and celebration wear segment, according to CRISIL in 2020. Their pan-India presence and diverse portfolio of products have attracted customers throughout the years. Vedant Fashions cater to women's wedding and celebration wear segment through its brand 'Mohey'.

2) Asset-light model: The company predominantly operates through EBOs managed by the respective franchisees. Thus, it does not need to invest in manufacturing facilities and distribution systems, increasing its capital return. It proved this in FY21 when its revenue and profit decreased drastically, but it still maintained a return on capital employed of 34 per cent.

3) Omnichannel network: Vedant Fashions has smooth integration between online and offline channels, ensuring consistent availability to customers. It has also introduced a method where EBOs can place orders requested by customers, which can be then received at any EBO of the customer's choice.

Weakness:

1) Weak working capital position: The company has a working capital turnover of 0.8 times in FY21 and 0.7 times for six months ended FY22. Vedant fashions has a working capital cycle of 258 days for FY21 with high amounts of trade receivables. The company's sales conversion is very low, which would, in turn, impact its day-to-day operations if it continues or increases further.

2) Geographical concentration: The warehouse and jobbers of Vedant Fashions are located in and around Kolkata. Any kind of pandemic restrictions can harm its manufacturing operations. Since the company is not involved directly in it, a labour shortage in the region or any issue in the third-party organisations can affect the product availability in its stores.

3) Aggressive valuation: Vedant Fashions will debut in the market at a price to earnings of 86 times and price to book of 24 times. Its market capital to sales is at 25 times, and this valuation may not be sustainable going forward.

Also, read Vedant Fashions IPO: How good is it? to learn how we evaluate Vedant Fashions on various metrics.

Disclaimer: The author may be an applicant in this Initial Public Offering.