Vedant Fashions (Manyavar) IPO: How good is it?

In our story, Vedant Fashions IPO: Information analysis, we have shared the key details of the IPO, along with important information about the company. Here we will answer some questions about Vedant Fashions and evaluate it on parameters like management, financials, valuations, etc.

IPO questions

The company/business

1) Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
Yes. The company's earnings before tax were Rs 335.8 crores in the last 12 months.

2) Will the company be able to scale up its business?
Yes. The company has been opening new stores both in India and abroad. It has doubled its retail footprint from 0.5 million square feet in 2016 to 1.1 million square feet in 2021 and plans to double this number in the next few years.

3) Does the company have recognisable brands truly valued by its customers?
Yes. The company is a highly recognised brand in the men's wedding and celebration wear segment.

4) Does the company have high repeat customer usage?
No. It operates in a competitive space with many unorganised players. Since weddings and celebrations are usually one-time events, the company can't have high repeat customers.

5) Does the company have a credible moat?
No. While there is strong brand recognition for Vedant Fashions, it cannot be considered a moat since many other competitors are in the broader market.

6) Is the company sufficiently robust to major regulatory or geopolitical risks?
Yes. The company mainly operates in India, making them robust to geopolitical risks.

7) Is the company's business immune to easy replication by new players?
No. Although the company has a strong brand image, new players can get market share with low pricing strategies since Vedant Fashions primarily deals with premium and luxury segments. The huge presence of unorganised players is also a threat as they offer products at lower price ranges.

8) Can the company's product withstand being easily substituted or outdated?
No. The wedding market is a growing industry in India, but other major competitors offer similar products at lower prices.

9) Are the customers of the company devoid of significant bargaining power?
Yes. Since the customers are retailers, they are devoid of significant bargaining power.

10) Are the suppliers of the company devoid of significant bargaining power?
Yes. The company sources its raw materials and finished goods from various third parties, ensuring that they do not have significant bargaining power.

11) Is the level of competition the company faces relatively low?
No. There are various organised and unorganised players in the broader market.

Management

12) Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
Yes. The main promoter group would continue to hold 67 per cent stake in the company post issue.

13) Do the top three managers have more than 15 years of combined leadership at the company?
Yes. Ravi Modi, the Chairman and Managing Director, has been associated with the company since its inception.

14) Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
Yes. We have no reason to believe otherwise.

15) Is the company free of litigation in court or with the regulator that casts doubts on the management's intention?
Yes, the company is free from any material litigation.

16) Is the company's accounting policy stable?
Yes. As per the auditors' report, the accounting policy is stable.

17) Is the company free of promoter pledging of its shares?
Yes. The company's shares are free of pledging.

Financials

18) Did the company generate a current and three-year average return on equity of more than 15 per cent and return on capital employed of more than 18 per cent?
Yes. The company's return on equity and return on capital employed for FY21 is 12 per cent and 34 per cent, respectively. Its three-year average return on equity and return on capital employed is 18 per cent and 43 per cent, respectively.

19) Was the company's operating cash flow positive during the last three years?
Yes. Vedant Fashions reported positive cash flow during the last three years.

20) Did the company increase its revenue by 10 per cent CAGR in the last three years?
No. The company's revenue decreased by 16 per cent CAGR from FY19 to FY21. But we would like to mention that this fall was primarily due to the pandemic as the company's revenue and profit decreased by 38 per cent and 44 per cent, respectively.

21) Is the company's net debt-to-equity ratio less than one, or is its interest-coverage ratio more than two?
Yes. The company's debt to equity ratio was 0.04, and the interest coverage ratio was 14.6 times as of September 2021.

22) Is the company free from reliance on huge working capital for day-to-day affairs?
No. The company has a working capital turnover ratio of 0.8 times for FY21 and 0.7 times for six months ended FY22. The company's working capital cycle was 258 days during FY21 with high trade receivables. Failing to convert revenue to cash quickly can lead to working capital insufficiency.

23) Can the company run without relying on external funding in the next three years?
Yes. Since the company has an asset-light model, it does not invest in manufacturing facilities and sources its production to third parties. Thus it can run without relying on external funding.

24) Have the company's short-term borrowings remained stable or declined (not increased by greater than 15 per cent)?
Yes. The company does not have any short-term borrowings as of September 2021.

25) Is the company free from meaningful contingent liabilities?
Yes. The company is free from meaningful contingent liabilities.

Stock/valuations

26) Does the stock offer an operating-earnings yield of more than 8 per cent on its enterprise value?
No. The stock will only offer an operating-earnings yield of 1.7 per cent.

27) Is the stock's price-to-earnings less than its peers' median level?
Yes. The stock would trade at a price-to-earnings of 85.9 times against peers' average of 321.4 times.

28) Is the stock's price-to-book value less than its peers' average level?
No. The stock will trade at a price-to-book value of 24.5 times against peers' average level of 9.5 times.

Also read Vedant Fashions IPO: Information analysis to learn about the company's key IPO details and important information.

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