IPO: Credo Brands Marketing

Credo Brands, popularly known as Mufti, will launch its IPO (initial public offering) on December 19, 2023. Here is a breakdown of the company's strengths, weaknesses and growth prospects to help investors make an informed decision. In a nutshell Quality: Its three-year average ROE and ROCE are 16.2 and 17.1 per cent, respectively. It also generated positive free cash flows in the last three financial years. Growth: Its revenue and net profit grew at an annual growth rate of 43 and 375 per cent, respectively, over the last three years. Moreover, its EBIT and PAT margins have zoomed in the past two financial years. Valuation: The stock is valued at a P/E and a P/B of 23.2 and 6.2 times, respectively, compared to its peers' median and average of 81.1 and 8.3 times. Overview: According to a Technopak report, the apparel market size in India is expected to grow by 18 per cent annually between FY23 and FY27. A growing middle class, urbanisation, and proliferation of online buying can help Credo expand its sales. However, the company's over-dependence on offline retail distribution and lack of agreements with its manufacturing partners pose barriers to growth. About Credo Brands Incorporated in 1998, Credo Brands Marketing retails casual clothing for men under its flagship brand 'Mufti.' As of September 30, 2023, it had a presence in 591 cities across India. Strengths of Credo Brands Strong distribution network: As of September 30, 2023, it had 1,807 retail touchpoints comprising 404 exclusive brand outlets (EBOs), 1,332 multi-brand outlets and 71 large format stores. Weaknesses of Credo Brands High reliance on offline retail distribution channels: Brick-and-mortar account for a significant portion of its revenue. In FY23, only 5.1 per cent of the revenue came from online distribution channels. Similarly, in FY22 and FY21, digital sales accounted for only 8.2 per cent of the total revenue. Lack of exclusivity agreements with manufacturers: It outsources its manufacturing but does not have exclusive agreements with the manufacturers. Any fallout with the manufacturing partners will impact financials significantly. IPO details Total IPO size (Rs cr) 550 Offer for sale (Rs cr) 550 Fresh issue (Rs cr) 0 Price band (Rs) 266-280 Subscription dates Dec 19-21, 2023 Purpose of issue Reaping the benefits of listing on stock exchanges Post IPO M-cap (Rs cr) 1800 Net worth (Rs cr) 289.88 Promoter holding (%) 55.4 Price/earnings ratio (P/E) 23.2 Price/book ratio (P/B) 6.21 Financial history Key financials 2Y growth (% pa) FY23 FY22 FY21 Revenue (Rs cr)