IPO Size: Rs. 3,149 cr – Entire offer for sale (OFS)

• 50% by promoter (92% to drop to 85%)
• 50% by PE Kedaara (completely exiting 7.5% stake)

Price band: Rs. 824-866 per share

Mcap: Rs. 20,100 cr, implying 15% dilution

IPO Date: Fri 4^th Feb to Tue 8^th Feb 2022, Listing 16^th Feb 2021

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Company Strengths:

1. High Margin Business: Pre-covid, company’s revenue stood at Rs. 915 cr in FY20, with 73% gross margin and 26% net margin. On Rs. 237 cr PAT, EPS was Rs. 9.5 in FY20.
2. Debt free: with surplus cash of Rs. 205 cr (30.9.21). As business is franchisee-led and asset-light, it generates high RoE of 20-22%.  
3. Profitable during Covid: While FY21 revenue declined to Rs. 565 cr due to lockdowns, gross margin was maintained at 74% and company was profitable on a net basis, with Rs. 133 cr PAT. During the second wave too, company was profitable, with H1FY22 revenue and PAT of Rs. 360 cr and Rs. 98 cr respectively.

Concerns:

1. Fragmented Market Opportunity: Company is a menswear celebration apparel brand operating in a not-so-large market size of Rs. 13,000 cr. Negligible barriers to entry make the market highly fragmented as well as competitive.
2. Concentration Risk: Despite heavy advertising on brand-building (8% of revenue pre-covid), 825 multi-brand outlets and 145 large format stores generate less than 10% revenue. Company is dependent on 535 exclusive brand outlets (owned-cum-operated by 300 franchisees) for 90% of its revenue, with top 5 franchisees accounting for +20% revenue, excluding a pre-covid acquisition.   
3. High dependence on a single brand: Manyavar still accounts for 82% of company’s revenue (same percentage as FY19), implying limited success of other menswear brands Manthan or Tvamev or Mohey in womenswear.  

‘Nothing Left on the Table’ Pricing

Shares are being offered at a revenue multiple of 18-20x and PE multiple of 75-80x, not on current year, but on one-year forward basis (FY23E), and that too, after factoring in the most-optimistic scenario. These steep valuation multiples leave nothing on the table for incoming investors and instead carry risk of contraction, once profit growth narrows on a larger base. Besides, IPO is 100% OFS, with the PE investor making a complete exit, which is not viewed positive by the market.