Vedant Fashions IPO: Vedant Fashions IPO opens tomorrow: Can tight pricing, low GMP spoil the look?


NEW DELHI: The initial public offer (IPO) of Vedant Fashions, which operates Manyavar and Mohey brand of stores, will open for public bidding on Friday, February 4.

The issue is purely an offer for sale (OFS) in which the company’s promoter and existing shareholders will sell 3.64 crore shares. The company will not receive any proceeds from the IPO.

The size of the issue is Rs 3,150 crore. The price band at which shares will be sold is Rs 824-866. Investors, who are willing to apply, may bid for shares in a lot size of 17 shares and in multiples thereof.

Most analysts are positive on the issue, while some advise caution. They see its market leading position, growing Indian wedding and celebration wear market and strong supply chain management as positives for the company.

The company has registered a 15 per cent revenue and 31 per cent PAT CAGR during FY17-20. ICICI Securities said with the company’s strong brand franchise, it looks to tap the large and growing Indian wedding and celebration wear market driven by increased spending.

The broker said at the upper end of the price band, it is valued at 22.5x, 36.3x EV/sales for FY20, FY21, respectively, and 89x, 158x P/E for FY20, FY21, respectively. There are no listed peers having the same profile of business.

Since Indian wedding and celebration wear market is relatively less price-sensitive, it gives pricing power to the company, said analysts but they cautioned that maintaining margins at more than 40 per cent is challenging given the competition from the local retailers, online retailers and non-branded products and building inflationary pressure.

“We view the issue as aggressively priced leaving no margin of safety for investors. Thereby it warrants caution on the valuation front. Furthermore, high level of receivables (average 50 per cent of sales over FY19-FY21) can erode the OCF margin going forward,” said Satish Kumar of Choice Broking, who rates the issue as ‘subscribe with caution’.

The tight pricing of the issue is also reflected in its grey market premium (GMP). Dealers active in the unlisted market said its shares are trading with a premium of Rs 43 over the price band or just 5 per cent.

Manyavar is the flagship brand of the company, accounting for 84 per cent of the FY21 operating revenue followed by Mohey at 7.5 per cent. The balance of 8.3 per cent of FY21 revenue was composed by the remaining three brands, namely Manthan, Mebaz and Twamev.

Angel One, which has a ‘neutral’ rating on the issue, said the company has high operating margin, asset light business, strong brands and wide range of products but these positives are captured in the valuations commanded by the company.

But that doesn’t mean it cannot create value in the long term, believe analysts at Canara Bank Securities. The company has an asset light EBO (exclusion brand outlets) model that lets them focus on vendor and inventory management by understanding consumer preferences through the collected secondary sales data.

“Considering its operating margins and strong balance sheet backed with higher brand recall for celebration wear, we recommend subscribing to the issue for the long term,” it said.

Religare Broking also said Vedant is well placed to benefit from growing industry trends given its leadership position in the Indian celebration wear market. Moreover, its diverse portfolio of brands and differentiated business model are its key strengths, it added.


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