Electronics Mart India Ltd IPO
Published by Sharekhan Education | October 6, 2022
Amit Pathak | Sharekhan Education
Electronics Mart India Ltd IPO
About the Issue:
Issue size: ₹ 500 Cr
Price Band: ₹ 56-59
Issue opens on: Tuesday, 4th Oct’2022
Issue closes on: Friday, 7th Oct’2022
Electronica Mart India Ltd. Company Overview:
Electronics Mart India Ltd. (EMIL) is a multi-brand consumer durable and electronics retailer. The company offers a diversified range of products across home entertainment, mobiles, laptop, home appliances, camera, kitchen appliances, and personal care. EMIL’s offering includes more than 6,000 SKUs (stock keeping units) across product categories from more than 70 brands. EMIL follows a cluster-focused expansion strategy, where it focuses on deepening its presence in the regions it operates in before venturing into new geographies. This has led the company to establish a strong brand presence in Andhra Pradesh and Telangana.
Objectives of Issue:
The IPO is a fresh issue of equity shares aggregating to Rs 500 crores. The proceeds from the fresh issue will be used for funding incremental working capital requirements, expansion &opening of stores & warehouses and repayment of debt and general corporate purpose. Minimum application is to be made for 254 shares and in multiples thereafter. Post allotment, shares will be listed on NSE and BSE.
Industry Overview:
The consumer durables industry in India is expected to grow at 10-12% CAGR between FY22-27E. The organized market share expanded from around 40% in FY13 to 60% in FY20. As per Crisil Research, the share of the organized market is likely to expand to 70-75% by FY27. Household penetration of consumer durables in India remains much lower in comparison to many developed nations. Only 17% of households in India own Room air conditioners, compared with above 90% in China, Japan and the US. Washing Machines penetration in India is 21%, as against the global average of over 50%. The key demand drivers for consumer durables in India are: Rising per-capita income, Increasing product range, Increase in the number of nuclear families, Rising urbanization, Improving power situation, Increase in the number of working women & Easy and flexible financing options.
Competitive Strengths:
The company offers their customers a wide product range across multiple categories, brands, price points to ensure that their customers have range of product options to choose from. EMIL’s cluster-based expansion approach leads to effective penetration in underserved markets and concentrated brand visibility due to focused implementation of marketing and advertising initiatives. Their sourcing capability, efficient logistics network, inventory management and robust technological infrastructure have enabled them to deliver on their value retailing promise and create a brand presence among their customers and brand partners. The company has entered into arrangements with their financing partners, which allows them to offer financing solutions in the form of low cost or zero cost EMIs to their customers.
Key Concerns:
EMIL’s stores are mainly concentrated in Andhra Pradesh and Telangana. Any adverse development affecting the operations in these states could have an adverse impact on the business. In FY22, EMIL derived 61.5% of its revenue from top 5 brands. Inability to maintain relationships with brands can adversely affect the company’s profitability. EMIL’s business is subject to seasonal volatility due to which there may be fluctuation in the sales of products. Aggressive online discounts and competitive pricing can pose significant threat to future operations.
Financials:
EMIL has delivered revenue CAGR of 17.9% between FY16-21. It has expanded its store network from 59 in FY19 to 112 stores in FY22. It has managed to deliver respectable ROE of 17.4% during the covid impacted year of FY22. In terms of valuations, the post-issue P/E works out to be 21.8x FY22 EPS (at the upper end of the price band) which is low compared to its peer Aditya Vision Ltd; which currently trades at a P/E of 32.6. EMIL IPO seems reasonably priced comparatively. Considering the growth opportunities we are maintaining a positive view on the company.
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