The initial public offering of Electronics Mart India received an overwhelming response from investors during October 4-7, getting bids worth more than Rs 26,500 crore against an IPO size of Rs 500 crore.
The issue was subscribed 71.93 times - the second highest subscription level in 2022 after Harsha Engineers (74.70 times) - with retail investors applying for shares 19.71 times the allotted quota, non-institutional investors putting in bids 63.59 times the portion set aside for them.
The qualified institutional buyers bought 169.54 times their reserved portion.
So what propelled such high investor interest in the issue and the company?
Attractive valuations of the issue, high growth prospects for the sector in future and the company's strong presence in south India are some of the strengths that analysts have listed for the IPO of country's fourth largest consumer durables and electronics retailer.
Electronics Mart India, which opened its first electronics store at Hyderabad in 1980, now has 112 stores across Telangana, Andhra Pradesh and Delhi-NCR. In fact, in the past three years, there has been a significant rise in store count to 112 in FY22 from 59 in FY19.
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The company aims to add another 58 stores by the end of financial year 2025-26.
"Electronics Mart India IPO was comparatively valued at reasonable P/E of 18.5x at upper end of price band of Rs 56-59 per share against listed peers like Aditya Vision which is available at 23.7x FY22," Harshit J Kapadia, Vice President at Elara Securities India said.
"The rising preference among consumers for modern format large retailers (as a one-stop shop experience with higher store keeping unit, or SKU) versus retail electronic stores was also one reasons for investors to be keen on the company," he added.
Its offering includes more than 6,000 SKUs across product categories from more than 70 consumer durable and electronic brands. Also, it has a long-standing relationship of more than 15 years with a certain number of brands which operate in product categories such as large appliances, mobiles, small appliances, IT and others.
India's consumer durable market is expected to grow at a CAGR of 10-12 percent over FY22-27, taking its market size to Rs 4.8-5.3 trillion in FY27, driven by 1) rising income-led aspirations, increased urbanization & nuclear families, underpenetration of electronics goods and improved financing mechanism.
CRISIL Research estimates the size of India's consumer durables industry, including large consumer durables, mobile phones and smaller appliances, at Rs 3-3.2 trillion as of FY22, and Rs 3.3-3.8 trillion by FY23 with normalised market operations and estimated improvement in the economic scenario after lifting of all Covid-19 curbs.
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"India is expected to be a good market demand traction for consumer goods, which bodes well for this company which is a market leader (especially in e-retail) and is clocking striking growth despite operating in a very competitive market," Arpit Jain, Joint MD at Arihant Capital said.
The already growing demand will be further boosted by the onset of the festive season. The potential increase in the company’s revenue could have been a factor in the high demand for this IPO, Aprit said.
EMIL has a consistent track record of revenue growth and profitability. Despite the ongoing Covid pandemic and its stores being non-operational & partially operational during different phases of the lockdown, revenue from operations grew at a compounded annual growth rate (CAGR) of 17.09 percent from Rs 3,172.47 crore in FY20 to Rs 4,349.32 crore in FY22.
The profit grew significantly by 77 percent to Rs 103.89 crore in FY22 compared to previous year, though there was a 28 percent decline in FY21 largely due to Covid wave. At operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 43.2% to Rs 291.94 crore in FY22 compared to FY21.
Its three-year average return on equity and return on capital employed are 16 and 18 percent, respectively. It clocked profit of Rs 40.66 crore on revenue of Rs 1,408.4 crore for the quarter ended June FY23.
Mobile phones was the largest category of goods which contributed 35 percent to total revenue by the company, followed by large appliances at 50 percent and small appliances & IT products at a 15 percent share in financial year ended March FY22.
The company uses a hybrid business model of ownership and lease rental to expand retail spaces, and operates business activities across three channels of retail, wholesale and e-commerce.
As of August 2022, out of the total 112 stores, 11 stores are its owned, 93 stores are under long-term lease rental model and eight stores are partly owned and partly leased.
"The company offers a diversified range of products with a focus on large appliances and is fast expanding into the retail and e-commerce space which contribute 80 percent to its business," Arpit Jain said.
Electronics Mart India is going to utilise issue proceeds of Rs 500 crore for expansion and opening of stores and warehouses, incremental working capital requirements, repaying of all or certain debts, and general corporate purposes.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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