Celebrities who appear in Manyavar ads get married soon after – this Bollywood pop culture joke started doing the rounds after Virat Kohli-Anushka Sharma’s wedding. Just like its slick ads, parent Vedant Fashions’ formidable position in the wedding apparel market caught the eye of investors when it listed a year ago.
The popular narrative on D-Street is that Vedant Fashions is the next Titan. Titan’s Tanishq created a brand out of a largely unorganised sector, and so did Vedant Fashions’ Manyavar. Both are eyeing a piece of the Indian consumer’s discretionary spend.
The stock debuted early last year at an IPO price of Rs 866. Trading at Rs 1,100 currently, investors are sitting pretty on a 30 percent gain. Analysts continue to be bullish on the stock. Per Bloomberg, it has seven buy calls, nil holds, and only one sell call. But could Manyavar truly be the compounding machine that Titan, the storied investment of late Rakesh Jhunjhunwala, turned out to be?
Do the numbers add up?
In the early 2000s, when Jhunjhunwala decided to invest, Titan was highly leveraged with a debt-to-equity ratio of over 3. Its mainstay was still watches. It was building its jewellery business, which went on to transform the company.
Today, jewellery constitutes 80 percent of its revenue. The stock has compounded 40 percent annually since 2000, on the back of sales growth of 18 percent and net profit growth of about 23 percent. It commands a market cap of Rs 2.24 lakh crore now and trades at a P/E of 70. If the market continues to give it a valuation that’s on the higher end of its historic range, it is because investors believe in its ability to maintain this pace of growth due to its track record.
Vedant Fashions hit the market in February 2022 with a market capitalisation of Rs 22,333 crore, annual sales of Rs 1,008 crore, and net profit of Rs 308 crore. One year since going public, the stock has gained about 30 percent, with an estimated 30 percent sales growth on-year, and profit growth of 40 percent, largely driven by pent-up wedding demand.
The previous two years, FY20-21 and FY21-22, were tough for Manyavar because of the pandemic, which depressed sales and profits. At its current price, it is trading at a P/E of 70, the same as Titan. Its market cap-to-sales ratio is already at a premium to Titan’s.
Manyavar was launched in 2002, and it has taken 20 years for it to get to Rs 1,000 crore in sales. Launched in 1984, Titan, too, clocked Rs 1,000 crore in annual turnover after 20 years, but it began operations at a time when the per capita consumption as well as inflation were much lower.
The big value-creation opportunity that Titan offered in its initial years when RJ bought the stock might be already over. But with both stocks trading at similar valuations, can Vedant Fashions match up to Titan in terms of growth and return ratios, as most analysts believe? That requires an understanding of the strength in the moat of the two companies.
The business of trust
Titan’s turnaround story is a famous case study. In the book Titan: Inside India's Most Successful Consumer Brand, Vinay Kamath writes how the watchmaker won people’s trust when it introduced the Karatmeter in its stores.
The proposition was simple: use the machine to verify if the jewellery sold by your family jeweller is pure 22-carat gold or not. That strategy was essentially to drive home the point that local jewellers were not trustworthy, the centre-piece of Tanishq’s strategy to capture customers.
“Tanishq’s initial years were tough. It took them some time to understand customer behaviour and the kind of value they were seeking,” said Saloni Nangia, President, Technopak Advisors.
The company also catered to working women with its Mia and Zoya brands, which gave it access to a new pool of consumers, Nangia added.
Contrast this with Indian traditional wear — there is no such pressing need for trust. Stylish designs, decent fabric, and affordability are the most important criteria.
“Nothing stops many more players from entering the market, offering discounts, and putting pressure on Vedant’s growth and margins. Brand loyalty in this segment will be limited,” said Digant Haria, Co-Founder, GreenEdge Wealth.
Manu Rishi Guptha, Founder, MRG Capital, also said that the barriers to entry are low. Multiple shops in New Delhi, Mumbai, Calcutta, and Bengaluru sell similar designs at much cheaper prices. Ethnic wear has little long-term value, which makes it easy for customers to shift loyalties. If you ask millennials, they are happy to even rent their most-loved wedding attire than spend a bomb for a one-day event.
“Though Vedant has built efficiencies in terms of centralised design and efficient procurement, these are hardly non-replicable. Competitors have taken big strides to gain market share from the company,” Guptha added.
Aditya Birla Fashion and Retail has picked up a stake in the brand Sabyasachi. Meanwhile, Reliance Retail has acquired a stake in Ritu Kumar and Manish Malhotra. These brands are a notch higher, which can make it difficult for Manyavar to crack that market. Competition from the unorganised market, too, can eat away its share, thus limiting its ability to raise prices.
“Traditional wear purchase is not a very frequent affair for most Indians. Thus, Vedant Fashions is more dependent on finding new customers and opening new stores all the time. Titan, on the other hand, can bank on a large repeat purchase base,” explained Haria.
What do the recent numbers suggest?
Vedant Fashions’ same-store sales growth (SSSG) fell 8.7 percent in Q3FY22-23 over Q3FY21-22. Compared to Q3FY20-21, it recorded a low single-digit SSSG of 4.2 percent. SSSG for Titan grew 9 percent on-year in Q3 FY22-23.
“From the sales growth of both the companies vis-à-vis their competitors, it is evident that while Titan is holding its ground, Vedant Fashions has started to concede market share as its moat is being eroded by the competition,” said Guptha, whose fund holds Titan.
While there is no doubt that Tanishq was hugely successful in creating a formidable brand, the ever-rising price of gold has also helped the company boost profits. Making charges for jewellery are usually a percentage of the final price, which goes up with rising gold rates. That’s a huge tailwind Manyavar does not have.
If Manyavar has to ensure high growth, it needs to look at new segments or convert customers from the unorganised market faster. Both are challenging. Retail experts acknowledge that apparels is a tough business with stiff competition across segments. There have been very few companies across the world which have delivered high return on capital on a sustained basis.
Titan has also launched a women’s ethnic wear brand, Taneira, which is in direct competition with Manyavar’s Mohey. Under this brand, Titan is eyeing Rs 300 crore of revenue in the current fiscal and Rs 1,000 crore by FY27, which was Manyavaar’s annual sales last fiscal.
That should settle any debate or comparison between the two companies, though Titan, too, has its own risks. But that is another story.
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