Electronics Mart India Ltd IPO: Should You Subscribe? Know What Brokerage Says

Business Overview

Electronics Mart India Ltd. (EMIL) started operations in 1980 with a consumer durable and electronics store in Hyderabad. Today, EMIL is the 4th largest and one of the fastest-growing consumer durables and electronics retailers in India, with dominance in Andhra Pradesh and Telangana. EMIL retails consumer durables such as home entertainment, mobiles, laptop, home appliances, cameras, kitchen appliances, and personal care. EMIL operates multi-brand outlets (MBOs) under the "Bajaj Electronics" brand name in Andhra Pradesh and Telangana, and under the name of "Electronics Mart" in the NCR region. MBOs also include special format stores called Kitchen Stories for kitchen appliances and "Audio & Beyond" focusing on high-end home audio and home automation solutions. The company also operates exclusive brand outlets (EBOs) for various brands. As of August 31, 2022, EMIL had 112 stores, of which 100 stores were MBOs and 12 stores were (EBOs) across Andhra Pradesh, Telangana, and NCR.

Offer Structure

Source- IPO Prospectus

Indicative Timetable

Source- IPO Prospectus

Objects of the Offer: The net proceeds will be utilized for the following purpose

• Funding of capital expenditure for expansion and opening of stores and warehouses.
• Funding incremental working capital requirements.
• Repayment/prepayment, in full or part, of all or certain borrowings availed by the Company.

Key Strengths

• The overall consumer durables retail industry has long-term growth potential, primarily due to the scope for an increase in penetration. Organized retailers will be big beneficiaries of the overall industry growth and are expected to gain market share from the unorganized sector.
• EMIL has successfully executed its cluster-based expansion strategy in Telangana and Andhra Pradesh. Given its past experience, the company has the know-how to be successful in newer markets.
• EMIL has built long-term relationships with brands and suppliers which will help them to sustain current business as well as to scale up operations.
• EMIL has displayed resilience in financial performance during the pandemic.

Key Risks

1. Concentration in Andhra Pradesh and Telangana: All of EMIL's retail sales come from Telangana, Andhra Pradesh and NCR. Due to the concentration of operations in a few states, any adverse development that affects the performance of the stores or warehouses located in these states could have a material adverse effect on EMIL's business, financial condition and results of operations.

 
2. Acceptance in new geographies: EMIL plans to expand into new geographies and as part of the strategy, it has opened eight stores in NCR till August 31, 2022. Entering new geographies and expanding operations is exposed to risk from a lack of familiarity and understanding of the economic conditions, demography, trends, consumer tastes and preference and culture of such areas. EMIL may face competition from the more established regional or national players, who may be more familiar with local customers' design preferences, business practices and customs.

3. Competitive pressures from online retailers: Competition from online retailers has been growing as they are able to offer products at competitive prices. Due to various factors, online retailers are able to offer more discounts and offer a wider range of consumer durables.

4. EMIL does not own certain trademarks or logo: EMIL depends on a combination of trademark laws and domain name protection laws to protect its logo, brand name and domain names. EMIL has filed applications for three new trademark applications for "EMIL". In the future, the company may need to resort to litigation or other proceedings to enforce, protect or defend its intellectual property rights. EMIL is also involved in legal proceedings against Bajaj Electricals Limited, who have filed a commercial suit against EMIL, alleging infringement of its trademark "BAJAJ ELECTRICALS".

5. Revenue dependency on top 5 brands: In FY22, EMIL derived 61.5% of its revenue from top 5 brands. EMIL's business will be adversely affected if the company is unable to maintain a continuing relationship with these brands or develop and maintain relationships with other new brands.

Brokerage's views on EMIL

According to the brokerage firm, "EMIL is a regional player in the organized consumer durables retail industry, focused on Andhra Pradesh, Telangana, and NCR regions. EMIL will continue to benefit from pent-up demand and an increase in consumption in the medium term. In the long term, favourable macroeconomic patterns such as changing demographics, rising per-capita income, changing lifestyles, increase in the availability of finance will lead to an increase in penetration of consumer durables and organized retail. Being the 4 th largest organized consumer durables retailer in India, EMIL will benefit from the industry tailwinds. EMIL's cluster-focused expansion strategy will help the company to build depth and scale in its targeted geographies. EMIL's plan to build its presence in the NCR region will provide diversification benefits from its current concentrated presence in South India. EMIL's IPO size is INR 5,000 Mn. The price band of the issue is INR 56- INR 59 per share. On the upper price band of INR 59 and FY22 EPS of INR 3.5, the P/E ratio is 17.0x. Compared to the only listed industry peer Aditya Vision, in FY21, EMIL was larger in terms of no. of stores, revenue, and revenue per store. On the other hand, Aditya Vision has better PAT margins for FY21 and FY22. Even during the covid-19 impacted year of FY21, EMIL's revenues did not see a decline and the company continued to remain profitable. EMIL has seen strong revenue growth of 35.8% in FY22 and a revenue CAGR of 17.1% during FY20-FY22. Considering the industry tailwinds, increase in penetration of consumer durables, strong per-store revenue metrics, forging new relationships with leading brand, and EMIL's plans to add more stores in NCR, debt reduction and addition of new warehouses from the IPO proceedings, the valuation looks reasonable. As a result, we recommend that Electronics Mart India Limited. IPO be rated 'SUBSCRIBE'."

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.