Electronics Mart India IPO: Should you subscribe?

Electronics Mart India Limited IPO opens for subscription on 4th October. The company is looking to raise up to Rs 500 crore through the public issue. Here are the details:

Electronics Mart India IPO Details

Electronics Mart India IPO Date: 4 October - 7 October 2022

Electronics Mart India IPO Price band: Rs 56 - Rs 59

Electronics Mart India IPO Issue Size: Rs 500 crore (Book Built Issue IPO)

Reservation: QIB 50%, Retail - 35%, NII 15%

Minimum Investment: Rs 14,986

Post Issue Implied Market Cap: Rs 2,180 crore - Rs 2,270 crore

Bid lot: 254 shares, and in multiples of 254 shares

Electronics Mart India IPO: Objects of the Issue

The net proceeds from the IPO will be utilized for the below purposes:

• Funding of capital expenditure for expansion and opening of warehouses and stores.
• Funding incremental working capital requirements.
• Repayment or prepayment of all or certain borrowings availed by the company.
• General corporate purposes.

Electronics Mart India IPO: About Electronics Mart India

• Electronics Mart India (EMI) started in 1980 as a proprietary concern with a consumer durable electronics store in Hyderabad.
• EMIL is the fourth largest and one of the fastest-growing electronics retailers and consumer durables in India.
• They are a multi-brand consumer durable and electronics retailer dealing in mobiles, laptops, home entertainment, home and kitchen appliances, camera, and personal care.
• EMIL offers a diversified product range with a focus on large and small appliances, mobiles, IT, and others.
• They have more than 6000 SKUs across product categories from more than 70 consumer durable and electronic brands.
• They have a total of 112 stores, out of which 100 are Multi Brand Outlets (MBOs), and 12 are Exclusive Brand Outlets (EBOs) ( as of 31 August 2022).
• Of total stores, 11 stores are owned and operated by EMIL, 93 stores are under a long-term lease rental model and 8 stores are partly owned and partly leased.

EMI IPO: Electronics Mart India Business Activities

EMI operates its business activities across three channels:

• Retail: EMI has set up diverse electronics and consumer durable retail stores arraying multifarious and specialized electronics products to provide comprehensive electronics solutions.
• Wholesale: EMI is engaged in the wholesale business of consumer durables where they supply products to single shop retailers in Telangana and Andhra Pradesh regions.
• E-commerce: EMIL diversified its operations by venturing into the e-commerce space through its website in 2017. Their e-commerce website currently functions as a catalog for the products they retail at their stores.

EMI IPO: Electronics Mart India Industry Outlook

• The retail sector is estimated to have grown 15-17% in FY22 on the low base of FY21, backed by a revival in discretionary spending amid the waning impact of the pandemic, increased market activity as well as an improvement in macroeconomic factors. 
• The consumer durables segment is one of the largest contributors to the overall organized retail industry.
• Tier I and II cities are the bread and butter of the consumer durables industry. The market is dominated by Tier I cities, typically accounting for ~45% of consumer durables sales, followed by Tier II cities adding another 25-30% to the sales.

Electronics Mart India IPO: Industry Peers

The company has only one listed peer. However, it has direct competition from organized brick-and-mortar retailers such as Croma, Reliance Retail, Vijay Sales, Girias, Sargam, Viveks, etc. In unorganized segments, it has competition from local electronics stores and others. The comparison with Aditya Vision is as below:

• In terms of revenue (FY22), Electronics Mart generates nearly five times the revenue compared with Aditya Vision.
• Earning Per Share (EPS) of EMI is low compared with Aditya Vision.
• In terms of RoNW, Aditya Vision has an edge with a RoNW of 41.88% compared to 17.42% RoNW of EMI.
• For FY22 earnings, the P/E stands at 21.85 for EMI, while Aditya Vision has a PE of 47.22.

Electronics Mart India IPO: Financials

• The revenue has increased since for the company even in the Covid times. The revenue from operations for FY20, FY21, and FY22 was Rs 3172.48 crore, Rs 3201.88 crore, and Rs 4349.32 crore, respectively. The revenue has grown at a CAGR of 17.09% in the two years.
• EBITDA for FY20, FY21, and FY22 was Rs 227.64 crore, Rs 203.88 crore, and Rs 291.94 crore, respectively. The EBITDA margin for the same period was 7.18%, 6.37%, and 6.71%, respectively.
• The profit for FY20, FY21, and FY22 was Rs 81.61 crore, Rs 58.62 crore, and Rs 103.89 crore, respectively, a growth of 13.31% CAGR.
• For the last three financial years, EMIL has reported an average EPS of 2.84 and an average RoNW of 15.82%.

Electronics Mart India IPO: Unique Selling Propositions

Large Consumer Durable and electronics retailer: They are the fourth largest consumer durable and electronics retailer in India with a leadership position in South India. Their operation scale along with their long-standing relationship with leading consumer brands enables them to procure products at competitive rates.

Fast-growing retailer: They are one of the fastest growing consumer durable and electronics retailers with a consistent track record of growth and industry-leading profitability. Between FY17 and FY21, the revenue has grown at a CAGR of 17.90%.

Increasing market presence: The business has grown steadily, primarily through the expansion of its store network. Their expansion and increased market presence are based on a cluster-based approach, wherein they expand their network in a particular market, till they reach substantial depth & scale. 

Diversified product offering: The company offers its customers a wide product range across multiple categories, brands, and price points to ensure that its customers have a range of product options to choose from and can make the value buy decision. They focus on providing a competitive product range for the leading brands at their store. 

Electronics Mart India IPO: Growth Potential

Expand reach across geographics: They aim to continue to deepen their store network in existing clusters to increase market share in the Hyderabad, Telangana, and Andhra Pradesh markets. Also, they aim to follow a peripheral and concentric expansion approach under which they will look to target contiguous states, to avail new opportunities.

Enhancing sales volumes: They will continue to prioritize customer satisfaction through optimal product assortment and offering value for money.

Technology-led inventory management: Company's business model requires them to maintain high levels of operational efficiency regularly. They plan to further improve their operating efficiency and ensure efficient supply chain management. Also, strengthen internal systems and controls regarding inventory management to monitor and reduce shrinkage and pilferage.

Maintaining & forging new relationships: They intend to expand their relationship with existing business partners and forge new relations with renowned brands to set up and operate an increased number of stores, including EBOs.

Electronics Mart India IPO: Risks

Most stores at two locations: The majority of their stores are presently concentrated in Andhra Pradesh and Telangana and may be exposed to significant liability and could lose some or all of their investment in such regions that may affect their revenue.

Competition from online retailers: They are witnessing a growth in the competition from online retailers who have been able to offer products at competitive prices. There is no assurance that they would be able to effectively offset the advantages that competitors in the online business may have and similarly grow business to online competitors, or that the competition they face would not drain their financial or other resources.

Dependency on top 5 brands: A large part of their revenues is dependent on the top five brands. The loss of any major brands or a decrease in the supply or volume from such brands will materially and adversely affect revenues and profitability. 

Electronics Mart India IPO: Key Highlights & Analysts’ review

• Robust rise in revenues: Electronics Mart India has seen a robust 17% CAGR rise in revenues between FY20- 22.
• Steady rise in profit: Electronics Mart India has seen a steady 13% CAGR rise in profit between FY20- 22.
• Decent margins: Electronics Mart’s EBITDA margin has been in the range of 6.4%- 7.2% in the last three years. The firm’s Net Profit margin has been in the range of 1.8% - 2.8%.  
• Dominant market share: , Electronic Mart India Limited (EMIL) is the 4th largest and one of the fastest growing consumer durables and electronics retailers in India and as of March-22. EMIL is the largest regional organized player in the southern region in revenue terms, with dominance in the states of Telangana and Andhra Pradesh. 
• Reasonable valuations: At the higher end of the price band, Electronics Mart India IPO is reasonably priced at post issue at 22 times FY22  earnings. This is lower than peer Aditya Vision Ltd (47 times). Aditya Vision has a superior financial profile as compared to Electronics Mart, and is expected to trade at premium valuations.  

Electronics Mart India IPO final recommendation: Given factors such as a steady rise in revenues, decent margins, dominant market share, rise in profit, and good runway for growth and reasonable valuation, analysts have given a ‘positive’ rating on the company’s long-term prospects.