Overview: The Hyderabad based company EMIL (Electronics Mart India Limited) is a four-decade old company. In 1980, it was originally formed as a sole proprietorship concern under the name of M/s Bajaj Electronics. It started with a consumer durable and electronic store in Hyderabad. Later, it was converted into a partnership firm in March 2011 under the same name - M/s Bajaj Electronics. Thereafter, the firm was converted into a public limited company with the name "Electronics Mart India Ltd" in September 2018.
EMIL is a multi-brand consumer durable and electronics retailer in home entertainment, mobiles, laptop, home appliances, camera, kitchen appliances and personal care. EMIL operates multi brand outlets under Baja Electronics brand name. The company also operates exclusive brand outlets for various brands and a special format store for kitchen appliances called Kitchen Stories. IQ is an exclusive Apple Store - chain and Kitchen Stories is experimental showroom which deals with luxury built in kitchen appliances products across more than 100 brands, including a partnership with German brand Hacker Kitchens.
Currently, the chain of stores has 105 outlets comprising 93 multi brand outlets and 12 exclusive brand outlets across more than 30 cities in Andhra Pradesh and Telangana.
EMIL is the fourth largest and one of the fastest growing consumer durables and electronics retailers in India. The first three giants are big household names viz. Reliance Retail, Croma and Vijay Sales.
IPO Details: Now, in the first week of October 2022, the company is going to debut in the secondary security market with its ₹ 500 Crore IPO. The issue is slated to open on October 4, 2022 and will remain open till October 7, 2022. The tentative dates of allotment and listing are October 12, 2022 and October 17, 2022 respectively. The pricing per piece is set between ₹ 56 to ₹ 59 and minimum lot is for 254 shares to apply. 35% of shares under IPO are reserved for Retail Investors.
If you look into the shareholding pattern of the company, presently 99.98% shares are held by the promoters viz Pavankumar Bajaj (50.69%) and Karan Bajaj (49.29%). The company has not onboarded outside investors till now which exhibits promoters' confidence in the business. On the other hand, it is run as family business.
Object of the issue: This IPO is 100% Fresh Issue. The net proceeds from the issue are proposed to be utilized by the company for the following objects:
Industry Peer Group P/E ratio: As on date, there is only one comparable listed company Aditya Vision Ltd in India engaged in the same line of business. Aditya Vision Ltd is five times bigger than Electronics Mart India Ltd in terms of Revenue from Operations. So, comparing with Adiya Vision Ltd is little prejudicial. There is no apple-to-apple comparison, yet the data is given below:
Revenue: As earlier said, the company is one of the fastest growing consumers durable and electronics retailers in India with a revenue CAGR of 17.90% from Financial Year 2016 to Financial Year 2021. The company has consistently demonstrated profitability with a robust operating performance. EMIL had the second highest operating margin among its peers in Fiscal 2021. The company has achieved revenue from operations of ₹ 1408.45 Crore for the three-month period ended June 30, 2022. The company had achieved revenue from operations of ₹ 4349. 32 Crore for Financial Year 2022, ₹ 3201.88 Crore in Financial 2021 and ₹ 3271. 48 Crore in Financial 2020 representing 35.84% year on year growth and 0.93% year on year growth Financial Year 2022 and Financial Year 2021 respectively.
(₹ in Cr)
Pricing of the issue: The company has set the price range between ₹ 56 to ₹ 59. As on March 31, 2022, Basic & Diluted EPS stood at ₹ 3.46 per share. The company has asked the price which is 16.18 - 17.05 multiples of Financial Year 2022 EPS. Its peer Aditya Vision Ltd is trading at 45.70 multiples. So, if we compare with its peer, EMIL is reasonably priced. Its NAV (Book Value) as on June 30, 2022, stood at ₹ 21.27. Its PB (Price/Book Value) ratio ranges between 2.63 - 2.77. Again, from book value front, the ask price seems reasonable.
Dividend: The company has not paid any dividend in the last three Financial Years. The accumulate profits are used for its expansion.
Debt Equity Ratio: The Debt Equity ratio is around 0.75 as on June 30, 2022. The debt equity ratio under 1 is considered good.
Competitive strengths:
1. The company is the 4th largest consumer durable and electronics retailer in India with a leadership position in South India. Its scale of operations along with its long-standing relationship with leading consumer brands enables it to procure products at competitive rates
2. The company is one of the fastest growing consumers durable and electronics retailer with consistent track record of growth and industry leading profitability.
3. Increasing market presence and geographic reach with cluster-based expansion
4. The company's business model provides operational flexibility to create long term sustainable footprint.
5. Diversified product offering & optimal product assortment leveraging its deep knowledge and understanding of regional markets
6. Strategically located logistics and warehousing facilities backed by stringent inventory management using IT systems
7. Robust customer service support, timely delivery & installation support
8. Experienced management team with a proven track record
The company seems good, but a couple of things are worth worrying:
1. The company has received a Show Cause Notice dated July 28, 2022 from the Directorate General of GST Intelligence, Hyderabad Zonal Unit ("DGGI) for allegedly evading an amount of ₹ 78.41 Crore (approx.) by suppressing facts relating to receipt of credit notes from its suppliers and not accounting the same in its statutory tax returns (the “Show Cause Notice”). The matter is pending, and if conclusion comes in the department's favor, then material liability can arise.
2. The company has received a show cause notice dated July 29, 2022 from the Directorate General of GST Intelligence, Hyderabad Zonal Unit (“DGGI”) in respect of its operations in Andhra Pradesh, for allegedly evading an amount of ₹ 2.28 Crore (approx.) by suppressing facts relating to receipt of credit notes from its suppliers and not accounting the same in its statutory returns (the “Show Cause Notice”). Again, same situation.
3. The company has received an order from the National Anti-Profiteering Authority of the Central Goods and Services Tax Act, 2017 during the year ended 31 March 2021 demanding an amount of ₹ 34 Lakh alleging certain non-compliances with the anti-profiteering regulations of the Goods and Services Act, 2017. The Company has filed necessary appeals in this regard with the appropriate appellate authorities which is pending for adjudication as at the date of this Red Herring Prospectus. Further, the company received show cause notices in calendar year 2022, amounting to ₹12.03 Crore for, inter alia, irregular availment of input tax credit, non-payment of GST under the reverse charge mechanism and mismatch of input tax credit availed.
4. India's one of the conglomerates Bajaj group's company Bajaj Electricals Limited has filed a commercial suit against the company, its promoters and Astha Bajaj (Director) before the Bombay High Court alleging infringement of its trademark "Bajaj Electricals". The dispute is for the name "Bajaj". The matter is currently pending.
4.Recently, on September 21, 2022, the theft took place at one of the stores located at ECIL Road, Rachakonda, Telangana, Hyderabad whereby the offender gained entry into the store by breaking the fall-ceiling of the store and stole 432 mobile phones from the store. The loss suffered by the company due to the theft amounted to ₹ 70 Lakh (approx). The FIR is already registered, and police authorities are currently conducting an investigation.
5. The Statutory Auditors have drawn attention to certain properties that were transferred to the Company as a result of conversion of the partnership firm, the title deeds of which are still in the name of the erstwhile firm. Further, the Statutory Auditors have included certain qualifications, relating to delays in deposit of statutory dues, default in repayment of loans / borrowings and difference in the amounts of inventories in their reporting under CARO 2020 and CARO 2016.
Major Risks:
1. Majority of stores are presently concentrated in Andhra Pradesh and Telangana.
2. Operates in highly competitive industry. Threats from giant corporate groups and online retailers.
3. Negligible presence in online market and other part of the county.
Conclusion: Financials are impressive. RoNW (Return on Net Worth) is 17.42%. Ask price seems reasonable, no greed by promoters. However, the company's geographic presence is very limited. The giant corporates have already spread across the county though entered lately. The margins are reducing due to competion - both offline and online. One top of that pending litigations. One cannot expect too much from this IPO. The good part is that it is a 100% Fresh Issue. The proceeds will be utilized for expansion in other regions. Right now, I am NEUTRAL, but one should monitor FIIs/HNIs interest, other experts' views, GMP and decision should be taken on the last day.
Disclaimer: Please note that I am not a SEBI registered advisor. I am a Chartered Accountant and write IPO Review based on my knowledge and understating. One should do his/her own research before taking any investment decision.
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