Vedant Fashions Ltd: Take a measured call

Vedant Fashions Limited is tapping the capital markets with its offer for sale of 3,63,64,838 shares in a price band of Rs824-866. The issue opens on Friday (February 4) and closes on Tuesday (February 8). The issue would garner Rs3,149.19 crore at the top end of the price band. The market capitalisation at the top end of the price band would be Rs 21,017 crore for Vedant Fashions Limited. For the record, the company reported revenues of Rs 564.81 crore for the year ended March 2021 and a net profit of Rs132.90 crore.

The details given in the price band advertisement issued by the company state that the PE band for the company is 153.73-161.57 times based on the EPS of Rs5.36 for the year ended March 2021. A new matrix mentioned as per the Sebi advertisement gives the market cap to revenue at 37.21 times based on revenues for the year ended March 2021. Further the advertisement mentions the average PE ratio for the NIFTY 50 to be at 23.47 times against the price band mentioned of the company at 161.57 times. The multiplier is a steep 6.88 times.

Let us come to the business of the company. It is a top end fashion retailer having its stores as EBO's in malls, fashion streets across cities and towns. The company retails wedding and celebration wear, a new category created by the company to identify itself. The category includes men, women and children wear. The size of this industry is estimated at a massive Rs1.02 lakh crore with the bulk of the same being women wear which is not the strongest segment for Vedant Fashions. For Vedant, the strongest segment is the men's segment where its premium brand is 'Manyavar'. Sales reported by Vedant Fashions in the year ended March 2021 were about Rs 565 crore which means a little under 0.6 per cent of the category that the company has mentioned as wedding and celebration wear. They have not mentioned any competitors for them in the RHP either. When there is such a large category and no meaningful names to talk about, it makes the categorisation itself difficult to accept.

Some names which come to mind readily in the bracket or category include TCNS Brands, which is a large women's branded player and had reported revenues of Rs 1,148 crore for the two years 2019 and 2020. In 2021, revenues fell to Rs 635 crore. This company had come with its IPO in July 2018, and had an offer for sale in a price band of Rs 714-716. The closing price of the share yesterday was Rs 747.80, a gain of Rs 31.80 or a mere 4.44 per cent after three and a half years. One would say disappointing. The three brands used by TCNS are 'W', 'Aurelia' and 'Wishful'. The market capitalisation of the company is just under Rs 4,650 crore.

Raymond's, the well-known fashion brand for men has an ethnic division and sells garments in the category of wedding and celebration wear. Reliance is also into retailing such garments and fashion wear and the company has been picking up various brands which are well known. While they may not have a stand-alone presence, it would not be too long before they enter such a 'promising' market sooner than expected. Remember, it took Vedant almost eight years after the company was formed to launch their first EBO in Bhubaneshwar.

The whole world suffered from covid-19 and slowly but steadily things are coming to normal globally. The years 2020-2021 and a great part of 2021-22 were affected by covid-19. Vedant Fashions has the dubious distinction of undertaking a share buyback right at the beginning of covid-19 in April 2020. This was followed up with yet another buyback in July 21 by the company. A private limited company has every right to do exactly as it decides with its business, but when it goes public, prospective shareholders have a right to form their perception of events which have a material impact on the future of their investments.

SEBI has made it mandatory for merchant bankers to talk about their track record in terms of issues handled by them as merchant bankers. 2021 was a great year for the primary markets in India and hardly any issues did not do well. The PE investor, Kedaara sold shares from yet another company in September 2021. The company was Vijaya Diagnostics Limited and this was one sector which did very well and covid-19 helped matters greatly. This issue was oversubscribed 4.54 times on the back of strong subscription from the QIB's who oversubscribed the issue 13.07 times. Retail and HNI portion struggled to get subscribed with HNI portion getting subscribed 1.32 times and Retail portion even lesser at 1.09 times. The share's high and low as of date is Rs 932-396, with the current price being at Rs 514. The issue price band was Rs 522-531. The share after five months is trading at a loss of Rs 17 or 3.20 per cent.

The issue from Vedant Fashions is a high profile and hyped issue coming with unheard of valuations. The company has created a new category for itself in which it operates. It is for the investor to decide whether he would like to invest in such an issue or take a measured call and then decide what should be his response to such an issue. I urge investors to do some homework as there are still four days left before the issue closes. Take a measured call.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)