Electronics Mart IPO: Valuations, grey market premium, analyst ratings & more

The initial public offer (IPO) by Hyderabad-based Electronics Mart India is all set to hit the market on Tuesday, October 4. The retail chain is looking to raise Rs 500 crore via a fresh issue in the Rs 56-Rs 59 price band. Initial brokerage reports on the issue are positive and given that the recent demand for IPOs, the stock is generating a premium in the grey market. 

High geographic concentration risk, high competition  from online retailers and high dependence on limited number of brands, however, remained some of the key risks for the consumer durables retailer, analysts said. 

Here's all you should know about the issue:

Company background

Electronics Mart India is the fourth largest consumer durables and electronics retailer in India. With revenue of Rs 4,349 crore in FY22, it is the largest player in the Southern region with dominance in states such as Telangana and Andhra Pradesh.

Scale

Electronics Mart operated and managed 112 stores with retail business area of 1.12 million square feet, located across 36 urban centres till August-end. 

IPO size

Electronics Mart intends to raise Rs 500 crore via fresh issue of up to 8.47 crore equity shares. The offer will constitute 22 per cent of the post-offer paid-up equity capital of the company.

Price band & valuations

The Rs 500-crore issue will be sold in Rs 56-59 price band. The issue is available at 21.8 times FY22

and FY22 EV/Ebita of 9.7 times, as per Nirmal Bang Institutional Equities. 

Fund utilisation

Electronics Mart India intends to utilise the proceeds from the fresh issue for funding working capital requirements, opening of stores and warehouses and also for repayment of debt.

Financials

The company has recorded a revenue CAGR of 26 per cent over FY15-20 (pre-covid) and CAGR of 18 per cent over FY16-21. For FY22, the company reported a 75 per cent growth adjusted PAT at Rs 104 crore on a 36 per cent rise in net revenues at Rs 4,349 crore, thanks to a low base.  

It reported a de-growth of 29 per cent in FY21 profit at Rs 80 crore on a 1 per cent rise in sales at Rs 3,202 crore. FY20 was a good year for the company as it reported 40 per cent growth in profit and 12 per cent growth in sales. Ebitda margin for FY22, FY21 and FY20 stood at 6.7 per cent, 6.4 per cent and 7.2 per cent, respectively.      

Grey market premium

Abhay Doshi, co-founder at UnlistedArena Electronics Mart's financials have been healthy, with decent margins of 6-7 per cent. "While the competition is tough, we believe asking valuations are a bit on the moderate side," he said. 

Doshi, who also tracks grey market trends, said he last heard the stock commanding a grey market premium of Rs 30-32 apiece, suggesting a healthy listing.   

Should you subscribe?

Nirmal Bang Securities said Electronics Mart enjoys favorable terms of pricing and margins from brands

due to its scale, adding that the company has demonstrated superior performance among all major consumer durable and electronics retailers in India in terms of growth and has also managed to deliver respectable returnon equity of 17.4 per cent during the Covid impacted year of FY22. 

"We believe EMI is being offered at attractive valuations at PE of 21.8 times FY22 and EV/Ebitda of 9.7 times. We recommend subscribing to the issue," Nirmal Bang said.

In terms of valuations, said Angel One, the post-issue P/E works out to 21.8 times  FY22 EPS, which is low compared to Electronics Mart's peer Aditya Vision. 

Further, the company has better revenue growth (CAGR of 17 per cent) over  2 years, better return on equity and expansion plan on the cards. Considering all the  positive factors, we believe this valuation is at reasonable levels. Thus, we recommend a Subscribe rating on the issue," Angel One said.

SMC Global said the company's business model is a mix of ownership and lease rental model. 

"It is increasing market presence and geographic reach with cluster-based expansion. However, there is stiff competition from online retailers like Amazon or Flipkart or any other offline brands who are offering at lower prices and it can impact company business," it said while giving the IPO two out of five stars.