Electronics Mart IPO: Should you subscribe to the issue?

The Rs 500-crore initial public offer (IPO) by Electronics Mart India opened for subscription on Tuesday. The Hyderabad-based consumer durables retailer is offering shares in the Rs 56-Rs 59 price band. 
 
While stiff competition from online retailers, high geographic concentration and dependence on limited number of brands are seen as key risks, the fourth largest durables retailer has performed well so far, said analysts who find the asking valuations attractive. 
 
Elara Securities said Electronics Mart India may continue to grow at a healthy pace in terms of store expansion, especially in North India, and given the customer shift toward modern format large retailers.
 
It noted that the company’s FY22 return on equity and return on capital employed stood at 18 per cent and 14 per cent, respectively. 
 
“At the upper price band, the stock is demanding a valuation of 18.5 times FY22 EPS, which is significantly lower than peer Aditya Vision that trades at 23.7 times FY22 EPS. In our view, the IPO is priced attractively and we thus recommend a Subscribe,” Elara said.
 
Based on conservative estimates, Choice Broking said it is forecasting a topline to grow 16.3 per cent compounded annually over FY22-24 to Rs 5,887.40 crore in FY24. 
 
“This growth would be mainly on the back of 11 per cent and 3.8 per cent CAGR rise in number of operational stores and sales per stores, respectively. Ebitda and PAT margins are anticipated at 6.6 per cent and 2.3 per cent, respectively, in FY24E. RoIC and RoE are projected to expand 56bps and 82bps, respectively, over the period,” the brokerage said while suggesting a subscribe on the issue. 
 
Post the IPO, promoter stake would be reduced to 77.1 per cent at the lower price band and 78 per cent at the upper. At the upper price band,  the company would command a market capitalisation OF Rs 2,270 crore. 
 
As far as financials go, Electronics Mart India 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 consumer durables retailer 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.      
 
Electronics Mart enjoys favorable terms of pricing and margins from brands due to its scale, said Nirmal Bang Securities, adding that the company has demonstrated superior performance among all major consumer durable and electronics retailers.
 
“We believe Electronics Mart IPO is being offered at attractive valuations of 21.8 times FY22 EPS and 9.7 times FY22 EV/Ebitda. 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