Electronics Mart India IPO: 5 Things to Know

Initial public offerings (IPOs) have always been attractive to investors.

Why?

People believe that shares are available at lower prices during an IPO. These can be sold at higher prices once they get listed on the bourses. This is one of the reasons why people invest in an IPO.

This reason holds true for strong companies with high growth potential.

But this reason may not always be correct. This is especially true now when the markets are highly volatile. With global recession concerns looming large, investors are looking at defensive bets and shifting exposure to best pharma stocks and best FMCG stocks.

Also, investors have become more cautious when it comes to IPOs. Tech companies that came out with their IPOs last year, at sky-high valuations, have been taken to the cleaners.

Even IPO biggies like LIC, Glenmark Life Sciences, Indigo Paints, among others, have cracked around 40-50%.

That is why, it's important to properly analyse the financials and other aspects before investing in an IPO.

Keeping that in mind, a consumer durable and electronics company is set to open its offer next week.

The IPO of Electronics Mart India will open on 4 October.

Here are the key details of the IPO.

Issue period: 4 October 2022 to 7 October 2022

Issue size: Rs 5 bn. The entire issue is a fresh issue.

Price band: Rs 56 to Rs 59 per equity share

Face value: Rs 10 per equity share

Objects of the issue: The net proceeds from the issue are proposed to be utilized for:

1. Funding of capital expenditure for expansion and opening of stores and warehouses.

2. Funding incremental working capital requirements.

3. Repayment/prepayment, in full or part, of all or certain borrowings availed by the company.

4. General corporate purposes.

The company has reserved up to 60% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence 25% of shares are available for retail individual investors.

Tentative IPO allotment date: 12 October 2022

Tentative listing date: 17 October 2022

Here are the 5 important details about Electronics Mart India IPO.

#1 About the company

Incorporated in 1980, Electronics Mart India is the 4th largest consumer durable and electronics retailer in India.

The company offers a diversified range of products with a focus on large appliances (air conditioners, televisions, washing machines and refrigerators), mobiles and small appliances, IT, and others.

The company's offering includes more than 6,000 SKUs (stock keeping units) across product categories from more than 70 consumer durable and electronic brands.

#2 Financial position of the company

The financial year 2020-21 was bad for all companies as industries recovered from aftermaths of pandemic. Electronics Mart India was no exception to this. The company's growth slowed down in the said financial year.

However, it has seen a sharp improvement in financials in the financial year 2021-22. The company's operations are back to pre-covid-19 levels.

Electronic Mart India's expenses are quite high. Due to this, its net profit margins are quite low.

Financial snapshot

Particulars	31-Mar-22	31-Mar-21	31-Mar-20
Revenues (Rs m)	43,530.7	32,073.7	31,790.2
Revenue Growth (%)	36%	1%
Expenditure Before Tax	42,133.1	31,278.1	30,589.7
% of Total Income	96.8	97.5	96.2
Net Profit	1,397.6	795.6	1,200.4
Net Profit Margin (%)	3.2	2.5	3.8
Net Worth	5,965.1	4,919.2	4,330.8
Return on Net Worth (%)	17.4	11.9	18.8
Basic Earnings per share (Rs)	3.5	2	2.7

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

According to the DRHP, Aditya Vision is the only listed peer of the company.

Comparative Analysis

Company	Total Income (2022) (Rs m)	Operating Profit	Net Profit	EPS (Basic) (Rs)	Return on Net Worth (%)
Electronics Mart India	43,493.2	2,110.8	1,397.6	3.5	17.4
Aditya Vision	8,991.1	528	492.1	30.4	41.9

Data Source: Company's Red Herring Prospectus (RHP)

#4 Arguments in favour of the business

This is what separates Electronics Mart India from the industry peers:

• Electronics Mart India has an established leadership position in the South India electronics market. It is also increasing its market presence, and it is working on increasing its geographic reach with cluster-based expansion.
• It has a consistent track record of growth. Even in the covid-19 affected year, the growth slowed down, but the company did not run into losses. This suggests the stability of the company.
• It offers a diversified range of products and it does optimal product assortment.
• It has an experienced management team with a proven track record.

#5 Risk factors

As with every business, there are risks involved. Here are some risk factors which can severely impact the business of Electronics Mart India.

• It faces strong competition from online sellers. Online sellers offer a wide range of products and lucrative discounts which might threaten the company's offline stores.
• It has a concentrated business in two states. Hence, any adversities in these two states will adversely impact the business of the company.
• It is heavily dependent on five brands for its business. If it cannot maintain its relationship with these five brands its revenues will be materially impacted.
• It has to maintain a high inventory, due to which it will have high costs. It has stringent profit margins.

To conclude

Indian equity markets are a lot more volatile these days. Even fundamentally strong companies are down in the range of 40-50%.

How often do you see not one, but many bluechip stocks trading at 52-week lows?

So, at a time when even fundamentally strong stocks are beaten down, choosing which IPO to invest in becomes risky.

You must keep in mind that newly public companies lack a proven record of operating in the public domain.

Amid this chaos, how will a company with low-profit margins survive? For 2020-21 Electronic Mart India's profit margin went as low as 2.5%. It could barely survive the pandemic. This raises concern especially when the economy is threatened by a recession and price rise.

Since IPOs interest you, check out the current IPOs and upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...