Mr. Arafat Saiyed, Senior Research Analyst at Reliance Securities
About the Company
Electronics Mart India (EMI) is the 4th largest consumer durable and electronics retailer in India. The company offers a slew of products, primarily large appliances like ACs, televisions, washing machines and refrigerators. Its portfolio also includes mobiles, small appliances and other IT products. The company is launching an IPO comprising entirely fresh issues of Rs5bn. The funds will be utilised in opening of stores & warehouses, working capital requirements and repayment of borrowings.
Massive Footprint in Telangana and Hyderabad
EMI is the largest player in southern India with ~1.12mn sq. ft. of retail space, a strong workforce of 2000+ employees, 112 stores across 36 cities and over 40 years of its legacy. Moreover, it is the largest player in the southern region in terms of revenue with a dominance in the states of Telangana and Andhra Pradesh. The company's offering includes more than 6,000 SKUs across product categories from more than 70 consumer durable and electronic brands.
Long Standing Relationship with Brands
EMI has a history of collaboration with reputed electronic brands that helped to expand service offerings. The Company is currently associated with more than 70 electronic brands and has a long-standing relationship over last 15 years with several brands which operate in product categories such as large and small appliances, mobiles and others. It enjoys a reputation of trust and reliability with these electronic brands and works closely with them. On account of these relationship, EMI has been able to grow in the market and consistently expand product portfolio. The Long-term contracts help to plan capital expenditure, enhance ability to benefit from increasing economies of scale with stronger purchasing power and a lower overall cost base, thereby maintaining a competitive cost structure to achieve sustainable growth and profitability.
Hybrid Business Model
Its business model is a mix of ownership and leases rental model. EMI has total 112 stores, of which, 11 are owned by the company, 93 are under a long-term lease rental model, while 8 are partly owned and partly leased.
The company has diversified its business activities across Retail, Wholesale and E-Commerce. As of Aug'22, the retail channel includes 88 Multi Brand Outlets and 11 Exclusive Brand Outlets. Through the wholesale business of consumer durables, the company supplies products to single-shop retailers in Andhra Pradesh and Telangana regions. Moreover, the company leverages the e-commerce website as a catalogue for its products at retail stores.
Financials in Brief
During FY20-22, EMI's revenue and PAT clocked a CAGR of 17% and 13% respectively, while EBITDA margin dipped from 7.2% in FY20 to 6.7% in FY22. The company reported a revenue of Rs43.5bn (up 36% YoY), while EBITDA increased to Rs2.9bn (up 43% YoY) in FY22. PAT for FY22 grew 77% YoY to Rs1.03bn on a low base in FY21 impacted by lock-down and disruption. ROE has expanded to 17.4% in FY22 against 11.9% in FY21, while ROCE has expanded to 12.7% in FY22 from 10% in FY21. The company's average net debt-to-equity ratio stood at ~1.9x over FY20-22.
Our View On FY22 financials, the IPO is valued at 11.6x EV/EBITDA, 0.8x EV/sales and 21.8x P/E. Supported by its extensive products portfolio, national outreach, flexible business model and multi-channel business activity, EMI appears to be in a strong position. In view of competitive pricing, backing by top brands with long standing relationship, wide range of products, easy finance options and healthy expansion plans from IPO money, we recommend 'SUBSCRIBE' to the issue.