Vedanta Fashion Ltd IPO opens Tomorrow: Should You Buy?

Vedant Fashions Limited (VFL), the parent company of the fashion outlet Manyavar Mohey, will finalize share allotment status on Friday, February 4. The company will come out with its initial public offering (IPO) of 3.64 cr shares, with the price of each share ranging between Rs. 824 and Rs. 866. The IPO will be open for four days till February 8.  

The public issue is purely an offer for the sale of 36,364,838 equity shares by the promoter and existing shareholders. The company expects to raise to Rs. 3,149 crore at the upper price band through the IPO. The issue is entirely for offer-for-sale (OFS), comprised of sales by Rhine Holdings (selling shareholder Kedaara Capital (shareholder of sale) and Ravi Modi Trust (promoter). 

Vedant Fashions Limited is one of India's most well-known fashion outlets, with its four brands leading the Indian wedding and celebration wear segment. The company reported operating revenue of Rs. 565 crore in FY21, witnessing a fall of around 16 percent compared to FY19-FY21 as the business performance was impacted by the Covid lockdown impact in fiscal 2021. But the revenue grew considerably in the first quarter of FY22, as the company reported an income of Rs350 crore as compared to the Rs. 72 crore in the same period of the previous fiscal. The profit margin was also considerably high compared to the last quarter of 2019.  

As of September 2021, the company has an extensive retail network across the globe with 546 exclusive brand outlets (EBOs), including 58 shop-in-shops globally and 11 overseas EBOs in countries with a large segment of Indian residents United States, Canada and the UAE. 

Manyavar is the company's flagship brand, accounting for 84per cent of the FY21 operating revenue, followed by Mohey at 7.5per cent. While remaining three brands, namely Manthan, Mebaz and Twamev, contribute to the remaining share of profit.  

"We view the issue as aggressively priced, leaving no margin of safety for investors. Thereby it warrants caution on the valuation front. Furthermore, a high level of receivables (average around 50per cent of sales over FY19-FY21) can erode the OCF margin going forward," mentioned Choice, a financial firm, in their recent IPO report.

"Slowdown in economy and increase in competition could impact the company's profitability," says the IPO report by Angel One, an Indian stockbroker. The stockbroker hasn't discouraged investors from investing in this IPO, but it remained neutral. They mentioned in their report that a unique business model combining asset-light brand play, seamless purchase experience, and a robust multi-channel network with broad pan-India reach and presence in international markets may work in favour of the company.