IPO Note: Electronics Mart India Ltd By ICICI Direct
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Focused regional player in consumer durable retail…
About the Company: Electronics Mart India (EMIL) is the fourth largest and one of the fastest growing consumer durables and electronics retailers in India.
* EMIL is the largest regional organised player in the southern region in revenue terms with dominance in Telangana and Andhra Pradesh
* The company registered a healthy revenue CAGR of ~17.9% in FY16-21. EMIL has remained profitable even during the pandemic while its EBITDA margin has been in the range of 6-7% over FY20-22
Key triggers/Highlights:
* EMIL is a focused regional consumer durable retailer with major presence in Andhra Pradesh (14 cities), Telangana (20 cities) and NCR (two cities). It has 112 stores across 36 cities with a retail area of 1.12 million square feet
* The company employs a mix of ownership and lease rental model for its retail store network. Out of total 112 stores under operation, 11 are owned, 93 are under long-term lease rental model and eight are partly owned and partly leased
* The product portfolio comprises large appliances, which contribute ~ 54% of revenues while mobiles contribute ~ 31% and small appliances and other products contribute 15% of total revenues
* EMIL is currently associated with more than 70 electronic brands and has a long-standing relationship of more than 15 years with a certain number of brands which operate in product categories such as large appliances, mobiles, small appliances, IT and others
What should investors do? Given that the company makes upfront payment to suppliers (creditor days: ~2) coupled with superior growth prospects, EMIL’s higher working capital requirements (incremental working capital: | 590 crore in FY23-24) would restrict FCF generation in the next two years. However, capital infusion worth | 500 crore (fresh issue) would assist in financing working capital requirements to the tune of | 220 crore and also boost store additions by opening of 60 stores over the next three years (capex: | 111 crore in FY23-25). D/E ratio is also expected to improve from 1.0x to ~0.5x by FY23E. EMIL generates steady RoCE of ~19%. At upper price band, EML is valued at 0.6x EV/sales and 22x P/E of FY22. We assign a SUBSCRIBE rating as valuations appear reasonable considering the company’s strong and sustainable growth prospects and continued focus on maintaining balance of revenue growth with consistent margins in line with industry peers.
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