Mufti Brand Owner Credo IPO - Investment Rationale, Issue Details, Financials And More: Anand Rathi

Anand Rathi's IPO Report

Mufti jeans makers Credo Brands Marketing Ltd. will launch its initial public offering on December 19 and will conclude on Dec 21.

The company has fixed a price band in the range of Rs 266 to Rs 280. The minimum order lot is 53.

The Rs 550 crore IPO is entirely an offer for sale of up to 1.96 crore shares by promoters and other existing shareholders.

Strengths:

• Strong brand equity with presence across categories.

• Scalable asset light model.

• Strong in-house design competencies to deliver innovative and high-quality products with end-to-endtech-enabled supply chain capabilities.

Key Strategies:

• Expand their domestic store network in existing and new cities.

• Enhancement of brand appeal through focused marketing initiatives.

• Deeper penetration to grow sales through online channels by capitalising on the increasing e-commerce demand in Indian retail.

• Focused expansion of their product portfolio to become a men’s lifestyle brand.

• Leverage technology to improve supply-chain management and enhance customer experience.

Valuation:

Credo Brands Marketing has Strong brand equity with presence across categories and a multi-channel pan-India distribution network with a strong in-house design competencies to deliver innovative and high-quality products with end-to-end tech-enabled supply chain capabilities and an asset light model.

At the upper price band company is valuing at price/earning of 23.22 times, with a market cap of Rs 18,004 million post issue of equity shares and return on net worth of 29.98%.

Since financials of the company are strong and valuations of the company are reasonable in comparison to its listed peers, hence we believe that company is fairly priced and recommend a 'Subscribe' rating to the IPO.

Key risk:

• Their business is primarily concentrated on the sale of men’s casual western wear and is vulnerable to variations in demand and changes in consumer preferences which could have an adverse effect on their business, results of operations and financial condition.

• If they are unable to predict customer demands and maintain optimum inventory level there may be an adverse effect on their results of operations, financial condition, and cash flows.

• They enter into certain related party transactions in the ordinary course of business, and they cannot assure you that such transactions will not have an adverse effect on their business, results of operations and financial condition.

• All their products are sold under a single brand, ‘Mufti’. Any inability to effectively market their products, or any deterioration in public perception of their brand, could affect consumer footfall and consequently adversely impact their business, financial condition, cash flows and results of operations.

• Company operate in highly competitive markets in each of their product segments in both offline and online channels and an inability to compete effectively may adversely affect their business, results of operations and financial condition. Further, pricing pressure from their competitors may affect their ability to maintain or increase their product prices and, in turn, their revenue from product sale, gross margin and profitability, which may materially and adversely affect their business, cash flows, results of operations and financial condition.

• Their inability to grow the business across emerging markets in India and effectively manage or expand their retail network may adversely impact their business, results of operations and financial condition.

• While they design their products in-house, they rely on outsourcing the manufacturing of finished products to third-party manufacturing partners, without exclusivity arrangements and are dependent on them for their finished goods. Any inability to obtain sufficient quantities of apparel of the requisite quality in a timely manner and at acceptable prices, or a slowdown, shutdown or disruption in such third-party manufacturing partners’ operations and performance, could adversely affect their business, cash flows, results of operations and financial condition.

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