Baazar Style Retail Ltd. (Avoid)

HighlightsIssue Size –: 21,456,947 sharesIssue Open/Close – 30 Aug / 3 Sept, 2024Price Band (Rs.)  370 – 389Issue Size (Rs.) – 8,346 mnFace Value (Rs) 5Lot Size (shares) 38Baazar Style Retail Limited (BSRL) incorporated on 2013, is a value fashion retailer and offers apparels and general merchandise. Within the apparels, they offer garments for men, women, boys, girls and infants, whereas their general merchandise offerings include both non-apparels and home furnishing products.According to the Technopark report, the company has market share of 3.03 pct and 2.22 pct, respectively in organized value retail market in the states of West Bengal and Odisha. Majority of the company’s store are operated under brand name Style Baazar.BSRL focus on providing a family-oriented shopping experience, offering quality products to middle class comprising of households with an average annual income of less than 5,000 USD and strive to offer every Indian stylish merchandise at an affordable price.The company venture into untapped markets with high potential by offering multiplicity of brands, wide range of apparels and general merchandise, customised product range catering to the local preferences, brand specific counters highlighting specific products and brands such as Sparky and K-Lounge counter, where they offer branded products for the Killer brand.As on FY24, they operated 162 stores spread across over 1.47 million square feet located in 146 cities. The company believe that their strategically located stores with their attractive layout coupled with diverse and affordable product offerings allow them to successfully cater to the demands of this growing segment of targeted population.Out of the total proceeds of Rs. 8,346 mn, Rs. 1,460 mn would go towards prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company, ~Rs.20 mn and Rs. 6,866 would go towards existing selling shareholders of the company.Key HighlightsValue Retail in the apparel segment in India was estimated to be approximately Rs. 3,721.70 bn in FY24. This market is expected to reach Rs. 5,341.25 bn by FY27, growing at a CAGR of 13.9 pct from FY23 to FY27. As of Fiscal 2024 the market size of Value Retailing industry (lifestyle and home) in the eastern and north-eastern states of India is estimated to be at Rs. 1,417.48 bn. The eastern states are the fastest growing consumer markets for Value Retail with an expected market size of Rs. 2,208.02 bn and grow at a CAGR of 15.9 pct from FY24 to FY27.The company has a healthy mix of both private label and third-party brands that are offered in stores including fashion apparel of brands such as Killer and Sparky in select stores with potential for sales based on their deep understanding of customer preferences. Their top three private labels contributed 25.21 pct in FY24 sales.BSRL intend to increase the sales contribution from their private label brands by increasing the number of SKUs at every store across all brand segments. Increase in the number of SKUs and the growth of private label brands would lead to increase in the production thereby achieving economies of scale and would help them increase their EBITDA margin.Company’s key strategies include (i) To expand profit margins and increase revenue contribution from their private labels. Focus towards creating differentiation and achieving greater control over product quality of private labels. (ii) Strengthen their market position by increasing penetration in existing clusters, expand their footprint in the focus markets, increase focus on customer retention and garnering brand loyalty (iii) Continue to invest in their technology adoption initiatives, data analytical capabilities and implementation of omni-channel retailing business model (iv) Continue to invest in strengthening supply chain management and human capital to further reduce operating costs.BSRL aim to further strengthen their information technology infrastructure and data analytical capabilities, in specific to help them optimize operations further and make data driven decisions as they expand their warehousing capabilities which would increase operational efficiency and profitability.Sales of the company has grown by ~32.87 pct CAGR During FY22-24 and EBITDA and profit grew ~44.19 pct CAGR over same period. Company reported sales of Rs. 9,729 mn in FY24 which increased by 23.48 pct YoY, while EBITDA grew 40.09 pct YoY to Rs. 1,422 mn as EBITDA margin expanded from 12.88 pct in FY23 to 14.61 pct in FY24. As of FY24 the company reported profit of Rs. 251 mn which grew ~330 pct YoY.Key RiskBSRL business is concentrated on sale of their apparel and merchandise products and subject to the unpredictability of changing customer preferences.The fashion and retail industry are highly competitive. If they do not respond to competition effectively, their business might affect.Certain products offered at BSRL stores are impacted by seasonal variations in sales volumes, which may impact revenues and may vary significantly between different quarters in a Financial Year.Financial Performance and KPI’sParticularsFY22FY23FY24Revenue from Operations (in Rs mn)5,5117,8799,729EBITDA (in Rs mn)6841,0151,422EBITDA Margin (in %)12.40%12.88%14.61%PAT (in Rs mn)-8051219PAT Margin (in %)-1.43%0.64%2.23%RoCE (in %)6.59%13.77%18.39%RoE (in %)-6.86%3.02%10.74%Working Capital Days17.9625.698.89Store Count106135162Peer Comparison Based on FY24ParticularsBaazar Style Retail LimitedV-Mart Retail LimitedV2 Retail LimitedRevenue from Operations (in Rs mn)9,72927,85611,647EBITDA in Rs mn)1,4222,1311,478EBITDA Margin (in %)14.61%7.65%12.69%PAT (in Rs mn)219-968278PAT Margin (in %)2.23%-3.47%2.39%RoCE (in %)18.39%0.57%11.43%RoE (in %)10.74%NA10.12%Working Capital Days8.8918.7345.99Store Count162444NAValuationBaazar Style Retail Limited (BSRL) incorporated on 2013, is a value fashion retailer which has 162 stores across different states of India. Style Baazar has emerged as a go-to hotspot for fashion aficionados in search of trendy and affordable clothing. With its unwavering commitment to showcasing the latest fashion trends, Style Baazar has solidified its reputation as a trailblazer in the Indian fashion retail sector. At the upper end of the price band of Rs. 389 the issue is priced at a PE of ~131x its FY24 earnings. The issue looks overpriced, one can avoid this issue.Also read: How To Start Investing? A Beginner’s GuideDisclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.