Credo Brands Marketing IPO: 10 must-know points from RHP

The initial public offering (IPO) of Credo Brands Marketing was opened for subscription on Tuesday (December 19), and it will remain open for subscription until Thursday (December 21). The company aims to raise ₹549.78 crore, which is a complete offer for sale.

Subscription status on Day 1

The IPO garnered a decent response from investors on the first day, achieving an overall subscription rate of 2.08 times. Specifically, the retail investors’ portion exhibited a strong demand with a subscription rate of 3.28 times, the NII portion saw a subscription of 2.06 times, while the qualified institutional buyers’ (QIB) portion recorded a modest 1% subscription.

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About Credo Brands

Credo Brands Marketing Limited (“Credo”) was incorporated on April 29, 1999. It offers casual clothing for men with its flagship brand, “Mufti.” The company’s product mix has evolved significantly over the past several years, from consisting of only shirts, t-shirts, and trousers in 1998 to a wide range of products including sweatshirts, jeans, cargos, chinos, jackets, blazers, and sweaters in relaxed holiday casuals, authentic daily casuals, urban casuals, party wear, and also athleisure categories as of date.

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Its products are available through a pan-India multichannel distribution network that it has built over the years, combining its exclusive brand outlets (“EBOs”), large format stores (“LFSs”), and multi-brand outlets (“MBOs”), as well as online channels comprising its website and other e-commerce marketplaces.

Strong retail consumption trends

India has one of the youngest populations globally compared to other leading economies. The median age in India was estimated to be 28.7 years for CY 2022 as compared to 38.5 years and 38.4 years in the United States and China, respectively, and is expected to remain under 30 years until 2030. With a growing young population, India, as a developing nation, is a faster-growing market than developed nations such as the USA, UK, and Canada in terms of retail consumption-related trends.

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The youth of the country and their increasing interest in entertainment and lifestyle activities are major drivers in the growth of discretionary spending and retail of outdoor and travel-related products. The younger population is naturally predisposed to adopting new trends and exploration given their educational profile and their exposure to media and technology, which presents an opportunity for domestic consumption in the form of branded products and organised retail.

Growing middle class

The increase in the number of households with annual earnings of USD 10,000 to USD 50,000 has led to an increase in discretionary spending on food and beverages, apparel and accessories, luxury products, consumer durables, and other discretionary categories. Upward mobility in households is a trend reflected in India’s lower-income households shifting towards the middle class owing to rising incomes, according to the company’s RHP report.

Objectives of the issue

Achieve the benefits of listing the equity shares on the stock exchanges.

Book-running lead managers

The book-running lead managers of the Credo Brands Marketing IPO are ICICI Securities Limited, Keynote Financial Services, and DAM Capital Advisors.

Financials

For FY23, the company generated a revenue of ₹498 crore, an increase of 46% compared to a revenue of ₹341 crore posted in FY22. The profit after tax for FY23 came in at ₹77.51 crore, an improvement of 116.87% over FY22’s net profit of ₹35.74 crore.

Key risks

Single-Brand Focus: All products are marketed under the ‘Mufti’ brand. Any failure in effective product marketing or a decline in public perception of the brand may impact consumer engagement, potentially affecting the company’s business, financial health, cash flows, and operational results.

Offline Dependency: The company heavily relies on offline retail channels, contributing to over 90% of its revenue in the past three fiscal years. Failure to increase revenue from online sales may result in continued dependence on offline channels, exposing the company to associated risks.

Competition Law Impact: The company may be affected by competition law in India. Any adverse application or interpretation of the Competition Act could have negative consequences, impacting its business.

Should you subscribe to the IPO?

“Credo Brands Marketing has delivered a lower topline growth of 3.5% between FY20–23 when compared with its peers. However, it has delivered healthy profits, with a growth of 70% during the same period, led by an expansion in operating margins from 10% in FY20 to 33% in FY23. The company has witnessed a muted performance in Q1 FY24 due to seasonality; however, one can expect healthy growth in FY24. The issue is valued at 11x FY23 EV/EBITDA, which is a discount when compared to its peers. Thus, we recommend ‘SUBSCRIBE’ to the issue,” said brokerage firm Nirmal Bang.

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“The IPO is coming with a P/E of 23.22x, which looks fairly priced when compared with the industry average. Therefore, we recommend considering this IPO for listing gains as well as for the long term,” said Swastika Investmart.

According to BP Equities, the IPO offers a competitive P/E ratio of 23.2x times based on FY23 EPS, reflecting reasonable pricing, especially considering the impressive earnings growth rate and an industry average P/E of 95.2x. The brokerage, therefore, recommends investors “SUBSCRIBE” for listing gains to the issue.

Men’s apparel market in India

As per the Technopak report, the share of the organised market for men’s apparel is expected to increase from 45% in Fiscal 2022 to reach 60% by Fiscal 2027. Further, the men’s western wear market contributes to nearly 94% of the total Indian men’s apparel market, and the remaining 6% of the market is contributed by Indian men’s ethnic wear. As per the Technopak report, India’s predisposition towards casual wear has grown exponentially over the last few years.

Some of the factors that have accelerated the rise of casualisation of men’s wear are increasing urbanisation, social media connectivity, the growth and influence of mobile internet, increased buying propensity amongst consumers, and the concept of Friday dressing (casual Fridays) in the corporate world.

As a result, categories such as denim, activewear, casual shirts, athleisure, and loungewear are growing at a CAGR greater than 20%. Further, as per the Technopak report, casual-led men’s western wear is likely to outpace the growth of formal-led men’s western wear, growing at an expected CAGR of 22% vis-à-vis 18% for the latter from FY 22 to FY 27.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.