Teji Mandi Explains: Will FabIndia IPO walk fashionably across the street?

Teji Mandi Explains: Will FabIndia IPO walk fashionably across the street?

Teji MandiUpdated: Thursday, January 27, 2022, 04:31 PM IST
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The Azim Premji-backed lifestyle brand FabIndia has filed the draft prospectus with the SEBI to get the latter’s nod for an IPO. The company looks to raise Rs 3,000 crores from the public issue. Let’s discuss whether the company’s IPO will be able to walk fashionably across the D-Street or not!

A Look at the Numbers

1. The offer comprises a fresh issue of up to Rs 500 crore. The balance would be an offer for sale.

2. Talking about revenues, for the year ended FY21, the company earned Rs 1,059 crores worth of revenues, which was 30% lower than pre-pandemic levels. And the company incurred a loss of Rs 116 crores in the same year. Two years before that, the company made profits worth Rs 34 crores and Rs 101 crores. Also, during the six months ended September 2021, the company incurred a loss of Rs 56 crores. It means FY21 was a one-off due to the pandemic!

Key Risks

Firstly, as is the problem with brick and mortar stores, the COVID-19 pandemic might limit the number of customers visiting their stores. Next, the growth of certain D2C brands might increase competition and create pricing pressures. Also, the company has no significant business moats and may find it difficult to retain existing customers.

Outlook for Investors

In late November 2021, Go Fashion Limited made its debut on Dalal Street and was listed at a 90% premium to its issue price. But as the company is not yet out with the valuations at which it will come up with the IPO, not much can be said about the IPO’s outlook.

But, considering the recent gloomy market trends and the upcoming Union Budget on February 1, 2022, that will set the tone of the market, investors should wait and digest these events as they unfold.

A notable aspect of the IPO is that the promoters are planning to transfer over 7 lakh shares to artisans and farmers engaged with the company as a gift! But, a concrete investment decision can be made regarding the company’s IPO when it comes with further IPO details.

What Lies Ahead?

With the company operating in a highly competitive industry, it will not be easy to make its mark. There are several established brands such as Aditya Birla Fashion Retail and Arvind Limited with which the company will have to compete. Add to it the rise of D2C brands such as Nykaa and Ajio! The company is also present across home décor and personal care segments and could make its mark there!

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