Credo Brands Marketing Ltd.  (Subscribe)

Highlights

Credo Brands Marketing Limited (CBML) incorporated in 1999, engaged in the business of the retail sale of garments and accessories. They do not manufacture any apparels. They believe in providing a meaningful wardrobe solution for multiple occasions in a customer’s life, with their product offerings ranging from shirts to t-shirts to jeans to chinos, which caters to all year-round clothing.

Their brand “Mufti” was launched, 25 years ago with a vision to redefine menswear. The brand was created as an alternative dressing solution and was designed to deliver a casual alternative with a focus on creative, bold, and expressive clothing for the contemporary Indian man who wanted something more stylish than what was commonly available.

In order to keep pace with these evolving fashion trends, their product mix has evolved significantly over the past several years from consisting of only shirts, t-shirts and trousers in the year 1998 to a wide range of products including sweatshirts, jeans, cargos, chinos, jackets, blazers and sweaters in relaxed holiday casuals, authentic daily casuals to urban casuals, party wear and also athleisure categories as on date.

Their products are available through a pan-India multichannel distribution network that they have built over the years comprising of their exclusive brand outlets (EBOs), large format stores (LFSs) and multi-brand outlets (MBOs), as well as online 159 channels comprising of their website and other e-commerce marketplaces. Currently they have 1,807 retail touchpoints and presence across 591 cities.

CBML uses asset-light approach with respect to their plant, property, and equipment, primarily due to outsourcing of their manufacturing operations. As of 30^th September 2023, company has healthy mix of owned & franchisee EBO stores (108 FOCO, 130 COCO, 168 COFO) They comprehensively focus on the design of products and outsource the manufacturing of products to various manufacturing partners.

The issue is complete offer for sale (OFS) of Rs. 5,497 mn and all the IPO proceeds would go towards existing selling shareholders.

Key Highlights

• Apparel market size in India was valued at Rs. 5,476 bn (USD 68.45 bn) in FY23 and it is estimated to grow at a CAGR of ~18 pct between FY23 and FY2027 to reach Rs. 10,683 bn (USD 133.5 bn) by FY27 on the back of factors like higher brand consciousness, increasing digitization, greater purchasing power and increasing urbanization. Mufti operates in the apparel market, and it is well positioned to get benefit from such market size and growth.
• The company products designed to provide a youthful appearance while keeping up with the ongoing fashion trends. Its diverse products range comes under the mid-premium to premium price range of clothing in India. Their product’s main competitors, in the similar price brackets, are brands such as Jack & Jones, Levi’s, Pepe Jeans and U.S. Polo Assn.
• As part of CBML growth strategy, they intend to continue increasing its presence by setting up new EBOs and expanding their EBO network in existing as well as additional regions across India. They expect emerging demand from such cities will help fuel their growth. Having established EBOs primarily in major metro, Tier 1, Tier 2 and Tier 3 cities in India, they intend to expand their focus and establish additional EBOs on the basis of existing model, across emerging Indian markets.
• Expansion into newer markets offers them the potential for market share gains, increased brand recognition and economies of scale. This would allow them to exploit the opportunity thrown by newer markets, whilst also improving brand recall amongst customers.
• CBML design team is currently considering designing a line of shoes, caps and socks that will complement their existing offerings to make Mufti a 360° men’s lifestyle brand. They believe that this will allow them to add new customers whereas reinvigorate the faith of existing customers in the brand thereby leading in an increase of their share of the consumer’s wallet.
• The company supervise their sales and inventory at all point-of-sale, being EBOs, through one ERP system Ginesys. This provides them information with which they can forecast trends and monitor performance of each SKU at each point of sale.
• Sales of the company has grown by 42.65 pct CAGR during the period FY21-23 while EBITDA and profit grew 83.84 pct CAGR and 374.62 pct over the same period respectively. During FY23, company reported sales of Rs. 4,981 mn which increased by 46 pct YoY while EBITDA rise by 72 pct YoY to Rs. 1,638 mn as EBITDA margin significantly improved from 27.8 pct in FY22 to 32.89 pct in FY23 due to better economies of scale. Profit in the FY23 stood at Rs. 755 mn, which increased by 117 pct YoY.

Key Risk

• The company operates in highly competitive markets in each of their product segments in both offline and online channels.
• CBML rely on outsourcing the manufacturing of finished products to third-party manufacturing partners, without exclusivity arrangements and are dependent on them for the finished goods.

Valuation

At the upper end of price band, the issue is quoting at PE of 52.5x its annualised FY24E earnings which appears to be fully priced. Investors with surplus cash can Subscribe to this issue from a medium to long-term perspective.

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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.