Credo Brands Marketing Ltd (Mufti Menswear) – IPO Note

 

 

Launched in the year 1998, the brand “Mufti” is a recognized brand with 25 years of presence in India. Mufti seems like the perfect brand for the young, trendy and unshackled Indian. The product mix has evolved significantly over the past several years from consisting of only shirts and trousers in the year 1998 to a wide range of products including t-shirts, sweatshirts, jeans, cargos, chinos, jackets, blazers, and sweaters in relaxed holiday casuals, authentic daily casuals to urban casuals, party wear and also athleisure categories. The diverse product range comes under the mid-premium to premium price range of clothing in India.

Investment Rationale:
Growing urban population boosts prospects for brands like Mufti: 

• The pace of India’s urbanisation is a key trend to note for its implications on India’s economic growth. Currently urban population contributes 63% of India’s GDP.
• Going forward, it is estimated that 37% (519 Mn.) of India’s population will be living in urban centres by CY 2025.

Growing retail market to boost Mufti’s prospects: 

• Retail Market in India was valued at INR 36,880 Bn (USD 461 Bn) in FY 2015 and reached a value of INR 59,680 Bn (USD 746 Bn) in FY 2020, growing at 10.1% CAGR over this period.
• The market was valued at INR 76,080 Bn (USD 951 Bn) in FY 2023 and is projected to grow at a CAGR of 10.4% to reach INR 1,13,360 Bn (USD 1,418 Bn) by FY 2027. The share of Apparel & Accessories in overall retail is expected to reach 9.4% in 2027, up from 7.2% in FY 2023, and 6.1% in FY 2022.
• Apparel and Accessories is also expected to be the fastest-growing sector in the retail basket, with an estimated CAGR of 20.8% from FY 2023-27.

Expanding reach:

• MUFTI intends to continue increasing its presence by setting up new EBOs and expanding the EBO network in existing as well as additional regions across India.
• For the period that ended June 30, 2023 and for the financial years 2023, 2022, and 2021, we added 16, 67, 45, and 34 EBO stores, respectively. Further, between July 1, 2023, to September 30, 2023, we added 21 EBOs.  As of September 30, 2023, they had 404 EBOs across 226 towns and cities in India, respectively, with reach extending from Major Metros to Tier-3 cities across India.

Asset light model:

• MUFTI is asset-light concerning the plant, property, and equipment, primarily due to the outsourcing of our manufacturing operations.
• For Fiscal 2023, 5.11% of revenue from operations was generated from online channels, including 0.49% from their website, www.muftijeans.in, and a balance of 4.62% from all leading third-party e-commerce marketplaces.

Adding product lines:

• The design team is currently considering designing a line of shoes, caps, and socks that will complement existing offerings to make Mufti a 360° men’s lifestyle brand.
• This will allow them to add new customers while reinvigorating the faith of existing customers in the brand, thereby leading to an increase in the share of the consumer’s wallet.

Valuation and outlook:

i. The pace of India’s urbanisation is a key trend to note for its implications on India’s economic growth. Currently, the urban population contributes 63% of India’s GDP. Going forward, it is estimated that 37% (519 Mn.) of India’s population will be living in urban centres by CY 2025.

ii. Retail Market in India was valued at INR 36,880 Bn (USD 461 Bn) in FY 2015 and reached a value of INR 59,680 Bn (USD 746 Bn) in FY 2020, growing at a 10.1% CAGR over this period. The market was valued at INR 76,080 Bn (USD 951 Bn) in FY 2023 and is projected to grow at a CAGR of 10.4% to reach INR 1,13,360 Bn (USD 1,418 Bn) by FY 2027. The share of Apparel & Accessories in overall retail is expected to reach 9.4% in 2027, up from 7.2% in FY 2023 and 6.1% in FY 2022. Apparel and Accessories is also expected to be the fastest-growing sector in the retail basket, with an estimated CAGR of 20.8% from FY 2023-27.

iii. MUFTI intends to continue increasing its presence by setting up new EBOs and expanding the EBO network in existing as well as additional regions across India. iv. MUFTI is asset-light concerning the plant, property, and equipment, primarily due to outsourcing of our manufacturing operations. Revenue from operations grew by 46.02% from INR 3,411.72 million in Fiscal 2022 to INR 4,981.82 million in Fiscal 2023. Credo Brands Marketing Ltd. registered the highest EBITDA Margin of 32.89% in FY 2023 among the players available. The company reported ROE and ROCE of 30.14% and 44.97% in FY23. At the upper end of the price band, the P/E translates to ~23.21x which is lower than the peer average. We recommend subscribing to the issue as the trends of rising per capita income and urbanisation should bolster organised retail growth coupled with the expansion of the company in the southern part of the country and product basket expansion should provide ample sustainable long-term growth with scope for margin improvements in the mid-premium category the company caters to.

 

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