Baazar Style Retail

Value fashion retailer based in Eastern India

Expanding its geographical presence with new store openings

Bazaar Style Retail is a fashion retailer operating in West Bengal and Odisha, holding 3.03% and 2.22% market share respectively. Its offerings can be bifurcated under the apparels and general merchandise verticals.

In the apparel segment, the company offers clothing for men, women, boys, girls, and infants. Its general merchandise segment features a variety of non-apparel items and home furnishings. This includes footwear, imitation jewelry, toys, bags, luggage, gifts, novelties, cosmetics, skincare products, and grooming essentials. The homeware range encompasses storage solutions, organizers, kitchenware, dining ware, home and kitchen appliances, bedding, linens, bath products, and other home furnishings. In FY2024, Apparel segment contributed 83.89% to revenue and general merchandise segment 16.11%.

The company has the largest retail footprint in Eastern India compared to other listed value retailers in Fiscal 2024. As of March 31, 2024, it operated 162 stores across more than 1.47 million square feet in 146 cities. The majority of its stores are operated under the brand name ‘Style Bazaar’.

West Bengal, Odisha, Assam, and Bihar are the company’s core markets. Sales from these core markets accounted for 87.58%, 90.61%, and 92.19% of total revenue in Fiscal Years 2024, 2023, and 2022, respectively.

The company targets aspiring middle class comprising of households with an average annual income of less than 5,000 USD, by focusing on providing a family-oriented shopping experience, offering quality products and striving to offer every Indian stylish merchandise at an affordable price.

The company ventures into untapped markets with high potential by offering a diverse range of brands, apparel, and general merchandise. They provide customized product ranges catering to local preferences and feature brand-specific counters, such as the Sparky and K-Lounge counters, which highlight products from the Killer brand.

In FY2024, the company opened 33 new stores. Moving forward, it plans to expand its presence in its focus markets, which are Uttar Pradesh, Jharkhand, Andhra Pradesh, Chhattisgarh, and Tripura. These markets together contributed 12.42% of total revenue for the fiscal year. During FY2024, the company added 10 new stores in these focus markets.

As of March 31, 2024, the company’s stores had an average size of 9,046 square feet with trained staff to enhance customer experience. Sales per Square Feet for the Fiscal 2024 was Rs 7,758.

In FY2024, Same Store Sales Growth was 9.54% year-over-year. The company’s average transaction value was Rs 1,038.69, Rs 1,040.88, and Rs 1,026.17 for Fiscal Years 2024, 2023, and 2022, respectively.

The company’s sourcing capability is supported by its logistics network, which provides real-time delivery and is backed by robust systems, processes, and information technology infrastructure.

The company offers healthy mix of both private label and third-party brands. It currently owns 10 private label brands, which provide greater control over quality and product assortment. These brands contributed 37.93%, 31.43%, and 24.72% to total revenue from operations for Fiscal Years 2024, 2023, and 2022, respectively.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 148 crore and an offer for sale of 1,76,52,320 equity shares aggregating up to Rs 686.68 crore by existing shareholders.

Price band for the IPO is Rs 370 to Rs 389 per equity share of face value Rs 5 each.

The objectives for the fresh issue include Rs 146 crore for the prepayment or repayment of certain outstanding borrowings, with the remaining amount allocated for general corporate purposes.

Promoters of the Company are Bhagwan Prasad, Rohit Kedia, Sri Narsingh Infrastructure, Shreyans Surana, Rajendra Kumar Gupta (HUF), Pradeep Kumar Agarwal, Sabita Agarwal and Rajendra Kumar Gupta. Promoters and promoter group holds an aggregate of 3,89,65,840 equity Shares, aggregating to 55.03% of the pre-offer issued and paid-up equity share capital. The post IPO shareholding for the same is expected to be around 45.56%.

The issue, through the book-building process, will open on 30 August 2024 and will close on 3 September 2024.

Strengths

The company is one of the fastest-growing value retailers in terms of both store expansion and revenue growth. It has expanded its store count at a CAGR of 23.62% between Fiscal Years 2022 and 2024. Additionally, its merchandise sales consistently increased from 1.75 crore units in FY2022 to 3.36 crore units in FY2024, achieving a CAGR of approximately 38%.

The company uses a cluster-based expansion model, opening new stores in the same or nearby districts as existing ones. This approach enhances supply chain and inventory efficiency, boosts local brand visibility, optimizes marketing costs, and provides deeper insights into local customer preferences.

Given its strategically located stores with attractive layouts and a diverse, affordable product range, the company is well positioned to meet rising consumer demand, supported by favorable monsoon conditions and the upcoming festive season.

The company’s understanding of local customer preferences, combined with targeted marketing and promotional activities, has built a loyal customer base. In FY2024, repeat purchases from existing customers was 71.94%.

The company effectively manages its supply chain to ensure timely and accurate delivery of goods. It uses data analytics to track top-selling items weekly and understand regional fashion trends, allowing it to optimize inventory and focus on the most popular products in real time.

The company is focused on increasing revenue from its private label brands by expanding the number of SKUs at every store across all brand segments. This approach will help improve its EBITDA margin and provide greater control over product quality.

In India, the apparel and accessories market is both one of the largest and fastest-growing segments in retail. This trend is likely to persist due to rising disposable incomes, urbanization, evolving fashion trends, and the growth of online shopping platforms. The company is well positioned to take advantage of this growth.

The company benefits from the extensive experience of its promoters and senior management personnel, all of whom have deep expertise in the apparel industry.

Weaknesses

The company’s stores are concentrated in the eastern parts of India and it generates the majority of its sales from West Bengal, Odisha, Assam, and Bihar (collectively referred to as Core Markets). Any adverse developments affecting operations in these states could negatively affect its business. Sales from these core markets accounted for 87.58% of revenue in FY2024.

The company’s operating margin has decreased from 18.66% in FY2022 to 11.07% in FY2024, reflecting a significant weakness in its profitability.

The company operates in a highly competitive industry. Additionally, fashion and retail companies frequently encounter fluctuating demand based on seasons, trends, and economic conditions, which can adversely affect sales and inventory management.

The company employs a cluster-based expansion model, which, despite its benefits, leads to a concentration of business in a limited geographic area rather than a more widespread presence.

The company has limited experience with e-commerce operations. Failure to effectively execute an e-commerce strategy could result in lost business, especially as more customers are turning to online shopping platforms.

Problems such as delays, quality control issues, or disruptions in the supply chain can adversely affect product availability and company operations.

The company‘s statutory auditors have highlighted specific matters in their audit report for the financial year ending March 31, 2024.

Valuation

In FY2024, consolidated net sales increased by 23.48% to Rs 972.88 crore compared to FY2023. OPM decreased by 181 bps to 11.07%, which led to 6.12% increase in operating profit to Rs 107.69 crore. Other income increased 53.31% to Rs 9.94 crore, while interest cost fell 14.5% to Rs 35.38 crore and depreciation cost decreased 13.3% to Rs 53.05 crore. Profit before tax increased 440.4% to Rs 29.21 crore. Tax expenses for FY2024 was of Rs 7.28 crore compared to tax expense of Rs 0.31 crore in FY2023. Net profit surged 330.05% to Rs 21.94 crore.

The FY2024 EPS on post-issue equity is Rs 2.94. At the upper price band of Rs 389, the P/E ratio works out to approximately 132.

The company will be repaying 82% of its debt from the issue proceeds. This will bring down its interest costs substantially and boost profits. The FY2024 EPS works out to Rs 6.82 if 82% of its interest cost is removed, keeping all other items, including tax rate same. Re-worked P/E, at the upper price band, moderates to 57.

The share of organized retail apparel surged from around 14% in Fiscal 2007 to approximately 46% in Fiscal 2024. This growth reflects the ability of organized players to not only capture new demand but also shift consumer preference away from unorganized retail. The combined market opportunity for value retailers in Eastern and North India is expected to reach approximately 8,000 stores by Fiscal 2027. Leveraging its deep understanding of customer preferences in Eastern India, Bazar Style Retail is well positioned to strengthen and expand its presence in these key markets.

As of 29 Aug 2024, its listed peers such as V2 Retail trades at TTM P/E of 107, Arvind Fashions trades at TTM P/E of 103 and Cantabil Retail trades at TTM P/E of 35. For FY2024, Bazar Style Retail OPM and ROE stood at 11.07% and 10.32% respectively, compared to 12.69% and 10.12% for V2 Retail, 11.99% and 8.03% for Arvind Fashions, and 26.4% and 19.05% for Cantabil Retail respectively.