Credo Brands Marketing

Single brand fashion retailer

Scalable, asset-light model, with focus on designing in line with global fashion trends

Credo Brands Marketing (CBMPL) is engaged in the marketing of men‘s fashion garments in the lifestyle category under the brand name of `Mufti’. The company‘s product mix has evolved significantly since inception 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. The company‘s design team is constantly focusing on expanding its product range to meet a varied range of consumer needs.

The company has a pan-India presence with its reach extending from major metros to tier -3 cities. As of September 30, 2023, the company has presence in 591 cities across India. The company has a total touch point of 1,807 of which 404 are exclusive brand outlets (EBOs), 71 are large format stores (LFSs) and the balance 1,332 are multi brand outlets (MBOs).

The company had 16 distributors as on September 30, 2023, for distribution to MBOs. Its well-established EBO network offers a holistic shopping experience for its customers. The company‘s EBOs are located nationwide across high streets, malls, airports, and residential market areas. The company also has an online presence, which is rapidly growing,allowing customers to shop through its website, www.muftijeans.in, as well as through various e-commerce marketplaces.

The company follows an asset light model as such has outsourced the garment manufacturing activities and manages only designing, branding, and marketing through various stores across India. The company‘s asset light model also covers every aspect of its sales operations, with none of its stores being situated on properties owned by the company.

Object of the offer

The offer for sale by the selling shareholders comprises up to 41,40,000 shares by Mr Kamal Khushlani, up to 42,75,000 shares by Ms Poonam Khushlani, up to 1,08,000 shares by Ms Sonakshi Khushlani , up to 1,08,000 shares by Mr Andrew Khushlani, up to 20,32,260 shares by Concept Communication Limited, up to 50,31,260 shares by Bela Properties Private Limited, up to 19,70,220 shares by Jay Mr Milan Mehta and up to 19,70,220 shares by Mr Sagar Milan Mehta.

The company will not receive any proceeds from the offer and all the offer proceeds will be received by the selling shareholders, in proportion to the offered shares sold by the respective selling shareholders as part of the offer.

Strengths

The company has a strong brand equity, with a presence across categories. The brand ‘Mufti‘ is targeted towards the youth in the premium segment within the men‘s casual wear category:shirts, jeans, trousers, and T-shirts. The company has an established brand name in the domestic market through consistent efforts on advertisement and promotion.

The company has a multi-channel pan-India distribution network. The company sells through various channels and has been focusing on increasing its retail presence. The company sells its products primarily through EBOs, MBOs, large format stores (LFS), e-business, and others includes sale of accessories and fabric.

The company has a scalable asset light model with focus on designing its products in line with global fashion trends in casual wear. With focus on creation of a holistic casual-wear brand, the company outsources its manufacturing operations, while all aspects of design are managed in-house. This helps it to maintain an asset-light model with respect to plant, property, and equipment. Further, its asset light model also covers every aspect of its sales operations, with none of its stores being situated on properties owned by the company. Its asset light model provides scalability and enables it to open EBOs in a time efficient manner.

The company has strong in-house design competencies to deliver innovative and high-quality products with end-to-end tech-enabled supply chain capabilities.

Promoters with strong leadership and a demonstrated track record supported by a highly experienced and accomplished senior management team and board of directors.

Weaknesses

The company sells men‘s casual western wear and is vulnerable to variations in demand and changes in consumer preferences, which could have an adverse effect on the company‘s business.

If the company is unable to predict customer demands and maintain the optimum inventory, there may be an adverse effect on its results of operations.

All the company‘s products are sold under a single brand, ‘Mufti‘ and any inability to effectively market its products, or any deterioration in public perception of its brand, could affect consumer footfall and consequently adversely impact its business.

The Indian apparel industry is highly fragmented in nature and unorganized sector accounts for more than 60% of the industry and international brands accounts for around 20% of the organized sector. The company faces competition from the players in the unorganized sector as the entry barrier is low and from the large apparel players with the established Indian and foreign brands.

Pricing pressure from the company‘s competitors may affect its ability to maintain or increase its product prices and, in turn, its revenue from products, gross margin, and profitability may be impacted.

Any inability to obtain adequate quantities of apparel of the requisite quality in a timely manner and at acceptable prices,or a slowdown, shutdown or disruption in third-party manufacturing partners‘ operations and performance,could adversely affect the company‘s business.

The company‘s business depends on continual purchases of its products and timely payments by its franchise stores, both in the short and long term. Any delay or failure in sale of products or payments at its franchise stores or any disputes with franchisees may adversely impact the operations of the company.

The company is exposed to the risks associated with leasing real estate in case the current location of its exclusive brand outlets, warehouse and its registered and corporate office become unattractive or in case the company is unable to comply with the terms and conditions of the lease agreements then the company may shift its EBOs to new locations, which may adversely affect the company‘s business.

As the company is into the retail business, operations of the company are highly working capital intensive in nature, governed by seasonality. A high level of inventory is required to be maintained at its warehouses located in Bengaluru and Mumbai from where the supplies are made to its stores across all locations. If the company is unable to maintain an optimal level of inventory, its business may be adversely affected.

The covid-19 pandemic, or any future pandemic or widespread public health emergency, could affect the company‘s business and financial condition.

Valuation

For the three months ended June 2023, the company‘s PAT stood at Rs 8.58 crore on revenue of Rs 118.49 crore.

For FY 2023, sales were up by 46% to Rs 498.18 crore.The increase in revenue was due to an increase in EBOs from 321 as on March 31,2022, to 373 as on March 31,2023. Further, certain periods in fiscal 2022 were impacted due to covid-19. OPM rose 502 bps to 32.89%, which led to a 72.3% increase in operating profit to Rs 163.85 crore. Other income decreased by 18.5% to Rs 11.14 crore.Interest cost increased 18.0% to Rs 17.75crore and depreciation increased by 16.4% to Rs 53.43crore. PBT increased by 117.0% to Rs 103.81 crore. Tax expenses increased by117.5% to Rs 26.30 crore. Net profit stood at Rs 77.51crore as against net profit of Rs 35.74crore in FY2022.

At the higher price band of Rs 280, the offer is made at a P/E of 23.2 times FY2023 EPS (of Rs 12.05) and 3.6 times P/ Sales FY2023.

Listed industry peers of the company are Go Fashion (India), Arvind Fashion and Kewal Kiran Clothing.In comparison,Go Fashion (India) at 84.9 times its P/FY2023 EPS and 10.53 times P/ Sales FY2023,Arvind Fashion trades at 146.01 times its P/FY2023 EPSand 1.21 times its P/Sales FY2023 and Kewal Kiran Clothing trades at 40.03 times its P/ FY2023 EPS and 6.13 times P/Sales FY2023.