The Mandhana Retail Ventures Ltd (TMRVL) Research Report

Company ,
Date of report December 26, 2016
Issuer
Target Price (Rs) 360
Gain (%) 109
Rationale

The Mandhana Retail Ventures Ltd (TMRVL), under young and dynamic leadership of Mr. Manish Mandhana, has signed a global exclusive Trademark Licence Agreement with Bollywood Superstar Salman Khan’s Being Human Foundation to design, manufacture, retail and distribute men’s wear, women’s wear, childeren’s wear and accessories under “Being Human” trademark until March 2020.

– In December, 2010 Mandhana Industries ltd (MIL) had entered into global Licence Agreement with “Being Human- The Salman Khan Foundation” to use the Trademark and Brand logo of “Being Human” for all clothes range/ Clothing line.

– However, with a view to unlock the value of the Retail and Branded business, MIL demerged the Being Human Retail Division to TMRVL in which Shareholders of Mandhana received 2 equity shares of TMRVL for every 3 equity shares held in the Company.

– TMRVL currently distributes Being Human clothing through 537 retail selling points. The company’s distribution network comprises of 28 company owned exclusive brand outlets, 29 franchisee owned exclusive brand outlets including 4 overseas stores, 253 point of sale in shop-in-shops forming part of the large format stores and multi-brand outlets, 12 distribution partners catering to 220 retailers and 7 online e-commerce selling points.

– TMRVL posted an excellent H1FY17 financial performance with revenues growng by 22% to Rs. 117 Crs. (Rs. 96 Crs), EBITDA increased by a whopping 65% to Rs. 30 Crs (Rs. 18 Crs), and PAT increased by a whopping 100% to Rs. 18 Crs (Rs. 9Crs). For full year FY16 the company had revenues of Rs. 218 Crs, EBITDA of Rs. 40Crs and PAT of Rs. 21 Crs on a equity capital of Rs. 22 Crs.

TMRVL is trading at a modest PE of 9.9x its FY17E EPS of Rs.17.5 and with retail story ready to bloom with a strong growth in topline and the margins, is offering attractive investment opportunity with a price target of Rs. 300 in medium to long term perspective. The branded and retail business along with the huge brand value of India’s biggest superstar Salman Khan should add a strong value for the investors and shareholders.

Company Profile

The Mandhana Retail Ventures Ltd (TMRVL), under young and dynamic leadership of Mr. Manish Mandhana, has signed a global exclusive Trademark Licence Agreement with Salman Khan’s Being Human Foundation to design, manufacture, retail and distribute men’s wear, women’s wear and accessories under “Being Human” trademark until March 2020.

In December, 2010 Mandhana Industries ltd (MIL) had entered into global Licence Agreement with “Being Human- The Salman Khan Foundation” to use the Trademark and Brand logo of “Being Human” for all clothes range/ Clothing line.

However, with a view to unlock the value of the Retail and Branded business, MIL demerged the Being Human Retail Division to TMRVL in which Shareholders of Mandhana shall receive 2 equity shares of TMRVL for every 3 equity shares held in the Company.

Demerger of Retail Business – Value Unlocking Exercise

To unlock the value of the Company’s Branded Retail Operation segment, the Company decided to demerge its retail business of brand ‘Being Human’ (“the Retail Business”) into a separate company viz. The Mandhana Retail Ventures Limited (“TMRVL”), which is now listed.

Shareholders of Mandhana received 2 equity shares of TMRVL for every 3 equity shares held in the Company.

Equity Share Capital of TMRVL will be Rs. 22.08 Crs consisting of 2.2 Cr equity shares of Face value Rs.10 each and that of MIL will be Rs.33.12 Crs consisting of 3.3 Cr equity shares of Face value Rs.10 each.

Salman Khan & Being Human – The Promising Brand Value

TMRVL with large scale of economies is aggressively expanding the reach as well as product range for retail business. It has also launched kids wear collection for ‘Being Human’. It has already added women’s wear to its initially launched men’s wear. “Being Human” brand has recorded staggering growth in last 5 years with topline increasing at a CAGR of 46% to Rs. 218 Crs in FY16 (Rs.45 Crs in FY12). Being able to sell at premium pricing helps it command an EBIDTA margin in excess of 25%.

The brand “Being Human” has uniqueness in terms of brand ethos by powerfully combining the latest trends in fashion, charity and the well known celebrity Salman Khan.

Being Human is a Premium fashion brand with”top of the mind” brand recall. It focuses on the age group of 18-30 years old to maximise its value.

Being Human clothing business has been conferred with various awards by industry platforms for their contribution to the Indian Apparel brand industry- “The Most Exciting Apparel Brand”, “Promising Brand 2015” (Brand equity-Economic Times), “Apparel Retailer of the Year-2014”, etc. Growing Distribution Network & Wider Penetration to be achieved

TMRVL currently distributes Being Human clothing through 537 retail selling points. The company’s distribution network comprises of 28 company owned exclusive brand outlets, 29 franchisee owned exclusive brand outlets including 4 overseas stores, 253 point of sale in shop-in-shops forming part of the large format stores and multi-brand outlets, 12 distribution partners catering to 220 retailers and 7 online e-commerce selling points. The company targets to achieve 1500 Point of sales by FY2020.

The Company enjoys a significant presence in the Middle East, where it has strategic alliance with The Landmark Group (Revenue- $6 billion group) and Europe, comprising 388 selling points. The company has plans to roll out a total of 750 selling point over next 2 years.It is now targeting geographies like the Far East, the US and Africa, geographical pockets with a significant Indian population.

The company is focused on creating an Asset Light Business Model and focused on making this brand available to large number of customers in the tier 1 and tier 2 cities. This will lead to higher Return on capital employed (FY16 ROCE-29%), Return on Equity (FY16 ROE-34%) and Margin expansion ( FY16 EBITDA Margin-25%, PAT Margin- 15%). WOMENS KIDS MENS 65% 15% 20% BUSINESS DIVISION CATEGORY WISE NVS Wealth Managers Business Strategy

The company is working on an Asset-light model where the products are manufactured by 3rd party manufacturers thus reducing input costs leading to margin expansion.

The company has signed an exclusive 3- year deal with Salman Khan’s ‘Being Human Foundation’ where the superstar will recive 5% Royalty on the Net sales. This a very lucrative deal considering that Salman Khan generally charges about Rs.18-20 Crs for his other endorsements (we understand this from trade rumours) – A win-win for both.

In today’s time advertising slots on print as well as electronic media is very expensive. However, since the company already has Salman Khan as the face of the brand, total advertising expense is less than 5% of Sales and brisk sale.

The business of the company is highly influenced by the trends and taste of fashion which may change with new designs in the markets. The company has a very strong in-house design and product development team which focuses on developing new and unique designs for customers in a timely, efficient and a cost effective manner.

The management of TMRVL is confident that its volume-led and value-driven strategy will deliver even better returns.

We believe this strategy should work quite well compared to the original business model of MIL and should create wealth for all.

Critical Analysis

In FY16, Revenue grew by 26% to Rs.218 Crs (Rs.173 Crs in FY15) on the back of higher economies of scale and focus on branded products segment, EBITDA degrew by 10% to Rs.40 Crs(Rs.44 Crs in FY15) due to rising input costs and PAT grew by 7% to Rs.21.4 Crs (Rs.20 Crs in FY15).

The company is a debt-free company.

Projections for the next 3 financial year ending FY20 has been made as per our discussions with the management. The management has guided that the company’s topline will grow at minimum 25% and the company will be able to clock EBITDA and PAT margins of atleast 25% and 15% respectively in the coming years.

Valuation & Recommendation

At the CMP of Rs.172.2, the stock trades at 17.8x its FY16 EPS of Rs.9.7. However, we believe that in FY17E, the company will achieve a PAT of Rs.37-39 Crs on a topline of Rs.245-250 Crs, generating a robust EPS of Rs.17-18, thus trading at a meager PE of 9.9x its FY17E EPS. Valuing the company at a modest 15x on FY17E EPS, we arrive at short term target Price of Rs.260-70, thus giving an upside potential 52%.

We believe, the company will grow at 25% over the next 3 years and will post Revenue of Rs.485-500 Crs in FY20. The management is confident of achieveing a minimum PAT Margin of 15% in every year, PAT for FY20E comes to around Rs.78-83 Crs, generating a robust EPS of Rs.35-38. This would give a 3 year forward PE of 4.6x. Valuing the company at a modest 10x, we would arrive at a Long Term Target Price of Rs.360, thus giving a handsome return of 109%.

We recommend to accumulate TMRVL at a CMP of Rs. 172 which is now a complete branded retail business which should significantly improve topline, bottomline, margins and valuation of the company in the times to come.

In the short term the stock price may fluctuate, but we believe one can invest gradually in the company and are advised to buy with medium to long term perspective of 12-18 months.

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