Baazar Style Retail IPO Analysis – GMP, Subscription Status, Strengths & Risks

The IPO (initial public offering) of Baazar Style Retail Ltd (BSRL) commences on August 30 and concludes on September 3, 2024. The IPO is a mix of fresh issue as well as an offer for sale (OFS) by the promoters and selling shareholders. The funds from the fresh issue will be utilized to pay off all existing debts, thus eliminating annual interest expenses of Rs 13.5 crore recorded in FY24.

The offering, carrying a Grey Market Premium (GMP) of 33%, has received a fair amount of interest on its first day of bidding. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Baazar Style Retail IPO Details

Issue Size: Rs 834.68 crore
Fresh Issue: Rs 148 crore
OFS: Rs 686.68 crore
Price Range: Rs 370 – Rs 389
Lot size: 38 shares

Baazar Style Retail IPO Subscription Status

The IPO of Baazar Style Retail was subscribed by 0.73 times on its first day of bidding. The employee segment saw the highest subscription at 6.19 times. Non-institutional investors and retail investors subscribed to 0.47 times and 0.84 times their respective quotas while qualified institutional buyers subscribed 0.7 times their reserved portion.

Overview of Baazar Style Retail

BSRL is a prominent value fashion retailer based in Eastern India. The firm offers a range of affordable products, primarily focusing on apparel, which constitutes approximately 84% of its total revenue, and general merchandise, accounting for about 16%.

As of March 31, 2024, BSRL has expanded its presence to 162 stores across 146 cities under the “Style Bazaar” brand. The firm is backed by notable investors such as Rekha Rakesh Jhunjhunwala, Kewal Kiran Clothing Ltd, and Manohar Lal Agarwal from Haldiram Snacks.

Baazar Style Retail Key Strengths

Market Leadership: BSRL is the top value retailer in eastern India, holding market shares of 3.03% in West Bengal and 2.22% in Odisha. The firm outpaced its peers in growth with a 35.8% CAGR in store count from 2017 to 2024.
Remarkable Growth: BSRL's financials have surged, with operating revenue and EBITDA growing at CAGRs of 33% and 44%, respectively, from FY22 to FY24. The firm turned around from a Rs 8 crore loss in FY22 to a Rs 5 crore profit in FY23, which increased substantially to Rs 22 crore in FY24.
Loyal Customer Base: Around 72% of BSRL’s sales are from repeat customers, highlighting a strong, loyal customer base.

Baazar Style Retail Risk Factors

Regional Concentration: About 87% of BSRL's revenue comes from four eastern Indian states, making it vulnerable to regional disturbances and the potential negative impacts of store clustering.
Reliance on External Suppliers: BSRL depends on third-party suppliers for all products, with no in-house manufacturing. Despite a broad network of 641 suppliers, disruptions in the supply chain could significantly impact operations.

Baazar Style Retail Valuation & Recommendation

BSRL, established in 2013, is one of the fast-growing retail companies with a strong presence in eastern India. Despite facing 2-3 years of disruptions due to COVID, the firm has successfully grown to achieve a revenue milestone of nearly Rs 1,000 crore by FY24.

BSRL benefits from increased consumer spending in rural Tier 3 and 4 cities and is pursuing aggressive expansion, expecting higher profitability due to interest cost savings, more private labels, and operating leverage.

The IPO is offered at a price-to-earnings (P/E) ratio of 124x. Although this valuation might appear high, it remains competitive, offering a discount compared to peers, with comparable or superior net margins and return ratios.

Given these aspects, investors may consider subscribing to the IPO for a medium-to-long term investment horizon.

For a deeper dive into this IPO, explore: IPO Corner on Liquide