As the Baazar Style Retail IPO reaches its third and final day of bidding, the excitement among investors is palpable. With a strong backing by Rekha Jhunjhunwala, this IPO has generated significant buzz. In this comprehensive analysis, we will delve into the details of the IPO, including its grey market premium (GMP), subscription status, and expert reviews. We’ll also explore whether this IPO is worth considering for potential investors.
Introduction to Baazar Style Retail
Baazar Style Retail Limited is a prominent player in India’s value fashion retail market. The company offers a range of affordable fashion products and operates a network of stores across several key regions in India. With a focus on providing high-quality products at competitive prices, Baazar Style Retail has carved out a significant niche in the retail sector.
The IPO of Baazar Style Retail is a notable event for several reasons. First, the company is backed by Rekha Jhunjhunwala, a renowned investor known for her successful investments in the Indian stock market. Second, the IPO is poised to raise a substantial amount of capital, which the company intends to use for various growth initiatives.
IPO Details and Objectives
The Baazar Style Retail IPO was launched on August 30, 2024, and will close on September 3, 2024. The company has set the price band for the IPO between ₹370 and ₹389 per equity share. The total issue size is ₹834.68 crore, comprising a fresh issue of shares worth ₹148 crore and an Offer for Sale (OFS) of ₹686.68 crore.
Objectives of the IPO
The primary objectives of the IPO are:
- Expansion: Baazar Style Retail aims to use the proceeds from the IPO to expand its store network and enhance its market presence in key regions.
- Debt Reduction: A portion of the funds will be allocated towards reducing the company’s debt, thereby improving its financial stability and reducing interest expenses.
- Brand Development: The company plans to invest in marketing and brand development to strengthen its position in the competitive retail market.
- Technology Upgradation: Investment in technology and automation will be a focus, aiming to improve operational efficiency and customer experience.
Grey Market Premium (GMP) Analysis
The grey market, an unofficial trading platform where shares are bought and sold before their official listing, provides valuable insights into investor sentiment and potential listing gains. As of Day 3, Baazar Style Retail shares are commanding a grey market premium (GMP) of ₹62.
Understanding GMP
GMP reflects the price at which shares are trading in the grey market compared to the IPO issue price. A positive GMP indicates strong demand and investor confidence, suggesting that the shares are likely to list at a higher price than the issue price. Conversely, a negative GMP would indicate lower demand and potential listing losses.
For Baazar Style Retail, the GMP of ₹62 translates to a potential listing gain of approximately 16% based on the upper end of the IPO price band. This positive GMP signals strong investor interest and confidence in the company’s prospects.
Subscription Status
The subscription status of an IPO provides an indication of how much demand there is for the shares. It reflects the number of times the issue has been oversubscribed and the level of interest from different categories of investors.
Day 1 and Day 2 Subscription
On the first day of bidding, Baazar Style Retail’s IPO received a positive response. By the end of Day 2, the subscription status was as follows:
- Overall Subscription: 72% of the shares had been booked.
- Retail Portion: Subscribed 7.67 times.
- Non-Institutional Investors (NII): Subscribed 48.06 times.
- Qualified Institutional Buyers (QIB): Subscribed 31.07 times.
The positive subscription numbers indicate a strong interest from all categories of investors. The high subscription rates from QIBs and NIIs, in particular, suggest confidence in the company’s growth prospects.
Day 3 Subscription
By 10:44 AM on Day 3, the subscription status had further improved:
- Overall Subscription: 6.02 times.
- Retail Portion: Subscribed 4.69 times.
- Non-Institutional Investors (NII): Subscribed 15.85 times.
- Qualified Institutional Buyers (QIB): Subscribed 0.85 times.
As the day progressed, the subscription numbers continued to rise, reflecting increasing interest from investors. By the end of the bidding period, the IPO had been subscribed approximately 40.66 times, with the following breakdown:
- Qualified Institutional Buyers (QIB): Subscribed 81.83 times.
- Non-Institutional Investors (NII): Subscribed 59.43 times.
- Retail Investors: Subscribed 9.12 times.
- Employees’ Portion: Subscribed 35.36 times.
These figures demonstrate overwhelming demand and robust interest from all investor categories, indicating a positive outlook for the IPO.
Expert Reviews and Recommendations
Market experts play a crucial role in evaluating the potential of an IPO. Their reviews and recommendations provide valuable insights into the company’s prospects and whether it’s a good investment opportunity.
Arihant Capital’s Review
Arihant Capital has given a ‘subscribe’ recommendation for the Baazar Style Retail IPO. The firm highlights several key points in their analysis:
- Growth Potential: Arihant Capital notes that Baazar Style Retail is well-positioned for strong growth and profitability. The company’s private label segment, which contributed 37.93% of revenue in FY24, is expected to drive significant growth.
- CAGR and Expansion: With a 23.62% compound annual growth rate (CAGR), Baazar Style Retail’s strategic store expansion targets high-growth areas, enhancing market presence.
- Operational Efficiency: The company’s investment in advanced processes and automation is expected to improve operational efficiency.
- Valuation: At the upper band of ₹389, the P/E ratio is 132x based on an FY24 EPS of ₹2.94. Despite the high valuation, Arihant Capital believes the company’s growth prospects justify the investment. They recommend a ‘subscribe’ to the issue.
Master Capital’s Review
Master Capital has also assigned a ‘subscribe’ tag to the IPO, providing the following insights:
- Revenue Growth: Master Capital highlights that Baazar Style Retail’s revenues grew at a CAGR of 33% during FY22-24, compared to a ~19.3% CAGR for the overall lifestyle and home value retail market.
- Valuation: While the P/E ratio of 135x FY24 earnings appears high, Master Capital argues that the EV/EBITDA ratio of 21.5x is reasonable compared to the industry average of 28x. This suggests that the valuation is justified when viewed from an EV/EBITDA perspective.
- Long-Term Gains: Master Capital’s recommendation is based on the company’s strong revenue growth and its positioning within a growing market. They suggest subscribing for long-term gains.
Key Highlights and Investment Considerations
When evaluating whether to apply for the Baazar Style Retail IPO, investors should consider several key factors:
Strong Market Backing
Baazar Style Retail’s association with Rekha Jhunjhunwala adds significant credibility to the IPO. Jhunjhunwala’s backing is a strong indicator of the company’s potential and can inspire confidence among investors.
Impressive Subscription Numbers
The high subscription rates across various investor categories reflect strong demand and investor confidence. The IPO’s over-subscription suggests that investors are optimistic about Baazar Style Retail’s future performance.
Positive GMP
The grey market premium of ₹62 indicates that the shares are expected to list at a higher price than the issue price. This potential listing gain can be an attractive proposition for investors.
Growth Potential
Baazar Style Retail’s focus on expanding its store network, investing in technology, and strengthening its brand position provides a solid foundation for future growth. The company’s strategic initiatives and market positioning are likely to drive long-term value.
Valuation Concerns
While the valuation ratios, particularly the P/E ratio, may appear high, it’s important to consider the company’s growth trajectory and market conditions. The EV/EBITDA ratio provides a more balanced view of the valuation.
Conclusion
The Baazar Style Retail IPO has captured significant attention from investors due to its strong market backing, impressive subscription numbers, and positive grey market premium. The company’s growth prospects and strategic initiatives make it an attractive investment opportunity.
For potential investors, applying for the Baazar Style Retail IPO could be a good opportunity to gain exposure to a promising value fashion retailer. The positive GMP and high subscription rates suggest a strong market interest and potential for listing gains. However, investors should conduct their own research and consider their financial goals before making an investment decision.
Disclaimer: This blog provides an analysis based on available data and expert opinions. Investors should exercise their discretion and consult with financial advisors before investing in the IPO.
