ABFRL has acquired Jaypore, an ethnic wear and accessories brand. ABFRL has taken a 100% stake in Jaypore’s B2B and B2C brands for a combined EV of up to Rs 110 crore. The brand will give ABFRL entry into the ethnic wear segment where it has had a limited presence.
However, the Jaypore brand is fairly nascent, and will require time and investment to scale up. We await detailed plans of the scale up, but would be wary of hefty investments, similar to the innerwear business.
Jaypore retails apparel (for women, men and kids), silver and fashion jewellery, accessories, home décor and gift items.
Jaypore is a craft-based brand, and in our opinion positioned a notch above FabIndia in terms of product quality and price point. However, disclosed revenues of the company indicate that revenues have stagnated over the past three years, possibly as Jaypore has been focused exclusively on online retail, primarily through its own portal.
ABFRL is set to pay 3.8X FY2019 EV/sales for this company (which includes both the B2B and B2C entities) – not cheap in our view (TCNS, a much larger ethnic wear company, is currently trading at 4.2X FY2019 EV/Sales).
ABFRL has traditionally had strong menswear brands within its Madura umbrella, and has lagged participation in the organized women’s ethnic wear market. Its limited participation has been via Pantaloons, where it retails a few private labels which racked up sales of `350-400 crore in FY19. We believe the acquisition of Jaypore is with the intent to enter this fast growing and largely unorganized market. However, this market is also fairly competitive with an abundance of local and regional players, and ABFRL would thus need to come out with a multi-channel retail strategy to swiftly scale-up these brands.
Our positive view on ABFRL has been underpinned by steady improvement in its operating metrics, led primarily by Pantaloons, which would have translated into debt reduction as well. With ABFRL shelling out `110 crore towards Jaypore, its deleveraging story gets delayed a bit (ABFRL had net debt of `1,650 crore as of March 2019). We retain ‘buy’ with an SoTP-based fair value of `220.