What you must know about Credo Brands Marketing (MUFTI) IPO?

Credo Brands Marketing Ltd (MUFTI) is better known by its apparel brand MUFTI. This is an alternative clothing brand and is becoming increasingly relevant as India emerges economically liberated since the 1990s. MUFTI began more than 3 decades back to detract Indian men from the monotonous formal wear comprising of pale blue and white shirts and dark pants. MUFTI, promoted by Kamal Khushlani came to the rescue by launching an offbeat and an offline product for the young and happening Indian market. The idea of MUFTI was to give voice to the expressive self of the person dressing. Today, MUFTI has grown into a pan-Indian brand that promises to be the part of every Indian man’s wardrobe. MUFTI is not just about expressing the individual but also about presenting a refined style and offering a new and more colour way of working in the office. 

MUFTI products are largely driven by an intensity of design and manufacturing effort. Even as the company got the design and manufacturing act together, the big challenge was in the marketing side of the business. Today, MUFTI reaches out through its nation-wide presence through a mix of multi-brand outlets (MBOs) and exclusive brand outlets (EBOs).  Mufti began its journey in MBOs across India but soon graduated to Exclusive Brand Outlet (EBO) by 2006. Today Mufti products are available across over 1750 doors (379 EBOs, 1305 MBOs, and 89 Department Stores). MUFTI sources and procures over 4 million (40 lakh) units annually across India and International sourcing routes. Mufti caters to every mood and is more mood based than occasion based. It offers choice across Authentic, Urban, Relaxed Casual, and Athleisure products. Its product categories span Shirts, Jeans, Polos, T-Shirts, Sweatshirts, Sweaters, Outerwear, Blazers, Chinos, and Trousers.​
The IPO of Credo Brands Marketing Ltd (MUFTI) will entirely be an offer for sale (OFS). Hence there is no fresh inflow of funds into the company for utilization. The IPO will be lead managed by DAM Capital Advisors (formerly IDFC Securities), ICICI Securities and Keynote Financial Services. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the IPO issue of Credo Brands Marketing (MUFTI) IPO

Here are some of the key highlights to the public issue of Credo Brands Marketing Ltd (MUFTI).    

• The IPO of Credo Brands Marketing Ltd (MUFTI) will be open from December 19, 2023 to December 21, 2023. The stock of Credo Brands Marketing Ltd (MUFTI) has a face value of ₹2 per share and the price band for the book building IPO has been set in the band of ₹266 to ₹280 per share. The final price will be discovered within this band through the process of book building.

• The IPO of Credo Brands Marketing Ltd (MUFTI) will be entirely an offer for sale (OFS) with no fresh issue component in the IPO. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.

• The offer for sale (OFS) portion of the IPO of Credo Brands Marketing Ltd (MUFTI) comprises the sale of 1,96,34,960 shares (196.35 lakh shares approximately), which at the upper price band of ₹266 per share will translate into an offer for sale (OFS) issue size of ₹549.78 crore.

• Out of the offer for sale size of 196.35 lakh shares, the four promoter shareholders will jointly offer 86.31 lakhs shares while the 4 non-promoter investor shareholders will offer the balance 110.04 lakh shares in the OFS.

• Since there is no fresh issue component in the IPO, the offer for sale (OFS) portion will also be the overall size of the IPO. Therefore, the overall IPO of Credo Brands Marketing Ltd (MUFTI) will comprise of the sale of 1,96,34,960 shares (196.35 lakh shares approximately), which at the upper price band of ₹280 per share translates into total IPO size of ₹549.78 crore.
The IPO of Credo Brands Marketing Ltd (MUFTI) will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Kamal Khushlani and Poonam Khushlani. Currently the promoters hold 66.66% stake in the company, which will get diluted post the IPO to 53.66%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, if any. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of Credo Brands Marketing Ltd (MUFTI)

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Credo Brands Marketing Ltd (MUFTI), the minimum lot size is 53 shares with upper band indicative value of ₹14,840. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Credo Brands Marketing Ltd (MUFTI).

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Credo Brands Marketing Ltd (MUFTI) IPO and how to apply?

The issue opens for subscription on 19th December 2023 and closes for subscription on 21st December 2023 (both days inclusive). The basis of allotment will be finalized on 22nd December 2023 and the refunds will be initiated on 26th December 2023. In addition, the demat credits are expected to happen on 26th December 2023 and the stock will list on 27th December 2023 on the NSE and the BSE. Credo Brands Marketing Ltd (MUFTI) will test the appetite for market proxies to consumption and emerging and uniquely positioned brands in the market. The credits to the demat account to the extent of shares allotted will happen by the close of 26th December 2023 under ISIN (INE220Q01020). Let us now turn to the more practical issue of how to apply for the IPO of Credo Brands Marketing Ltd (MUFTI).

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Credo Brands Marketing Ltd (MUFTI)

The table below captures the key financials of Credo Brands Marketing Ltd (MUFTI) for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Credo Brands Marketing Ltd (MUFTI) which can be enumerated as under    

a) In the last 3 years, revenue growth has been very robust at a standard clip of around 40%. However, what stands out about Credo Brands Marketing Ltd (MUFTI) is that the net profits have grown two-fold over last year and multi-fold over the year before that. That led to sharp improvement in the net profit margin as well as robust ROE.

b) The company operates in a segment where the margins are stable and that is evident in the robust growth in the ROE and the net margins in the last two years. This is largely due to the strong brand and the leveraging of the positioning of the product.

c) The company has relatively low sweating of assets, but it may not too relevant at this juncture when the company is on a high growth path. Investments are being front-ended due to expansion plans and ROA is still fairly attractive. 
Let us turn to the valuations part. On the latest year diluted EPS of ₹12.06, the stock is available in the IPO at a P/E of 23.22 times. That is P/E ratio that is extremely competitive and it would really depend on the growth in the next couple of years. The latest year valuations would be more relevant for a business that is focused on near term growth and where the underlying paradigm is changing. However, other financials like ROE and PAT margins are relatively robust and should be able to hold valuations. The valuations should look more sober if FY24 and FY25 estimates are considered. Now, for qualitative aspects.  

• It has a strong brand equity with a presence across a wide category of products, that de-risks the business model

• The business model is scalable and also largely asset-light model; so, any expansion from here can be done on minimal investments

• The mindshare of the product MUFTI as a trend wear for men is very hard to break and that would be a key entry barrier, as would be the strong in-house design competencies
Investors must appreciate that the IPO does entail higher risk due to the volatile nature of the retail business. Investors must be willing for a higher risk appetite and also take a longer term perspective in this IPO. However, valuations are reasonable and that should give comfort to the investors.