23rd April, 2022
Imagine Marketing Ltd, which markets its products under boAt brand, announced it will float an initial public offer (IPO) to raise Rs 2000 crore, including a share sale by few of its investors who will divest shares worth Rs 1100 crore.
Though the company is yet to receive approval from the market regulator to launch its IPO, it will likely come very soon. Moreover with investor appetite coming back to the market and the popularity of the brand, the issue is likely to receive good response.
Though, you don’t need to wait for the IPO to acquire boAt shares. Investors also have a chance to buy unlisted shares of the company to make the most of the company’s growth and book profits after listing.
Below are five reasons you should invest in the stock now:
Dominant Market Position
From its launch in 2014, currently the company is now number one in India among the wireless hearables brands by value and volume and number two among smartwatch brands in India in terms of volume.
Moreover, its market share in both wireless hearables and smartwatch segments has consistently increased over time.
For the quarter ended September 30, 2021, it had a market share of 48% and 23% in terms of volume, and 30% and 13% by value, in the branded wireless hearables and smartwatch markets, respectively according to a RedSeer Report.
Thanks to its excellent product range and word of mouth publicity, its products enjoy a dominant position on Flipkart and Amazon. The company strives to grow at a rapid pace, and given the result its methods have shown in the past, it may very well achieve that.
Superb Business Growth
The company has grown its revenue from operations at a CAGR of 141.18% between financial years 2019 and 2021. Its profits have also grown in tandem. For the period/year for the financial years 2019, 2020 and 2021 and the six months period ended September 30, 2021, it was Rs 8.03 crore, Rs 47.79 crore, Rs 86.53 crore and Rs 118.31 crore, respectively, representing a profit after tax margin of 3.56%, 7.85%, 6.59% and 7.64%, respectively.
For the financial years, 2020 and 2021 and the six months period ended September 30, 2021, the company generated an enviable operating ROCE (return on capital employed) of 92.69%, 56.03% and 21.69% (not annualised), respectively.
This makes it different from many startups that have come out with their IPOs. Unlike the, who have just focussed on user growth, the company has demonstrated the ability to grow rapidly while remaining profitable and delivering robust Operating ROCEs despite significant investments being made in building the brand and the business.
Future Growth Potential
According to a RedSeer Report, the hearables market has grown at a CAGR of approximately 31% in the last four years. It is expected to grow between 25% to 35% in terms of CAGR in the next 5 years. Similarly, the wearables market has grown at a CAGR of approximately 39% and is projected to grow at a CAGR of between 40% and 55% in the next 5 years. Thus, the opportunity for boAt is immense.
Besides, the company is also exploring opportunities in overseas markets. It seeks to leverage the established presence of online marketplaces with whom it works in the overseas markets. It is currently focussing in the United Arab Emirates, Nepal and countries in the South East Asia region, which it believes have a large Indian diaspora and/or a population with similar tastes and preferences as the audience in India.
The company, though, sells its products predominantly online, but lately it has also strengthened its offline sales. The latest data shows it generates 83% revenue from online marketplaces like Flipkart and Amazon, 14% from offline and 3% from its own website. Its products are now available in 90% of the PIN codes in India.
The company plans to float the IPO to raise Rs 900 crore while its initial investors will sell shares worth Rs 1100 crore. Sellers include Sameer Mehta and Aman Gupta who are promoters. They will each raise Rs 150 crore. Besides South Lake, another investor in the company will be offloading shares worth Rs 800 crore.
The company is yet to announce the IPO price but media reports have suggested it is seeking a $1.5-2 billion valuation, meaning up to Rs 15,000 crore. Given the outstanding number of shares at 13.54 crore, the shares can be priced between Rs 800-1,100.
Valuation & Risks
Given it is one of the few profitable startups, the stock is trading at a premium in the unlisted market at around Rs 1200-1300 per share. At this price, it is currently trading at a valuation of 150 times FY21 earnings which is expensive compared to some of the other brands that sell electronic equipment like Crompton, Voltas, etc. which are training 10-30 times their earnings. Though, keep in mind that they are not directly comparable to boAt. (To know the latest price of boat shares, click here)
Comparing the price to expected IPO price, it may not be favourable. But if unlisted share price comes down, then it will be a great opportunity to accumulate boAt shares.
Among the key risks to the company are its overreliance on e-commerce websites, popularity of its boAt brand, continuity of rapid growth rate, supply chain disruptions and any disruption to the market.
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