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Manyavar - A closer look
The big fat Indian wedding
Our story starts with Vinod. A hardworking man with a family in a village. Despite his roots, he has relocated to Mumbai to earn a living and provide support to his loved ones. He cooks and cleans at three different households to make ends meet. For the past two years, Vinod has been tirelessly saving every rupee he earns, driven by a singular goal - to accumulate enough wealth to ensure a suitable match for his beloved daughter. In the intricate web of Indian culture and tradition, a grand wedding is unfortunately often seen as a prerequisite for attracting worthy suitors (especially in villages). And Vinod, like many others in his shoes, finds himself culturally bound by this expectation.
On the other side of the spectrum, we find Mr. Bapat. He is getting his only son married and is preparing for a wedding extravaganza. This is no ordinary wedding; it's a spectacle, a display of grandeur. The family is pulling out all the stops, even going so far as to invite a Bollywood celebrity for a performance. Why? My best guess is to showcase their elevated status and affluence through the lens of a lavish Indian wedding.
Weddings are a big deal in India. With over a billion people, and a staggering 600 million individuals below the age of 25, its hard to ignore the potential of the "Big Fat Indian wedding."
I thought, I’d take this opportunity to take a closer look at the business of Vedant Fashion.
Disclaimer: This post is intended for educational purposes only and should not be considered as investment advice. The information provided is based on the best available knowledge as of November 2023. While efforts have been made to ensure accuracy, the author cannot be held responsible for any errors or omissions.
About the business?
Incorporated by Ravi Modi in 2002, Vedant Fashion Limited (VFL) sells Indian ethnic and celebration wear. They have close to 670 exclusive stores with around 650 of them in India. As of 2023, they have five brands. Let’s take a closer look at each of them.
Manyavar: Positioned in the mid-premium segment for men, Manyavar drives the majority of the revenues for VFL.
Mohey: Positioned in the mid-premium segment, Mohey caters to women. Its products are integrated into the flagship Manyavar stores; however, the company is actively working on establishing exclusive Mohey stores (as of November 2023).
Twamev: Twamev is positioned as a premium brand within the portfolio, offering products that exceed the premium standards set by Manyavar. As of November 2023, Twamev has four Exclusive Brand Outlets (EBOs), and the company is set to sign about 4-5 more EBOs in the coming months. The idea is to have about 8-10 EBOs, properly study the model, and then decide on scaling to the next set of EBOs.
Manthan: Manthan caters to a broader audience by offering more mass-produced products, positioned at a tier below Manyavar. They sell Manthan products through large-format stores or Multi-brand outlets.
Mebaz: Vedant Fashion strategically acquired Mebaz. It has exclusive stores and is particularly popular in Telangana and Andhra Pradesh.
Some business history?
As mentioned earlier, Ravi Modi incorporated this business in 2002. By 2005-06, he had initiated the sale of Manyavar products to large format stores (LFS), securing a pan-India presence with prominent retailers like Future Group, Shoppers Stop, and Westside. Guided by his father's counsel, he steered clear of accumulating debt, opting to reinvest the majority of funds back into the business.
In 2006, Modi took a hiatus from work to care for his ailing father. This pause prompted a significant realization about the value of time investment. Reflecting on the business's operational independence during his absence, Modi shifted his focus to prioritize "return on time invested (ROTI)" over traditional return on investment (ROI).
By 2008, Manyavar marked a pivotal moment by establishing its first exclusive brand outlet (EBO). According to Modi, "That’s when the real journey began." This expansion initially involved company-operated stores before transitioning to a franchise-led model. Modi was convinced that the future of any fashion apparel business in India lay in exclusive brand outlets.
In 2015, the company introduced Mohey, followed by the launch of Manthan in 2018. Twamev joined the portfolio in 2019.
Presently, Ravi Modi holds the position of Managing Director, while his son, Mr. Vedant Modi, serves as the Chief Revenue Officer. Vedant, equipped with a degree in Information Management from UCL, emerges as a highly capable successor.
Source for the business history - Forbes India
The Size of the market?
Like almost every market in India, the potential is endless. Close to 10 million weddings taking place in India each year. VFL through all its brands, believes it can target nearly 90% of these weddings. And they are not restricting themselves as a “wedding brand”. They sell ethnic Indian wear for all occasions.
The exciting opportunity unmistakably resides within the women's segment, making Mohey particularly intriguing.
The Franchise Model
Ravi Modi perceives multi-brand outlets as impediments rather than facilitators. He noted their reluctance to adopt data-driven approaches and their resistance to understanding key concepts as a significant weakness. The focus of fashion apparel businesses like Manyavar is in exclusive brand outlets.
VFL's store network is diverse, with an average store size of 2,200 square feet. However, their flagship stores are notably more extensive, spanning over 3,000 square feet. They employ two primary franchisee models:
FOFO Model (Franchisee-Owned and Franchisee-Operated): In the FOFO model, franchisees own and operate the stores. They receive a commission of 29.5%.
COFO Model (Company-Owned and Franchisee-Operated): In the COFO model, the franchisee receives a commission of 18.5%. The key distinction is that the lease cost is borne by the company.
In both cases though, franchisees are not tasked with inventory selection. VFL takes full ownership of the entire process. This includes designing, inventory selection, and visual merchandising, leaving franchisees with responsibilities primarily centred around store upkeep and customer management.
How are the clothes made?
From sourcing raw materials to the actual manufacturing process, VFL heavily depends on third-party suppliers. While they design the products according to their specifications, the manufacturing is predominantly entrusted to external partners. Occasionally, certain completed products are directly acquired from third-party manufacturers.
In the highly fragmented manufacturing market, they has streamlined operations with a vendor portal, engaging with over 400 vendors and numerous artisans/job workers. They maintains a steady monthly inventory procurement from these vendors, regardless of low - or high-demand periods. This approach ensures a consistent flow of business for vendors/jobbers too.
Additionally, they conduct thorough inspections of their facilities and job worker operations. This emphasis on quality control is particularly significant, as they rely on external manufacturing partners rather than producing items in-house.
The author, Hamilton Helmer touches on six powers that a business may utilize to gain a competitive advantage. (More on that here) The six being, scale, network effect, counter-positioning, branding, cornered resources and process Power.
In the case of Manyavar, I want to emphasize two key powers: Brand and Process Power.
Brand : Ask an Indian whether he wants to buy a Sherwani or a Kurta, and chances are Manyavar’s name will come up. Tt has established itself as a well-known brand by intertwining itself with two things that Indians truly care about: cricket and films.
The brand has been a franchise partner for multiple IPL teams, ensuring visibility during these high-profile events. Manyavar advertisements are a common sight on television, often featuring popular Bollywood celebrities like Ranveer Singh, Alia Bhatt, Kiara Advani, etc.
Even their social media presence is robust. It's easy to see why they are so recognized. I've been researching about them for this article, and, of course, now my Instagram feed is full of them. Brand awareness is crucial, and they have worked on it for several years, and it shows.
Process Power: VFL frequently emphasizes the use of technology to improve their operations. While many companies across various sectors make similar claims, the significance becomes evident when you consider their impressive 30% net margins, nearly 30% return on capital employed (ROCE), and minimal deadstock. All this makes you take a closer look at the tech.
Their Enterprise Resource Planning (ERP-Ginesys) system, is installed since inception. Their Retail ERP module, incorporated since 2008, enables end-to-end supply chain management through robust forecasting and planning. To further streamline operations, VFL utilizes business analytical tools and modules for communication between stores. These include the in-house POS order management 'Sansar' module and the 'Wooqer' application, optimizing inventory management. As mentioned earlier, they have developed a digital order system and an independent vendor portal, which assists in purchase and sales operations. I could go on but consider this snippet from their DRHP -
If you go to a wedding do you want to be seen wearing the same Sherwani, lehenga as someone else? I personally think its great but don’t think everyone shares my view here. A risk that remains, especially for a brand like Mohey.
While it may not be a concern but I do believe that with scale, production will not get easier. Basically if production is to double or triple, will they be able to find similar high quality vendors as they do right now? (A happy problem though, as that means you are growing)
So what should such a business trade at?
Okay, this is hard. A very well run, asset light somewhat seasonal business with a long runaway for growth, which as of now is very reliant on one brand. With a PAT estimate somewhere around 582Cr for FY25, it is trading close to 55x forward Earnings. (As of November 2023)
Is that fair?
I believe that the company's dividend pay-out may exceed 50% going forward, as they do not need a lot of capital reinvestment. Nevertheless I have run a quick reverse DCF with the 50% pay-out assumption to see what growth is needed to justify 55x.
So 15% PAT growth for 15 years after FY25 will get us to a 55x earnings multiple. (Yes assuming a low cost of equity with 6.5% terminal growth)
Let’s assume Mohey does not work out. Then we are relying on Manyavar and the other men oriented brands to justify that valuation.
As the table shows for the company to trade at 55x without getting any help from Mohey, VFL will need to have 22% Market share in the Men’s ethnic wear market. That will be up from the current 7% that they have. All in the next 15-17 years. Doable? I guess. Difficult? Of course.
If Mohey does well, naturally, the onus on the men’s wear would not be this high. By 2040 if Mohey is able to capture 1.5% of the Indian Women ethnic wear market and if the Men brands are able to capture 15%, then the current valuation may be justified. (Yes this includes a bunch of DCF assumptions).
My 2 cents?
It seems like a wonderful business in an industry which is bound to grow. However, gaining valuation comfort on anything that is over 50 forward PE will always be a challenge. (for me at least)
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Disclaimer: As mentioned earlier, this post is intended for educational purposes only and should not be considered as investment advice.