Mandhana Retail - A strong, asset-light brand story

We cannot average out the domestic offline sales between EBOs and Shop-in-Shops because EBOs require larger inventory, more staffing and typically take up more real estate. As already pointed out by Varadha, franchise stores (and Company owned EBOs) do on an average 15-25 lacs per month.

Good to see so many questions. will try and answer what I can

@rks00 - your calculation misses out on the 35 % margind ifference between MRP/price of sale to customer and price at which company sells to franchisee/distributior.

Also, their EBO’s are only about 62-63 (50:50 owned by company/franchisee) and these do about Rs. 10-12 lakhs in first year and then move to Rs. 15-25 lakhs in about 2-2.5 years’ time. Given that much of this distribution got added in the last 2- years, it would be not be mature. We do not know the split between EBO’s, MBO’s, SIS. However, a good guess may be 60 stores * 12 * Rs. 10 lakhs * 0.65 (for the retailer discount) from a company’s sales standpoint which is about Rs. 47 Cr.

SIS’s typically do only about Rs. 2-3 lakhs per outlet with about 250 SIS’s it should be about 2.5 * 0.65 *12 * 250 about Rs. 48 Cr.

I have spoken to ppl in jabong, amazon and in arvind and all fo them say that the target segment is not the urban, english speaking youth but the bollywood obsessed, comfortable with hindi youth esp from the up, bihar, mp belt which has a 250 mn + population under the age of 30, as shown in this link below

as for the terms of the agreement, its a risk if they do not renew - however, one has to remember that being human is a charity foundation and if they decide not to renew, they would have to start all over again and forego about Rs. 10-12 Cr. of royalty income. Also, creating the distirbution from scratch is not easy - the same question used to get raised about jockey and page. Such a relationship also becomes symbiotic. The mgmt has they will renew it in teh next six months.

promoter’s perspective

  • the promoter has already lost his pant and shirt (forgive the pun) in mandhana industries. this is about the only worthwhile busines he has.

  • he has pledged stake in this and sold stake to RJ to get out the mess that MIL got into and given it is SDR at MIL, promoters will lose control of the entity

i try and look for signs of improving governance and assess the risk vs the price

  • big 4 getting appointed as statutory auditor
  • big investors like rj/rd/ns gettting in and holding chunky stakes
  • promoters not controlling the board
  • de pledging of shares slowly
  • improving sales/ebitda and pat

if the promoter screws this up from hereon, he will pretty much have nothing to create value out of.
at about 10 ttm eps, this bakes in a lot of the concerns here as brands like these trade at 25-35 pe given teh roce, margin and growth profile.

I do not see a big downside and things are improving fundamentally. Of course, one big risk is the agreement renewal - but given the delicately balanced situation, i expect renewal to happen albeit on changed royalty terms.

all counter points welcome - makes the discussion richer and healthier.

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IMHO, this is a mis-priced stock in the lower side. Currently, very few analysts are aware of the positives in the company. I expect the demand for this stock to suddenly go up in the next 6 months when they see the benefits of the asset light business model leading to strong cash flows…

Disc: Invested 3 -4 % of my portfolio

There are court cases still on against Salman Khan. Any negative outcome from any of them will put a dent on brand. Elite class anyways don’t patronize him and since the brand clothes are priced on the higher side comparable to Indian Terrain etc I think design and quality will have to play a decisive way. Many brands in past have started with a bang and have wandered away. Initially sales pick up in first few years of almost all new brands but then longevity and maintaining the brand with designs/current trends is not an easy job and that is why we see brands falling apart.

There is substantial risk here. At best a wild card

2 Likes

Agreed varun jain

IMHO, there is no safe stock except for blue chip cos which can generate
12-15% return… If we look for 20%+ returns, every stock is risky…One
needs to look at risk adjusted expected returns…

@varadharajanr Can you throw some light on the Strategic Debt Restructuring (SDR) going to happen in Mandhana Industries? Will it impact the MRVL in any case?

I have been tracking Mandhana industries since the past few months but never got tempted enough to invest in it simply because of its business model. I love shopping but have never been tempted enough by the Being Human products mainly because of the below reason -

  1. I don’t like wearing clothes where half the tshirt is covered with only the brand name. I believe the preference is the same among majority.

  2. Most of their clothes are in the range of Rs.2000-4000, pricing wise it is very close to Tommy and other brands so there is no price advantage here which the promoters claim otherwise.

However I am tempted by the fact that Damani, Nimish and RJ have a stake in it. Big Auditor being appointed. Value comfort at 12-13 PE at the current price of Rs.187.

Disclosure - Do not have a stake, however I plan to invest 0.25% today and might invest another 0.25% if it corrects by 15-20%. Since I am not a great fan of its products, I do not plan to ever invest more than 1% of my portfolio in it.

Thanks for bringing multiple aspects to discussion.

Agree, if license doesnt renewed, BH Org has to start all over. However, if some another retailer approaches with offer of 7% royalty (against MR’s 5%)… dont you think it would be challenging situation.

Thanks.

Friends

My take. RJ has a 12% stake in co. And he would have asked this basic
question of what happens after 2020. When we cannot have access to
management, i presume we should be assured that India’s astute veteran
investor would have ensured the company’s existence is not under threat in
just 3 yrs…I am sure there must be a first right of refusal clause with
TMRVL after 2020…

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You know right… too much optimism is heading towards more Risk…

RJ’s investment in similar biz Provogue doomed… you know right?

Even savvy investor/trader could do mistakes… The real question is are we ready to cope up with it… if turned otherwise…
PS: RJ got stake at discounted price…

"Food for Thoughts"
Thanks.

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We are presuming that the business will be dead in 3 years without any
proof. This is a company which is just born in the markets. They have not
even had their first concall with investors. There was no opportunity for
the management to explain this situation and there was no opportunity for
investors to ask this question to them. The only person who could have
asked is RJ. Why are we assuming this pessimism under this situation…Let
us wait for the first concall…

Mandhana Industries trading is suspended, Not Mandhana retail still felt that the news is worth sharing.

Disc: Not invested.

good question - do the math if you are a charity, will you risk foregoing a Rs. 10-15 Cr. straight to bottomline @ 5 % for a 2 % increase. Do the IRR math - a new guy has to need 4-5 years to climb to 200-300 cr.

The same question was asked about page/jockey - I think eventually these get stalemate at a win-win for both - of course,there is a risk to that not happening that way .

this will hopefully get cleared if and when they announce the renewal which they said will be done by end fo CY 17.

Distribution is necessary but then it doesn’t mean that everything is dependent on that.

Hero - Honda has parternership for so many years, still they decided to break away.

Here, HONDA being a foreign company, they still able to get the distribution.

I understand with charity, the risk is more.

But from my experience in apparel business, I can tell you that it’s not that difficult to get distribution as every state has many distributors in place.

What’s difficult is to maintain brand positioning in mind of customers.

Brand totally dependent on Salman khan.
Salman is more that 50 years old and he’s is not tuned with the teenager (age group 12 - 20)

What if salman comes in same position where SRK stands now after couple years? Or even worse (his few movies becomes flop)

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Mandhana Industries will be banned from trading unless it complies with the disclosure norms by March 21st . But the bigger worry here is that they have failed to make disclosures for the past 2 quarters . Some Concerns

  1. Is the management same for Both Mandhana Industries and Retail .
  2. I had read a news article , dated approx - July 2016 , that the company had a rift with Salman Khan on the percentage issue . Is this going to be a threat?
  3. I had pointed out in my last mail that the pledge of the promoters as per the interview of the MD should have come down , However it is still showing on the higher side in the BSE dislosure… Why this Mismatch ?

Discl: No Holding .

  1. Kindly check on the management and BOD of TMRVL. Only 2 family members are on the Board. Further, Manish Mandhana the Managing Director is not part of the Board of TMRVL.

  2. Could be a threat, but we should also be careful of the authenticity of random news reports.Overall, at 180, it seems to be priced in. The company has a contract at 5% till 2020, so no worries over that. The concern is the renewal beyond 2020.

  3. It will be disclosed in the next quarterly results hopefully.

Hi Varadharajan,

Just read the entire thread. Basic queries from my side assuming you might have this info handy with you.
Reason for the query being trying to ascertain if board is really independent.

  1. Do we know if board members are related to promoters in any way?
  2. What is the compensation and other interests of the board members (be in terms of holding stock or anything else)?

Do we have enough pointers towards board being independent?

Cheers.

Salman plans to sell smartphones

  1. .Sales (last 4 quarters) = Rs.238 cr
    Avg price (per piece)= Rs. 2500
    Number of pieces sold = 952000
    means out of 125 crores of population only 9.52 lac people approx. are customers.
    as per warren buffet company is having long runway.
  2. It requires 2 months to set up a EBO. means in a very short time this can increase its store in india/outside india.
  3. my question is what is the manufacturing capacity of MRVL.
  4. does it outsource its production to other manufacturers?

my notes:
1.The company is working on an Asset-light model where the products are manufactured
by 3rd party manufacturers thus reducing input costs leading to margin expansion.
2.why this co is diff from others:-In today’s time advertising slots on print as well as electronic media is very expensive. However, since the company already has Salman Khan as the face of the brand, total
advertising expense is less than 5% of Sales and brisk sale.
3.Growing Distribution Network & Wider Penetration to be achieved:-TMRVL currently distributes Being Human clothing through 537 retail selling points. The
company’s distribution network comprises of 28 company owned exclusive brand outlets,
29 franchisee owned exclusive brand outlets including 4 overseas stores, 253 point of
sale in shop-in-shops forming part of the large format stores and multi-brand outlets,
12 distribution partners catering to 220 retailers and 7 online e-commerce selling
points. The company targets to achieve 1500 Point of sales by FY2020

the above notes are from this [link](file:///C:/Users/DELL/Downloads/MRVL%20(1).pdf)