While SMEs might not be my usual focus, my time in Investment Banking from 2012 to 2016 exposed me to some remarkable stories. During those years, I witnessed the Indian consumer-branded space go through quite a transformation. Some SMEs managed to scale to great heights, while others faced setbacks.
Brands like Wildcraft, Go Fashion, etc. both got funded by Sequoia, which were relatively small players during that time and eventually attracted significant investments from various private equity funds. These funds seemed to savor the lion’s share of the valuation, leaving me intrigued.
What caught my attention in Dermawear, you ask? Well, it all comes down to something we can all relate to - the pressing issue of obesity in our country. In a world where we all strive to look and feel our best, Dermawear can seize the opportunity. Have a look at the TAM below. I have taken the male and female population in the age group of 15-49 and assumed INR 390 as the average selling price.
Let’s dive into what Dermawear is all about. This company specializes in crafting shapewear designed to make both men and women feel more confident. They make products like V-Shaper, Saree Shapewear, Active Pants, and ShapeX Denim. Dermawear chooses a special blend of cotton, polyester, and spandex for their compression garments. These materials are not only friendly to skin but also built to last. Moreover, they strategically layer these garments to create a gentle compression effect in key areas like the abdomen, hips, and thighs.
Here’s the kicker - most of the market, over 90% of it, is dominated by women, and the product they offer is the kind that never really goes out of style (one of the biggest challenges for women’s apparel brands).
So, why am I writing this article? It’s not just to explain why I’m bullish into this, but also to hear what you think. Whenever am in doubt I try to crowdsource and try to find anti-thesis. I did the same thing in 2016 with HLE Glascoat (HLE Glascoat - (Valuation gap with GMM Pfaudler)?). Can you come up with a good reason why I shouldn’t? Because if things go as I hope, this company could easily be worth much more than the current MCap of INR ~ 100 cr in the next few years.
Remember what Mr. Monish Pabrai says, “Heads I win, tails I don’t lose much.” With that in mind, I’m thinking there’s not a whole lot to lose at the current market cap.
Now, here’s why I’m excited about this opportunity. First and foremost, India has an inherent talent for crafting textile products. It’s in our DNA, you could say. Moreover, our textile industry remains largely decentralized, relying on the hard work of countless skilled individuals. As I delve into this company, I find that it has already achieved a commendable turnover of INR 37 crore, a strong indicator of the promoter’s ability to scale.
But there’s more to this story. I’ve got this sort of ‘sniff test’ checklist, and Dermawear ticks all the right boxes. Clues from places like EPFO, Satellite Data, LinkedIn, Google Trends, and Glassdoor/AmbitionBox all checked out.
Now, you might be thinking, “Wait a minute, aren’t there already some big shots in the game?” Well, you’re absolutely right. Giants like Victoria’s Secret, Zivame, Triumph International, SKIMS (Kardashian), Spanx, Hanesbrands, Jockey International, and Miracle Suit have a piece of the pie, no doubt about it. But here’s the twist - shapewear isn’t their main course; it’s more like a side dish.
See, these big players have their fingers in many pies. Shapewear might be on their menu, but it’s not the star attraction. And that’s where Dermawear has its chance to shine.
They rely on a range of raw materials, including fabric, elastic, zips, elastic adjusters, buckles, hooks, sliders, heat transfer labels, and more. What’s interesting is that most of these materials are sourced locally, primarily from India and China, as indicated in the RHP (Red Herring Prospectus).
However, when we consider any business venture, especially one as dynamic as the textile industry, we can’t ignore the potential risks associated with raw material procurement. It’s where I’d love to hear from experts and industry insiders. If you’re part of this industry or have insights to share, please feel free to drop your comments below.
Negatives, still in the process of finding out (This is WIP)
- Board Strength: One area of concern is the strength of the company’s board. A strong and diverse board can provide valuable guidance and expertise. It’s worth considering whether the current board composition aligns with the company’s growth goals.
- Royalty Payments: The royalty payments for brands after reaching a turnover of INR 50 cr could potentially be a hindrance. It’s essential to assess whether these payments are justified and if they might affect the company’s profitability.
- Legal Matters: While the IT cases mentioned might have a relatively small financial impact, they can still be a source of distraction and cost. It’s crucial to keep an eye on these cases and address them efficiently.
- Debt Reduction: Taking equity to reduce debt is a major turn-off for me
- Low CFO/EBITDA , am assuming this will improve
Lots of Unknowns
- Have surveyed limited Retailer and Dealer (only 5)
- Promoter is unknown to me (Anyone who has ever dealt with him can post their views)
- And many more that I don’t know as of today (i.e. Risk)
For some reason not able to upload the images and financials here, those who are interested can go to my blog CPS Shapers - SME IPO (Dermawear) - Himadri’s Newsletter