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Equity Research: Electronics Mart India Ltd.
EMIL looks strong with large number of store expansion and increasing profit and stable margin.
EMIL is the fourth largest and one of the fastest growing consumer durable retailers in India. In terms of revenue, EMIL is the largest retailer in South India with dominance in Telangana and AP (as per industry data ~60-70% market share). The company sells over 6,000 SKUs of more than 70 consumer durable brands in India. EMIL has offline presence in Telangana, AP, and Delhi-NCR, and an online presence in Maharashtra, Delhi-NCR, and Karnataka. As of Mar,’23, EMIL has 127 stores across 41 cities, with majority of stores in Telangana and AP. During FY23, post exit of some of the regional players, EMIL has entered Delhi-NCR market and has 14 stores across the market. EMIL has one store in Kerala as well (not yet launched officially). EMIL follows cluster-based expansion, wherein it expands the store network in a particular market until substantial depth is attained; also, it keeps warehouses near stores. Such expansion allows effective supply chain management, effective penetration and concentrated branding and advertising in a particular region. Generally, EMIL opens stores in key cities/regions of a state. While opening a store, EMIL gives emphasis on identifying growth pockets considering various factors like population density, proximity & performance of competitors, customer and vehicular traffic, customer accessibility, potential growth of local population and economy, area development potential, future development trends, estimated spending power of population/local economy and payback period, estimated on expected sales potential, strategic benefits, and store site characteristics. As of now, the company plans to cement its position further in AP and Telangana by entering untapped areas, mainly in tier 1/2 cities along with increasing presence in Delhi-NCR. Over the period, EMIL may explore to enter untapped geos of India as well. Of total 127 stores, 12 are owned by EMIL, 106 are on lease and the rest are partially owned and leased. Of total stores, 114 MBOs and 13 are EBOs. Other than stores, the company has 10 warehouses on lease.
As of Mar,’23, EMIL had 127 stores across 41 cities (114 MBOs, 13 EBOs). It operates 92 MBOs under the name ‘Bajaj Electronics’, 13 under ‘Electronics Mart’, 5 under ‘Kitchen Stories’, 3 under ‘Easy Kitchens’ and one under ‘Audio & beyond’. The company will be operating under Bajaj Electronics in AP & Telangana and Electronics Mart in Delhi-NCR. For Kitchen Stories, EMIL creates experience zones and has tied up with German kitchen brand, Hacker, as a kitchen developer and leading global appliances brands offers kitchen appliances products. Kitchen Stories mainly cater to niche consumer segment (higher margin business). Easy Kitchens offer products for the mass segment. For Easy Kitchen, the company builds kitchens itself and offers kitchen appliances of different brands. Audio & Beyond mainly caters to audio and home automation requirements and has tie-ups with 18 leading brands offering home automation and audio solutions. EMIL also caters to complete audio solution requirements along with infrastructure.
EMIL is engaged in the wholesale business of consumer durables where it supplies products to single shop retailers in AP and Telangana. In FY17, EMIL ventured into the e-commerce business through its own website. In FY19, the company tied up with the largest domestic and international player, enabling it to expand reach from B&M retail stores to e-commerce platforms. The company has an online presence in Maharashtra, Delhi-NCR, and Karnataka.
Shareholding:
Industry Research:
Indian retail industry is one of the fastest growing in the world. India ranked 63 in the World Bank’s Doing Business 2020 publication and ranked 73 in the United Nations Conference on Trade and Development's Business-to-Consumer (B2C) E-commerce Index 2019. India’s direct selling industry is expected be valued at US$ 2314 billion by the end of 2023.
India is the fifth-largest and preferred retail destination globally. The country is among the highest in the world in terms of per capita retail store availability. India’s retail sector is experiencing exponential growth with retail development taking place not just in major cities and metros, but also in tier II and III cities. Online penetration of retail is expected to reach 10.7% by 2024 versus 4.7% in 2019. According to India Ratings and Research (Ind-Ra), domestic organised food and grocery retailers are expected to increase by 12% YoY in FY23. By 2024, India's e-commerce industry is expected to increase by 84% to US$ 122 billion, driven by mobile shopping, which is projected to grow at 21% annually over the next four years. India’s retail trading sector attracted US$ 6.21 billion FDIs between April 2000- Mar 2023.
According to data released by the Ministry of Statistics & Programme Implementation (MoSPI), India’s Consumer Price Index (CPI) based retail inflation stood at 6.77% YoY in Febå 2023 E-commerce is expanding steadily in the country. Customers have the ever-increasing choice of products at the lowest rates. Online retail market in India is projected to reach US$ 350 billion by 2030 from an estimated US$ 55 billion in 2021, due to rising online shoppers in the country. India is expected to become the world's third-largest consumer economy, reaching Rs. 27.95 lakh crore (US$ 400 billion) in consumption by 2025. Healthy economic growth, changing demographic profile, increasing disposable income, urbanisation, changing consumer tastes and preferences are some of the factors driving growth in the organised retail market in India.
Key Strength:
EMIL sells over 6,000 SKUs of 70 reputed consumer durable brands. Strong brand connects, vast product offerings, and solid store and service support makes EMIL a preferred and one-stop solution for consumer durables needs in the southern market. Additionally, promoters are directly involved in negotiations with Brand, leading to strong brand relations.EMIL also tries to avoid any possible brand conflicts and enters long-term contracts with brands, thus ensuring trust between both parties. This apart, EMIL as a retailer gives both the option of setting up MBOs or EBOs and considers brand requests as well.
EMIL is largely present in three product categories: large appliances, small appliances & others, and mobiles. Across product categories, margins for IT products are the lowest (~6% for laptops, ~9-10% for mobiles, ~8% for accessories) and for large appliances the highest (TV, WM, air coolers and refs ~17-18%).
Bajaj Electronics / EMIL:
Bajaj Electronics is South India’s most trusted multi-brand electronics retailer, known for its breadth of exclusive multi-brand consumer products and unique retail experience. However, the company will be operating under brand “Electronics Mart” in markets other than AP & Telangana.
Product offerings: Mobiles, Laptops, TV, Home theatre, AC, Refrigerator, WM, Geysers, Iron, Microwave Oven, OTG, Mixer Grinder, Gas Stoves, Hobs, Water Purifiers, Toasters, Shaver, Trimmer, Dryer, Straightener.
Kitchen Stories:
Kitchen Stories is the first-ever experiential showroom in South India which presents 100+ luxury built- in kitchen appliances. Stores exhibit 10 global brands that are leaders in the segment. Kitchen stories is a one stop solution for luxury kitchen appliances needs. For Kitchen Stories, EMIL has tied up with Hacker, which develops kitchens. Generally, the Kitchen Stories business offers higher margins (~35% margins for Hacker Products).
Additionally, EMIL deploys designers on the store, who offer kitchen designing services as per customer needs. Kitchen Stories store on Jubilee hills (Hyderabad) is doing an avg. revenue of Rs 350mn.
Easy Kitchens:
Easy Kitchens provide the finest range of affordable modular kitchens and built-in-kitchen appliances that give high-end functionality as well as contemporary designs. Easy Kitchens’ three showrooms in Hyderabad offer a wide spectrum of modular kitchen designs with an array of high-quality materials, finishes, and built-in appliances for a better understanding of a completed kitchen space.
For Easy Kitchens, the company develops kitchens on their own and the company also deploys a designer on the store, who offers kitchen designing services as per customer needs.
Audio & Beyond:
Audio & Beyond offers home automation solutions and top-of-the-line products for audio, video, automation, and security solutions. It has tie-ups with 18 leading brands who offer home automation and audio solutions. In Audio & Beyond, the company also develops complete audio solutions along with infrastructure.
1. )Strong store network:
EMIL has 127 stores across 41 cities in India (as of Mar’23), with majority of stores and revenue coming from AP and Telangana. Other than that, the company has an online presence in Maharashtra, Delhi- NCR, and Karnataka. During FY23, it entered the NCR market and opened 14 stores. EMIL also has one store in Kerala market (not launched officially). It has an overall retail business area of 1.23mn sq. ft as against 0.76mn sq. ft in FY20.EMIL generally follows cluster-based store expansion, wherein it expands the store network in a particular market until it reaches substantial depth & cycle; it also keeps the warehouse near to stores.
While opening a store in any market, EMIL gives emphasis on identifying growth pockets taking into account various factors – population density, proximity and performance of competitors, customer and vehicular traffic, customer accessibility, potential growth of the local population and economy, area development potential, future development trends, estimated spending power of the population and local economy and payback period, estimated on the basis of expected sales potential, strategic benefits, and store site characteristics.
2.) Aggressive store expansion on cards:
As of now, EMIL will focus on strengthening position in AP and Telangana by opening stores in untapped tier 1 & 2 cities. Along with this, they will open more stores in Delhi-NCR, mainly in Faridabad, Ghaziabad, and Gurgaon. However, in future, EMIL may explore new geos as well.
3.) Strong Consumer Servicing:
EMIL believes if customers do not have a good shopping experience at the right price along with aftersales support, they may turn to other competitors. With the entry of large players like Reliance and TATA and with the growth of e-commerce players like Amazon and Flipkart, consumer satisfaction remains the key focus area. EMIL’s widespread supplier network and robust tracking systems ensure timely delivery of products.
In terms of aftersales services, EMIL does not offer servicing and installation and only acts as an intermediary – all aftersales services are offered by respective brands. Considering most servicing divisions of consumer durable retailers are loss making, EMIL has clearly indicated its stance of not entering the servicing business and focusing on the core business.
4.) Stable Margin:
Lower sourcing cost and lower employee cost compared to peers offers EMIL a competitive edge in terms of margin profile. Additionally, in some cases brands also do support in terms of advertising and rental sharing.Over FY19-FY22, EMIL’s margins have been largely stable at 6.5-7.5%. However, since the last few quarters, margins have been under pressure as the company entered the highly competitive Delhi-NCR market where they offered higher discounts and advertising-promotional spends were also higher.
5.) Strong Supply Chain Management:
EMIL’s business model requires to maintain high inventory levels on a regular basis considering intense competition in the space and fulfilling regular delivery commitments. However, carrying excessive inventory may lead to pressure on balance sheet while affecting cash flow health. Hence, effective inventory and supply chain management is crucial for the business.
EMIL has a total of 10 warehouses of which six are in Hyderabad, one central warehouse in Vijayawada (to cater to AP demand) and three in NCR. EMIL uses a computerised inventory management system which facilitates centralized inventory tracking across SKUs and making procurement decisions at an individual store level. Store-wise SKU movement can also be monitored, which helps in identifying and liquidating non-moving inventories. The company deploys a wide range of data management tools to support procurement, sales, and inventory across all stores daily. It uses tracking systems for customers with real-time updates on status of their orders. There is use of data to identify and respond to changing consumer preferences and align inventories according to such preferences. The company has installed computerised billing points along with convenient payment options, including credit & debit cards and UPI.
6.) Consumer Financing:
EMIL started offering products with a consumer financing option way back in FY09. Higher availability of financing options leads to lower price sensitivity among consumers, acquisition of new customers, and higher average realizations. Understanding the importance of consumer financing, the company strives to make its products accessible to a large customer base with better working capital cycle.
EMIL offers consumer financing options via credit cards, debit cards, EMIs and with few fintech companies. The company generates 55-60% of revenues through the financing option – higher compared to peers – of which ~75% of sales are done through a tie-up with Bajaj FinServ. For this, EMIL generally pays ~25% of financing cost (subvention cost).EMIL also continues to invest in technological integrations with financing companies to achieve process integrations, thus reducing the realization time of payments.
Key Competitors:
Reliance Digital:
Reliance Retail operates a chain of convenience stores, supermarkets, and specialty and online stores and has a network of over 8,700+ Reliance Digital and Jio stores across India. Reliance digital which is a consumer durable brand has store network at the end of FY22 stood at 500+. Reliance digital has presence across more than 2,000 towns. Reliance digital has more than 400 national and international brands.
Reliance digital’s consumer durable revenue is ~100bn. Key Strength:
Order fulfilment within 24 hours of purchase.
Ensure consumer comfort through resQ solutions that cover entire product life cycle.
Preferred partner for all leading electronics brands - product launches, exclusive promotions.
Vijay Sales:
Vijay Sales is India’s one of the biggest retail chains. Vijay Sales has 126 aesthetically designed and conveniently located showrooms in cities like Mumbai, New Mumbai, Thane, Pune, Ahmedabad, Baroda, Delhi, Gurgaon, Faridabad, Indirapuram, Noida, Hyderabad, Vijayawada, Warangal, Vishakhapatnam, Tirupati, Kakinada and Rajahmundry. Vijay Sales offers more than 3,500+ products. Vijay Sales has strong relationships with more than 100 suppliers of well-known and established brands.
Croma:
Croma was the first one-of-its kind large format specialist retail store that catered to all multi-brand digital gadgets and home electronic needs in India. Croma was launched in 2006. Croma has store network of more than 360 stores across 122 major cities in India. Croma offers more than 12,000 products across 200 reputed brands. Croma has also launched private label product in 2008.
Aditya Vision:
Aditya Vision, one of the largest retailers of consumer durables and electronics in India and the dominant retailer in Bihar and Jharkhand. Aditya vision opened first store in 1999 in Patna and as of now they are present in all districts of Patna and all major cities of Jharkhand. Aditya vision is aiming to expand network to all district’s headquarters of Jharkhand. As of now, Aditya Vision has 105 outlets. Aditya Vision aims to increase store count to 150 by FY25. Aditya Vision has 50% market share in the Bihar region. Aditya Vision is present only in the retail biz. Generally, average store size for Aditya Vision is 4000+ sq. ft. and average capex per store is Rs 5mn. Total retail footprint of Aditya Vision in FY23 was 4.3 Lacs sq. ft. Average ticket price for Aditya Vision is Rs 21,156+. SSSG during FY22 / FY23 stood at 14.5% / 38%.
Management Profile:
Financials:
Balance Sheet:
Profit & Loss:
Cash Flow:
Valuations:
The Indian consumer durable market stood at Rs 2.1tn in FY17 and is expected to touch Rs 3tn-3.4tn by FY23E-end and Rs 4.8tn-5.3tn by FY27-end. We believe the market offers massive growth potential due to rising income levels, younger demographics, increasing urbanization, lower penetration compared to developed markets, and rising penetration in tier 1 & 2 markets.
Over FY19-23, EMIL’s store / revenue / EBITDA / PAT grew at a CAGR of 24% / 19% /14% / 16%. EBITDAM declined from 8.6% in FY19 to 6.4% in FY23, which was largely led by covid 19 disruption earlier and then entry into Delhi – NCR market. ROEs declined from 26.1% in FY19 to 14.8% in FY23 mainly due to margin pressures and capital infusion from IPO. Over FY23-24E, expected store revenue / EBITDA / PAT to grow at a CAGR of 15% / 17% / 14% / 19%. It is expected that margins will remain at current levels for short-term considering higher opex for Delhi – NCR stores coupled with lower throughputs. However, we believe margins from South will continue to remain healthy and in mid-to-long term, with Delhi – NCR getting matured, margins are expected to improve.
Key Risks:
Possible store cannibalization:
EMIL has decided to increase its store network aggressively, that too in the markets of AP, Telangana, and NCR. We believe stiff competition from national, global, and regional players may pose some threats. Also, an increased store network within the existing market may lead to store cannibalization.
Failure in Delhi-NCR market:
Post dominating the South market, EMIL has entered a much more competitive and price sensitive Delhi-NCR market. We believe success over here will be very gradual and come with margin pressures.
Competition from e-commerce players:
E-commerce players are offering vast products at lower prices mainly on the back of effective inventory management and strategic tie-ups. We believe competition from e-commerce players may lead to a reduction in footfalls at stores. E-commerce players have done well in the mobiles market mainly due to exclusive brand tie-ups, higher discounting, and ease of logistics due to smaller size.
However, we believe e-commerce players will not be able to replicate the success in high-priced, large appliances considering consumers in this space need physical touch and feel of the product.
I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.
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