Strong FDI inflows and sound industry dynamics should lend support to Aditya Vision Ltd

Strengthening of store level economics has been validated throughout several years and market cycles. This has enhanced confidence of investors to scale business profitably.
Strong financial foundation of the company is supported by its cash and carry model, effective inventory management and negligible long term-debt.

Overview:

Aditya Vision has been categorised as 1^st retailer of consumer electronics in India which was listed on Bombay Stock Exchange (BSE). The company focuses on ensuring customer delight with help of its dedicated sales and after- sales services. Since very inception of the company, it has served over 1 Crore happy customers. The company keeps true to its promise of retailing superior quality products having excellent customer service. Aditya Seva and Aditya Suraksha are 2 most trusted and reliable tools which the company uses for customer service. At Aditya Vision, training and development is not considered as one-time operation. It believes that it is an on-going process where the company helps its employees acquire required knowledge and skills to reach full potential.  

Business model of Aditya Vision Ltd

Aditya Vision Limited is a modern multi-brand consumer electronics retail chain which has its headquarters in Patna, Bihar. It is involved in selling more than 10,000 products spanning across digital gadgets such as mobile phones, laptops, tablets to entertainment solutions including TVs, sound bars, home theatres, cameras, accessories, etc. The company sells home appliances including ACs, refrigerators, washing machines and small appliances/cooking and kitchen appliances such as chimneys, air fryers, soup makers, cooktops, dishwashers throughout national & international brands.

With support of its strong and growing network of over 100+ outlets which are spread throughout Bihar, Jharkhand, and UP (Purvanchal), the company targets to offer best in class shopping experience and after sales service. Journey of the company kicked off with just 1 retail store in Patna in 1999. Right now, the company is experiencing its 3^rd decade as it has grown from strength to strength.

Track record of management

Mr. Yashovardhan Sinha: He is a Promoter, Chairman and Managing Director of Aditya Vision Limited. He has strong experience in trading and retail. Earlier, he was Senior Manager with PNB where he served for more than 20 years. He is an associate member at Indian Institute of Banking & Finance. His success in consumer electronic sphere stems from his vision to make consumer electronics affordable and available in remotest corners of country’s Hindi Heartland of India. Mr. Sinha is oversees overall growth and advancement of the company by playing a pivotal role in taking all critical decisions.

Mr. Nishant Prabhakar: He is a Promoter and Whole time Director of the company. Having over 17 years of experience in management and marketing, his expertise lies in offering knowledge to supervise facilities and expanding product base of consumer electronics. Vision and strategic management supported in expansion of business from 1 store in Bihar to multi-store experience in Bihar and several other Hindi-speaking states.

Mrs. Yosham Vardhan: She is a Director (Strategy & Corporate Planning) at Aditya Vision Limited. She is responsible for developing and executing business strategy of the company such as creating and implementing plans to address certain goals and objectives.

Financial performance of Aditya Vision Limited

Aditya Vision Limited released its results for quarter ended June 30, 2023 (1Q24). During 1Q24, the company’s operational Revenue went up by 46.23% year-over-year to INR641.23 crores in comparison to INR438.51 crores in 1Q23. PAT of the company grew by 41.26% to INR37.42 crores in comparison to INR26.49 crores in 1Q23. Strong growth in revenues and profits is a testament to unwavering support from the company’s suppliers and loyalty of its valued customers. Growth was supported because of aggressive expansion in UP since it is culturally, economically, and seasonally similar to Bihar.

Despite unseasonal rains, which impacted peak summer season, the company saw remarkable growth. As a result of weak summer, footfalls of the company were impacted in April and May. With weather being supportive, business of the company saw strong recovery in June 2023.

During 1Q23, the company continued its momentum of store expansion as it opened 12 new showrooms of which 5 were in Bihar, two in Jharkhand and five in UP. Total store count came at 117 stores. The company is at a stage of hyper scaling, where it opened 24 showrooms over previous 6 months. In March 2023, the company expanded operations in UP and saw overwhelmingly positive response from its customers.

During FY23, the Company scaled its business profitably, which helped in validating its resilience. It saw 47% revenue growth and 82% rise in PAT. During FY23, EBITDA margin strengthened after sustained focus on improving operating store dynamics and sound inventory assortment. EBITDA margin of the company increased 100 bps to 10%, exhibiting improved volumes, economies and working capital management.

Industry analysis

India’s consumer electronics market has been categorised as a fastest-growing market globally, ranking 5^th in terms of size. Consumer electronics industry of India should be able to expand significantly and its market size is expected to touch USD 34 billion by 2025. Growth of industry is expected to be supported by increased disposable income and technological advancements, resulting in increased demand for several consumer durable goods.

Because of this, cut-throat competition emerged among several consumer durable brands which continue to operate in India. Multinational organisations see India as a key market which should support future growth. Indian appliances and consumer electronics industry came in at USD9.84 billion in 2021, and this is anticipated to more than double to reach INR1.48 Lakh crore (USD 21.18 billion) by 2025. Such strong growth should stem from increase in volume of consumer electronics sold. Between April 2000-June 2022, electronic goods sae FDI inflows to tune of USD3.68 billion. Consumer electronics sector can see strong growth because of government’s decision to bring sector under production-linked incentive (PLI) scheme and reliable credit access.

Budget 2022-23 focused on laying foundation for future of Indian economy by increasing capital investment outlay by 33% to INR10 Lakh crore, translating to 3.3% of GDP and ~3x of 2019-20 outlay.

Aditya Vision Limited is in a strong position to capitalise on favourable industry dynamics given its focus on expansion, healthy store economics, sound management of margins, working capital intensity and capital efficiency

Future prospects of Aditya Vision Limited

The company targets to open 8-12 more new stores over upcoming 3 months before beginning of festive season, surpassing its initial target of 125 stores in FY24. Aditya Vision Limited is focused on establishing its presence in UP. The company believes that a significant opportunity lies in under-penetrated markets of Hindi Heartland for consumer electronics.

It plans to increase stores throughout sub-divisions of Bihar and almost all districts in Jharkhand and eastern UP. Focus is on opening small format stores in sub-divisions of Bihar, where it enjoys superior recall and familiarity. It will increase stores in Eastern UP in first phase where demographic profile appears to be familiar to that of Bihar. Through deepening of penetration, the company plans to reach consumers closer, which should help in strengthening offtake. It expects sustained increase in revenues and plans to protect profitability which can help in creating surplus for reinvestment.

Focus of the company is on investing in controlled growth and it plans to commission new store outlets in under-penetrated locations.

Risk factors

Protracted geopolitical tensions, tightening global financial conditions and slowdown in external demand are some of factors which can impact performance of Aditya Vision Limited. Higher raw material prices can result in increased prices which can impact demand of the company’s products and its margins. Apart from this, dependence on seasonal demand can limit potential of Aditya Vision Limited.

Higher competition among major players can impact market of the company which can have adverse impact on its financials. Deterioration in electricity condition and change in government policies can impact demand of products sold by the company. Finally, sudden spurt in commodity prices poses a great risk to the company’s outlook and growth plans.

Shareholding pattern of Aditya Vision Limited

Major portion of shareholding (~67.59%) is being held by promoters of Aditya Vision Limited by end of June 2023. Mr. Yashovardhan Sinha holds ~34.82% of the company’s stake by end of June 2023. FIIs and DIIs hold ~0.54% and 0.13%, respectively in the company.

Remaining ~31.73% is being held by general public. Promoter of the company are quite optimistic about growth prospects of Aditya Vision Limited since majority of portion is being held by them. It means that interests of promoters are in line with that of shareholders.

Valuation and investment rationale

Stock of Aditya Vision Limited trades at ~39.5x FY23 EPS, which is at a discount to sectoral average of ~48.43x. Therefore, investors can consider going long on this stock as stock price of the company holds significant upside potential.  

Growth in stock price is expected to be supported by established market position of Aditya Vision Limited, sound operating efficiency, strong financial management, unique business model, rapid urbanisation and higher FDI inflows. The company’s distribution networks are well developed in both rural and urban areas which can help in increased demand of its products. Apart from this, easy availability of finance and higher share of organised retail are expected to support increase in stock price of the company. There are significant opportunities which the company can capitalise on such as unexplored rural markets, rise in buying power, availability of electricity at remotest places and lower penetration of white goods in comparison to other developing countries.

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