Electronics Mart India, India's fourth largest consumer durable and electronics retailer in India, will launch its IPO on Tuesday. As part of the IPO, the company will issue fresh equity worth Rs 500 crore. The IPO will be open until Thursday, October 7, 2022.

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The company has highlighted multiple risk factors in its red herring prospectus. Here are some of them:

High Geographic Concentration

The company has 112 stores across 36 cities in India. However, 104 of those stores are only concentrated in two states of Andhra Pradesh and Telangana. The other eight stores are open in NCR. The company mentions in its red herring prospectus that it intends to expand further in the areas that are still to be explored.

"The risks involved in entering new geographies and expanding operations in those areas may be higher than expected," the company wrote in its red herring prospectus.

Among the additional risks that the company highlights after expanding into new geographies include compliance with a wide range of laws, the ability to understand consumer preferences and local trends, and identifying the right location to open the store.

Competition From Online & Offline Retailers

A CRISL report mentions the e-retail industry has grown over three times from 2017 to Rs 2l5 trillion currently. The report further states that it will likely account for 30-35 percent of the organised retail market in the next three years.

Electronics Mart mentions that it is witnessing an increase in competition from online retailers who are offering products at significant discounts and offers like cash back, festival sales, clearance sales etc.

The company warns that its inability to address competitive pressures will adversely affect its operations and cash flow. "There is no assurance that we would be able to effectively offset the advantages that our competitors in the online business may have and grow our business in a similar fashion," the company wrote.

In addition, within the offline brick-and-mortar space, the company faces competition from large conglomerates like Vijay Sales, Tata's and Reliance.

Depends Heavily On Leading Brands

More than 60 percent of the company's revenue comes from its top five brands, which it has not named in its RHP. Among the top five, nearly 40 percent of revenue comes only from the top two. It has not named its suppliers in the RHP as it did not receive consent from them to include their names.

The company warns that business and operations will be adversely affected in case it ends up losing any of the top five brands or ends up forming a relationship with a new one.

"We cannot assure you that we will be able to maintain historic levels of business from such significant brands or that we will be able to significantly reduce our dependence on such a limited number of brands in the future," the company wrote.

Legal Proceedings Against The Company

While there are no criminal proceedings against the company or its promoters, it is involved in certain consumer cases and other material litigation proceedings.

It received a show cause notice in July from the Directorate General of GST Intelligence for evading an amount of Rs 78.41 crore by suppressing facts relating to the receipt of credit notes from its suppliers. A similar notice was received in July for evasion of Rs 2.28 crore.

Additionally, Bajaj Electricals has also filed a commercial suit against the company, alleging the infringement of its trademark "Bajaj Electricals," and is seeking an injunction against the company for its usage. Electronics Mart operates 89 Multi Brand Outlets (MBO) under the name "Bajaj Electronics."

"There are certain proceedings involving our Company, which, if determined against us, may hurt our business, cash flows and results of operations," the company said.

Dependent On External Suppliers

Electronics Mart does not manufacture any of the products that it sells. It sources these products from a variety of suppliers.

For the three months ended June 2022, 76.84 percent of the total purchases made by the company came from its top 10 suppliers. That number in fiscal 2020 stood at 84.64 percent.

"Any delay or failure on the part of our suppliers to deliver products in a timely manner or any deterioration in the quality of products supplied by the suppliers, may materially and adversely affect our business, profitability and reputation," the company has warned in its red herring prospectus.

First Published:Oct 3, 2022 4:03 PM IST