Purple United NSE SME IPO review (May apply)

•    The company is in the marketing of premium fashion brands dedicated for children.
•    It marked setback in bottom lines for FY23, but thereafter it posted boosted performances.
•    Based on FY25 annualized super earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for medium to long term.

ABOUT COMPANY:
Purple United Sales Ltd. (PUSL) is a premium fashion brand dedicated to offering high-quality, versatile apparel, footwear, and accessories for children of all ages. Its ethos revolves around celebrating childhood with a strong emphasis on comfort, safety, and quality. PUSL's flagship brand, "Purple United Kids," supports the entire journey of children up to 14 years old, offering lab-tested products made from premium materials in vibrant colours and designs for every occasion. Its operations encompass designing, developing, sourcing, marketing, and selling apparel and footwear for infants (0 to 1 year), toddlers (2 to 6 years), and older kids (7 to 14 years). 

The company also offers a wide range of accessories and hard goods, such as strollers, etc. It is exclusively catering kids wear in India with focus on mindful product categorization for kids of all age and segment. It caters exclusively to the Indian market. Its extensive distribution network comprises 24 exclusive brand outlets (EBOs), multiple shop-in-shops, and a robust online presence through its website, mobile app, and major e-commerce platforms such as Myntra, Amazon, Flipkart, FirstCry, Nykaa, Hopscotch, AJJIO and more. This dynamic approach allows it to maintain high purchase frequency and cater to repeat customers while continually expanding reach. With an expected CAGR of 4.4% in the Indian kids' category, it is committed to growth and excellence. Its focus on innovation, quality, and the 3Fs—Fun, Fashion, and Functionality—ensures that it simplify parenthood and keep children safe, comfortable, and stylish.

The company operates in the retail category with high purchase frequency, in which the kids outgrow the clothing sizes frequently, hence through dynamic product offering with large variety, it seeks to focus on needs of customers while expanding portfolio. Its range of products include t-shirts, shirts, jackets, sweaters, clothing sets, dungarees, rompers, party wear, dresses, denim, lowers, trousers, jeggings, skirts, shoes, ballerinas, slides, moulds, flip-flops, sandals, caps, sling bags, socks, strollers among others.

Its products are available through a Pan India Omni-channel distribution network that it has built over the years comprising of exclusive brand outlets ("EBO") and shop-in-shop in multi-brand outlets ("Key Accounts"), including at Reliance Centro, V-Retail, Choupal Sagars (ITC group) and more, as well as online channels comprising of own website and other online marketplaces including Myntra, Amazon, Flipkart, FirstCry, Nykaa, Hopscotch, AJIO and more. In addition to the shop-in-shops, it also sells products to distributors who further sell products to local and regional retail stores.

As on November 25, 2024, it had 24 EBOs under the brand name "Purple United Kids" across 8 states and 17 cities in India and 14 shop-in-shops in Key Accounts and 24 distributors across Pan India. Early in journey, it recognized the importance of the online channels and building its digital capabilities. It now also sells products through own website, www.purpleunited.in. It is investing significantly in building a significant online presence within its category. As of October 31, 2024, it had 190 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2604000 equity shares of Rs. 10 each to mobilize Rs. 32.81 cr. at the upper cap. It has announced a price band of Rs. 121 - Rs. 126 per share. The issue opens for subscription on December 11, 2024, and will close on December 13, 2024. The minimum number of shares to be applied is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.10% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 18.00 cr. for working capital, Rs. 5.35 cr. for opening new stores, and the rest for general corporate purposes. 

The IPO is solely lead managed by Expert Global Consultants Pvt. Ltd., and KFin Technologies Ltd. is the registrar to the issue. Prabhat Financial Services Ltd., is the Market Maker for the company as well as the syndicate member. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 50 - Rs. 82 per share between March 2024 and May 2024. The average cost of acquisition of shares by the promoters is Rs. 10, and Rs, 62 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 7.01 cr. will stand enhanced to Rs. 9.61 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 121.08 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 16.56 cr. / Rs. 1.77 cr. (FY22), Rs. 25.71 cr. / Rs. 1.49 cr. (FY23), and Rs. 42.92 cr. / Rs. 4.82 cr. (FY24). For H1 of fY25 ended on September 30, 2024, it earned a net profit of Rs. 3.29 cr. on a total income of Rs. 30.52 cr. The company marked a setback in bottom lines for FY23. 

For the last three fiscals, the company has reported an average EPS of Rs. 4.57 and an average RoNW of 23.47%. The issue is priced at a P/BV of 3.73 based on its NAV of Rs. 33.81 as of September 30, 2024, but its post-IPO NAV data is missing from price band ad.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 18.39, and based on FY24 earnings, the P/E stands at 25.15.  The issue relatively appears fully priced. Its debt of Rs. 33.67 cr. as of September 30, 2024, raise concern.

For the reported periods, the company has posted PAT margins of 10.72% (FY22), 5.81% (FY23), 11.26% (FY24), 10.80% (H1-FY25), and RoCE margins of 12.87%, 16.14%, 19.35%, 11.12%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends since incorporation. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown S P Apparels, IRIS Clothing, and Karnika Ind., as their listed peers. They are trading at a P/E of 26.8, 46.6, and 27.2 (as of December 06, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from Expert Global in the last three fiscals (including the ongoing one).  From the 10 listings, 1 listed at par and the rest listed with a premiums ranging from 16.44% to 104.35% on the listing date.