Magson Retail And Distribution coming with an IPO to raise Rs 13.74 crore

Magson Retail And Distribution

• Magson Retail And Distribution (MRDL) is coming out with an initial public offering (IPO) of 21,14,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 65 per equity share.
• The issue will open for subscription on June 23, 2023 and will close on June 27, 2023.
• The shares will be listed on NSE Emerge.
• The share is priced 6.50 times higher to its face value of Rs 10.
• Book running lead manager to the issue is ISK Advisors.
• Compliance Officer for the issue is Atula Patel.

Profile of the company

The company is engaged in the retail and Distribution business of gourmet, frozen food and speciality foods. It has its corporate office located in Ahmedabad, Gujarat. Currently, the company operates 26 retail stores/outlets of which 16 are operated by the company and 7 are operated by franchise owners and 3 stores are operated under 2 joint ventures. MRDL operates all its stores under the registered brand name “MagSon”. The said stores/outlets are located across Western India with 26 outlets in prominent cities which includes one each in Thane, Maharashtra, Udaipur, Rajasthan, Gandhinagar, Gujarat, Anand, Gujarat, Rajkot, Gujarat, Jamnagar, Gujarat and Gandhidham, Gujarat. Three store each in Surat, Gujarat, Vadodara, Gujarat and thirteen stores/outlets in Ahmedabad (including one chocolate store). The total retail space of 26 outlets/stores is more than 30,000 sq.ft. with total stock (SKU) count in store being more than 3000 units. MRDL has also has a presence on e?commerce and online shopping, it has developed an e?commerce mobile app available both for Apple and Android users. With the help mobile application customers can order online and get the products delivered. Mobile application also helps sending regular updates to customers and built customer relations.

In December 2021, the company has launched  Rf Gourmet its own brand having a  range of premium products such as French Fries, Fiery Fries, Chilli Garlic Potato Shots, Delhi Aloo Tikki, Veggie Burger Tikki, Chunky Fries, Eggs and a range of Chicken Seekh Kababs. All its products in this brand are sourced from top vendors ensuring premium quality and then are packed marketed by Magson under this Brand. All the products under this brand are introduced after analyzing the prevailing market gap and increasing demand for its products. Under expansion plan it will be doing packing of RF Gourmet product in its godown as part of backward integration. The said strategy of Backward Integration will help it in increasing its margins from distribution business and in long run it will help it to develop core competence.

Proceed is being used for:

• Setting up new organization and stores under franchise model & tie up with major suppliers.  
• Working Capital Requirement.
• General Corporate Purpose.

Industry overview

Food and grocery are the most significant segments in the Indian retail sector, with an opportunity worth $570 bn and accounting for 66 per cent of the country’s total retail spend, as per a report done by Invest India forum Organised food and grocery retail market to reach $60 bn by 2025. The market is expected to grow at a CAGR of 8 per cent, supported by macro drivers such as increasing per capita income, urbanisation, and rising nuclear families. Conversion from unpackaged to packaged, premiumisation, and demand for convenience are some key drivers at a segment level. Due to evolving lifestyles and purchasing habits, more consumers are shopping at modern retail stores and stocking up on groceries instead of shopping frequently at neighbourhood Kirana’s. Convenience stores have also become popular in urban clusters to cater to the increasingly busy lifestyle. Although conventional categories like Staples and Fresh account for 80 per cent of the total food retail spend, emerging categories of packaged snacks, confectionery, and beverages are overgrowing at a compounded rate of 15 per cent. Increasing awareness around health and wellness is set to shape consumer preferences across categories increasingly.

The number of modern retail grocery retailers across India amounted to over 22 thousand in 2022. Even though this format has grown consistently since 2013, it was a small portion compared to the number of traditional grocery retailers which was over 12 million in number the same year. Traditional stores include kiranas or corner shops, which account for a significant share of the retail market in the country. Modern Retail grocery store is growing fast in Indian due to various factors influencing the buying behaviour of the consumers. The Food market includes all kinds of fresh and processed foods. The market is divided into following segments: Dairy Products & Eggs, Meat, Fish & Seafood, Vegetables, Fruits, Bread & Cereal Products, Oils & Fats, Spreads & Sweeteners, Sauces & Condiments, Convenience Food, Confectionery & Snacks, Baby Food and Pet Food. Food represents a significant part of household expenditure, but its relative importance compared to other products decreases with increasing income. The retail food market was most valuable among other segments in the food industry in India. Retail accounted for about 800 billion U.S. dollars in 2021. Food services ranked second that year, at 64 billion dollars.

Pros and strengths

Wide Product Mix: The company’s stores have a wide product range which includes Frozen food Vegetarian and Non vegetarian, Premium Cheese and Dairy products, Exotic Vegetables and fruits, Ambient Products, Imported/ luxury Chocolates, Imported packed products. With over 3000 plus products on offer to its customers, the company has a edge over its competition.

Strong Distribution Network: The company has a strong product sourcing network and 75% of its products are sourced directly from the manufactures which helps it to offer the products at a competitive price to the customers and also maintain a good profit margin. With 14,000 sq.ft of warehouse located at a strategic location to manage the inventory levels. 

Investment in Software/ technology/ Mobile App for online shopping: The company has invested in Software for customer relationship management, which helps it to be connected with its customers. It developed a mobile app for its online order, where the customers can view the wide range of products and place orders, locate stores and get updates on products and offers.  Over the years it also has invested in software and technology for inventory management and other internal control to manage the retail business efficiently.

Risks and concerns

Rely on top suppliers and customers: The company cannot assure that it will continue to do the same quantity of business with its top 5/10 suppliers in the future. A significant decrease in business from such suppliers materially and adversely affect its business, results of operations and financial condition. It seeks to source its raw materials from reputed suppliers and typically seek quotations from multiple suppliers. It typically does not enter into long?term agreements with its suppliers. It may be required to track the supply demand dynamics and regularly negotiate prices with its suppliers in case of significant fluctuations in raw material prices or foreign currency fluctuations. 

Rely on third?party suppliers: The company seeks to source its raw materials from reputed suppliers and typically seek quotations from multiple suppliers and presently it is procuring its major part of raw material from very few suppliers. It typically does not enter into long?term agreements with its suppliers. It may be required to track the supply demand dynamics and regularly negotiate prices with its suppliers in case of significant fluctuations in raw material prices or foreign currency fluctuations.

Face competition: The company faces competition across its business activities from various peers. It faces competition from other organized retail supermarket chains including D?Mart, Big Bazaar, Reliance Retail, Star Bazaar on one hand, and unorganised retail kiranan and gourment shops on the other. Further, it face competition from e?tailing companies such as Big Basket, Amazon pantry, Blinkit, Jio Mart and Swiggy Instamart because of their online sales and schemes. It cannot assure that it can continue to compete effectively with its competitors. Its failure to compete effectively, including any delay in responding to changes in the industry and market, together with increased spending on advertising, may affect the competitiveness of its products, which may result in a decline in its revenues and profitability.

Outlook

Magson Retail & Distribution is engaged in the retail and distribution business of gourmet, frozen food, and specialty foods. The company has over 26 retail stores/outlets of which 16 are operated by the company, 7 are operated by franchise owners and 3 stores are operated under 2 joint ventures. The company operates all its stores under the registered brand name MagSon. These stores/outlets are located across Western India with 26 outlets in prominent cities which includes one each in Thane, Udaipur, Gandhinagar, Anand, Rajkot, Jamnagar, and Gandhidham. Three stores each in Surat and Vadodara, and thirteen stores/outlets in Ahmedabad (including one chocolate store). The total retail space of 26 outlets/stores is more than 30,000 sq. ft. with the total stock (SKU) count in the store being more than 3000 units. The company has designed store layout to give a unique shopping experience to customers. Customer experience is backed by trained employees to help customers in shopping. On the concern side, the industry in which the company operates requires staff for carrying out its activity. Although it has not experienced any short fall of staff but it cannot assure that it will not experience disruptions in work due to disputes or other problems with its work force, which may adversely affect its ability to continue its business operations.

The company is coming out with an IPO of 21,14,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 65 per equity share to mobilize Rs 13.74 crore. On performance front, in Fiscal 2023, Revenue from Operations has increased by Rs 727.54 lakh or 13.09%, from Rs 5554.38 lakh in Fiscal 2022 to Rs 6281.98 lakh in Fiscal 2023. The company’s Profit after Tax had increased by Rs 28.52 lakh or 12.76%, from Rs 223.36 lakh in Fiscal 2022 to Rs 251.88 lakh in Fiscal 2023. Meanwhile, presently the company is having 26 stores. Out of these 16 stores are operated by the company and balance 7 stores are under franchise agreement and 3 stores are running under 2 Joint Ventures. Now the company proposes to start more stores under franchise agreement.