Net Avenue Technologies
- Net Avenue Technologies is coming out with an initial public offering (IPO) of 56,96,000 equity shares of face value of Rs 1 each in a price band Rs 16-18 per equity share.
- The issue will open on November 30, 2023 and will close on December 04, 2023.
- The shares will be listed on NSE Emerge platform.
- The share is priced 16 times of its face value on the lower side and 18 times on the higher side.
- Book running lead manager to the issue is Shreni Shares.
- Compliance Officer for the issue is Dadwani Bhumisha Darshan.
Profile of the company
Net Avenue Technologies is engaged in online digital direct-to-consumer business for Indian Ethnic wear and accessories. The company also has presence in International cross-border e-commerce direct-to-consumer for its products. Its product range includes Indian ethnic wear and accessories for women, men, teens and kids.
The company’s core business is to sell Indian Ethnic wear and accessories, primarily catering to the South Asian Diaspora, a segment it reaches through its website and mobile applications. Furthermore, the company extends its reach by distributing its products through various prominent Ecommerce platforms, including but not limited to Myntra, Nykaa, and Ajio, among others.
The company has crafted its business foundation through iterative innovation to enhance consumer satisfaction and optimise purchasing behaviour. The company acknowledges that the consumer's path to product selection often involves a substantial amount of time dedicated to exploration. Consequently, the company is committed to gaining insights into the decision-making process and providing support at crucial junctures throughout a consumer's journey on its platform. To this end, it has strategically integrated across multiple touchpoints, enabling it to engage consumers and curate personalised browsing and purchasing experiences that cater to the diverse needs of its valued customers.
Proceed is being used for:
- Customer acquisition - marketing & awareness
- Funding working capital requirement
- General corporate purpose
- Meeting the issue expenses
Industry overview
In recent years India has experienced a boom in internet and smartphone penetration. The number of internet connections in 2021 increased significantly to 830 million, driven by the ‘Digital India’ programme. Out of the total internet connections, 55% of connections were in urban areas, of which 97% of connections were wireless. The smartphone base has also increased significantly and is expected to reach 1 billion by 2026. This has helped India’s digital sector and it is expected to reach $1 trillion by 2030. The Indian online grocery market is estimated to reach $26.93 billion in 2027 from $3.95 billion in FY21, expanding at a CAGR of 33%. India's consumer digital economy is expected to become a $1 trillion market by 2030, growing from $537.5 billion in 2020, driven by the strong adoption of online services such as e-commerce and edtech in the country. The B2C E-commerce is expected to grow steadily over the forecast period, recording a CAGR of 8.68% during 2023-27. India’s e-B2B market is projected to reach a GMV of $100 billion by 2030. According to Grant Thornton, e-commerce in India is expected to be worth US$ 188 billion by 2025.
India is the world’s second-largest producer of textiles and garments. It is also the fifth-largest exporter of textiles spanning apparel, home and technical products. The textiles and apparel industry contribute 2.3% to the country’s GDP, 13% to industrial production and 12% to exports. Around 45 million people are working in the textile business, including 3.5 million people who work on handlooms. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach $190 billion by 2025-26. The Indian apparel market stood at $40 billion in 2020 and is expected to reach $135 billion by 2025. India enjoys a comparative advantage in terms of skilled manpower and in cost of production relative to other major textile producers. During April- November in FY23, the total exports of textiles stood at US$ 23.1 billion. India’s textile and apparel exports (including handicrafts) stood at $44.4 billion in FY22, a 41% increase YoY. Exports of readymade garments including cotton accessories stood at $16.2 billion in FY23. India’s ready-made garment (RMG) exports are likely to surpass $30 billion by 2027, growing at a CAGR of 12-13%.
Further, the government has allocated funds worth Rs 17,822 crore ($2.38 billion) between FY16-22 for the ‘Amended Technology Upgradation Fund Scheme’ (A-TUFS) to boost the Indian textile industry and enable ease of doing business. Amazon India has signed a MoU with the Manipur Handloom & Handicrafts Development Corporation Limited (MHHDCL), a Government of Manipur entity, to encourage the development of weavers and artisans throughout the state. To support the handloom weaver entrepreneurs, the Weaver MUDRA Scheme was launched to provide margin money assistance at 20% of the loan amount subject to a maximum of Rs. 10,000 ($134.22) per weaver. The loan is provided at an interest rate of 6% with credit guarantee of three years. The new Economic Cooperation and Trade Agreements with Australia and the UAE will open multiple opportunities for textiles and handloom. Indian textile exports to Australia and the UAE will now face zero duties, and the government is expecting that soon, Europe, Canada, the UK and GCC countries would also welcome Indian textile exports at zero duty. Top players in the textiles sector are attaining sustainability in their products by manufacturing textiles that use natural recyclable materials.
Pros and strengths
Diverse product range: The company offers a wide range of premium Indian Ethnic fashion to South Asians worldwide through its E-commerce platform. These offerings cater to various cultural and traditional preferences, including wedding clothing, festive attire, party wear, and related accessories. The company boasts extensive experience in international cross-border direct-to-consumer operations.
Sustainable fashion advocate (Just-In-Time): The company has ingrained sustainability into its culture and processes, positioning itself as a sustainable fashion brand. The concept of just-in-time manufacturing, coupled with customised stitching, is a testament to this commitment. It has designed its operational model to scale just-in-time manufacturing, minimising waste and reducing environmental impact.
Data-driven body sizing for optimal fit: The company possesses a wealth of body measurement data, having stitched millions of custom outfits for hundreds of thousands of customers since inception. Leveraging machine learning, the company has improved customer comfort and fit.
Risks and concerns
Top ten suppliers contribute majority of purchases: Purchases made from its top 10 suppliers for the period ended June 30, 2023 and financial year ended March 31, 2023, 2022 and 2021, were Rs 92 Lakh, Rs 1,820 Lakh, Rs 2,089 Lakh and Rs 954 Lakhs respectively. However, its top suppliers may vary from period to period depending on the demand-supply mechanism and thus the supply process from these suppliers might change as it continues to seek more cost effective suppliers in normal course of business. Since its business is concentrated among relatively few significant suppliers, it could experience a reduction in its purchases and business operations if it loses one or more of these suppliers, including but not limited on account of any dispute or disqualification. While the company maintained good and long term relationships with its other suppliers too, there can be no assurance that it will continue to have such long term relationship with them. It cannot assure that it shall do the same quantum of business, or any business at all, with these customers, and loss of business with one or more of them may adversely affect its purchases and business operations.
Seasonal fluctuations in business: The company has historically experience seasonal fluctuations in its sales, with higher sales volumes associated with the festive sale period in the third quarter of each Financial Year, which encompasses holidays such as Diwali, Christmas and annual sales events. It expects to continue to experience seasonal trends in its business, making results of operations variable from quarter to quarter. This variability can make it difficult to predict sales and can result in fluctuations in its revenue between periods. Any failure by the sellers, or brand relationships, or by the company, to stock or restock popular products in sufficient quantity or to develop sufficient fulfilment and delivery capacity to meet consumer demand during periods of seasonal or peak demand, could adversely affect consumer experience and its results of operations.
No long-term agreement with raw material suppliers: The company has not entered into long term contracts with its suppliers and prices for raw materials are normally based on the quotes it receives from various suppliers. The company relies on pre-booking capacity with its suppliers, based on its demand projections. Since it has no formal arrangements with its suppliers, they are not contractually obligated to supply their products to it and may choose to sell their products to its competitors. Non-availability or inadequate quantity of raw material or use of substandard quality of the raw materials in the manufacturing of its products, could have a material adverse effect on its business. Further, any discontinuation or a failure of these suppliers to adhere to the delivery schedule or failure to deliver the required quality and quantity could hamper its manufacturing schedule.
Outlook
Net Avenue Technologies is engaged in online digital direct-to-consumer business for Indian Ethnic wear and accessories. The company started out as a gifting portal - chennaibazaar.com, one of the first Indian gifting portals, offering gifting solutions to Indians living abroad. The company subsequently diversified its offerings and launched cbazaar.com and ethnovog.com providing Indian ethnic clothes and jewellery. On the concern side, the company’s business depends on the growth of online commerce industry in India & Abroad and its ability to effectively respond to changing user behaviour on digital platforms. Moreover, the company operates in a highly competitive industry and its failure to compete effectively could have a negative impact on the success of its business and/or impact its margins.
The issue has been offered in a price band of Rs 16-18 per equity share. The aggregate size of the offer is Rs 9.11 crore to Rs 10.25 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations had increased by 7.05% from Rs 3123.34 lakh in Fiscal 2022 to Rs 3343.54 lakh in Fiscal 2023. The change was primarily due to increase in sales of products through exports & Other Operating Revenue. Moreover, the company reported a net profit of Rs 185.70 lakh in Fiscal 2023 as compared to a net profit of Rs 279.63 lakh in Fiscal 2022.
The company’s core growth strategy centres around providing a high level of personalization to consumers, offering distinct 'Looks' for each design launch. These 'Looks' cater to different customer segments based on age groups, including young adults, individuals in their thirties, and those in their forties and above. This approach, combined with its 'Made to Measure' service, effectively addresses online shoppers' fit concerns. Going forward, the company plans to expand its product availability to more countries by leveraging its marketing expertise and relationships, enhancing customer satisfaction. This entails fulfilling orders promptly, nurturing strong customer relationships, and re-establishing connections with existing buyers.
