On Door ( IPO Analysis)

Summary

On Door is a rapidly growing retail business that specializes in groceries and household essentials. They offer the convenience of both neighbourhood stores and online home delivery. Their journey began in January 2015 in Bhopal, Madhya Pradesh, and by March 31, 2023, they had expanded to 55 stores across various cities in Madhya Pradesh. Notably, 17 of these stores are company-owned and operated, while the rest follow a franchise model.

INITIAL PUBLIC OFFERNING | ON DOOR CONCEPTS LIMITED

On 11^th October, 2023 M/S On Door Concepts Limited officially issued its Prospectus mentioning the important details regarding its recent Initial Public Offering (hereinafter referred as IPO) which will be starting from Monday, 23 October, 2023 and closes on Friday, 27 October, 2023. Before delving deeply into the details of the IPO. Let us briefly look at the Business Operation of ‘On Door Concepts Limited.’

ABOUT BUSINESS OPERATION

On Door is a rapidly growing retail business that specializes in groceries and household essentials. They offer the convenience of both neighbourhood stores and online home delivery. Their journey began in January 2015 in Bhopal, Madhya Pradesh, and by March 31, 2023, they had expanded to 55 stores across various cities in Madhya Pradesh. Notably, 17 of these stores are company-owned and operated, while the rest follow a franchise model.

What is particularly interesting is On Door’s strategy to tap into smaller cities, primarily through franchising.

FRANCHISE BUSINESS MODEL

On Door's franchise model is designed for its efficient growth and it also tackles various challenges. In contrast to traditional grocery businesses with thin profit margins, On Door's approach suits smaller cities. On Door, a swiftly emerging national omni-channel retailer, stands out by offering both colony stores and local home delivery for groceries and essentials. Their franchise model involves compact colony convenience stores, with sizes ranging from 1000 to 3000 sq. ft., determined by factors like sales potential, available space, online orders, and local product needs. Orders are fulfilled from the store's inventory, managed by real-time tracking.

On Door expects significant growth in smaller cities through this franchise model, focusing on efficient supply chains in densely populated areas. Their customer base includes middle to upper-middle-class consumers. Their success comes from offering one-stop convenience, competitive pricing, local market knowledge, curated products, and a streamlined supply chain.

PRODUCTS AND SERVICES

At On Door, their products fall into three main categories:

1.     Foods: This category covers staples, groceries, fresh produce, snacks, dairy, frozen items, beverages, and sweets.

2.     Non-Foods (FMCG): Here, you will find products for home care, personal care, and various over-the-counter goods.

3.     General Merchandise: This includes items like crockery, utensils, plastic products, and items used for religious rituals such as pooja.

And the service that they are involved in is of providing offline and online purchase of General Groceries items from On Door.

BOARD OF DIRECTOR AND PROMOTERS OF THE COMPANY

At On Door, Mr. Narendra Singh Bapna holds the position of Managing Director. Mr. Pramod Ramdas Ingle serves as the Whole Time Director, and Ms. Vaishali Pramod Ingle is the Executive Director. The company's Board of Directors includes independent members, such as Mr. Ratnakar Venkappa Rai, Ms. Shivani Shivshankar Tiwari, and Mr. Sangita Bhamesh Kamble.

On the promoter side, the company is backed by NSB BPO Solutions Private Limited, along with the involvement of Mr. Narendra Singh Bapna, Mr. Pramod Ramdas Ingle, Mrs. Swati Bapna, and Mrs. Vaishali Ingle.

INDUSTRY OUTLOOK

India has managed to surpass the UK and secure the position of the fifth-largest economy, thanks to robust economic growth in the first quarter of FY 2022-23. Despite enduring multiple waves of the COVID-19 pandemic, India's real GDP for this quarter is now approximately 4% higher than the same period in 2019-20, signalling a promising start to the country's post-pandemic recovery.

The Indian retail industry has become a dynamic and rapidly growing sector, with the entry of new players. It contributes significantly to the country's economy, making up over 10% of the GDP and employing around 8% of the workforce. India is now the fifth-largest global player in the retail arena. What makes India particularly enticing for global retail giants is its burgeoning middle class and the untapped retail market, offering substantial growth potential. This paves the way for the Indian retail sector to reach a remarkable value of US$ 2 trillion by 2032, according to a recent analysis by the Boston Consulting Group (BCG). In essence, the Indian retail industry holds significant promise and opportunities for growth.

The e-commerce sector has thrived during the pandemic. According to a report from Bain & Company and Flipkart called 'How India Shops Online 2021,' it is predicted that the e-retail market will see substantial growth, reaching an estimated US$ 120-140 billion by the fiscal year 2026. This growth is expected to be at a steady rate of 25-30% annually over the next five years.

COMPETITION

In the world of online and offline retail, On Door faces some strong rivals like Swiggy, Zepto, Blinkit, Bigbasket, and Dunzo. Currently, On Door competes with a total of 2,025 companies, out of which 1,134 are actively doing business. Interestingly, 41 of these competitors have received financial support, while 10 have exited the market. In the ever-evolving landscape of online-offline retail operations, On Door has also seen the emergence of new competitors like FreshK, King Shopz, and Sunvi Enterprises. This dynamic competition underscores the challenges and opportunities inherent in the retail sector, where companies like On Door must continually adapt and innovate to maintain their position in the market.

FINANCIAL ASPECT  

In the fiscal year 2022-23, On Door Company achieved a noteworthy turnaround, securing a profit of 1,306.17 Lakhs, a substantial improvement compared to the preceding year when they incurred a loss of 536.98 Lakhs in FY 2021-2022. Furthermore, as of September 31, 2023, the company has sustained its positive performance, with a profit of 55.79 Lakhs for the current year.

To make a wise investment choice, we will delve into various financial ratios for a comprehensive assessment of the company's financial condition and performance.

OBJECTIVE OF THE IPO

The company has two main plans for the money they raise. Firstly, they want to ensure that they have enough cash to cover their day-to-day operations and future growth. They estimate the need about ₹2,201.42 lakhs for this in the fiscal year 2023-24, with ₹2,043.45 lakhs of that coming from the funds they raise.

Second, they plan to use the remaining money, ₹724.20 lakhs, for general company needs. This could include things like growing the business, forming partnerships, marketing, and handling everyday costs. The exact amounts spent on these will depend on what the company needs, but they will not spend more than twenty-five percent of what they raise, including any money from Pre-IPO Placement.

Additionally, they expect to spend around ₹349.85 lakhs on expenses related to this fundraising. This covers fees for services like underwriting and management, printing and distribution, advertising, and legal support if needed.

DETAILS OF THE IPO

On Door is offering 14,98,800 Equity Shares at a price of ₹208.00 each (including a premium of ₹198 per share) for a total of ₹3,117.50 lakhs in a public issue. Out of this, 78,000 Equity Shares worth ₹202.02 lakhs are reserved for the Promoters, and 86,400 Equity Shares worth ₹179.71 lakhs are set aside for the Market Maker.

So, after deducting the Promoters' and Market Maker portions, the remaining offering, which is 14,12,400 Equity Shares valued at ₹2,937.79 lakhs, is referred to as the "Net Issue." Both the full Issue and the Net Issue will represent 26.53% and 25.00%, respectively, of On Door's post-issue paid-up equity share capital.

Before this public issue, On Door conducted a Pre-IPO placement, where 2,85,200 Equity Shares were privately placed at a price of ₹259.00 per share, amounting to ₹738.67 lakhs. This Pre-IPO placement amount is subtracted from the total Issue when calculating the Net Issue.

Some Important details with respect to the Minimum and Maximum Application Size for Qualified Institutional Bidder and Non-Institutional Investor has been Summarised in the following table:

RISKS INVOLVED

Potential investors in On Door should be aware of certain internal risks:

1.     Legal Matters: On Door, along with its Promoters and Directors, is currently involved in legal proceedings and potential litigations. If these cases result in unfavourable decisions, the company may face financial penalties that could impact its financial health and operations.

2.     Past Losses: On Door has a history of reporting net losses, including restated losses of ₹536.98 Lakhs in 2022 and ₹523.44 Lakhs in 2021. While the company has been operationally profitable, these losses are primarily due to depreciation and financial charges.

3.     Working Capital Needs: On Door relies on a significant amount of working capital for its daily business operations. Any disruption or challenges in obtaining sufficient working capital on favourable terms could negatively affect the company's operations, profitability, and growth prospects.

4.     Pricing Strategy: It is crucial for On Door to consistently offer discounted prices in line with its pricing strategy. Failure to do so could result in the loss of a substantial customer base, which would harm the company's financial position and operations. Moreover, supplier price increases may present difficulties.

5.     Inventory Management: Ineffective management of inventory in On Door's stores can have detrimental effects on its business and operations.

6.     Supplier Reliance: On Door relies on a limited number of suppliers for its material requirements, often without definitive agreements or fixed trade terms. Inadequate management of supplier relationships or the inability to identify new suppliers could disrupt the company's business operations.