Project Indium

Discussion Material
17 October 2022
A Compelling Investment Opportunity

• The women’s apparel market currently valued at ₹1 trillion is expected to grow at c.10% while branded apparel to grow at a
1 much faster rate of c.20% and raise share to 40%+

2 • Market is gathering pace across geographies with Tier 1 and 2 cities catching-up fast with the top 10 cities

• Omni-channel presence provides more scalable and dynamic selling opportunities, especially due to a slew of
3 factors such as artificial obsolescence, aspirational buying, influence of social media, increasing acceptance of
digital channel & impulsive buying resulting in shift in buying behaviour

• The share of total retail through e-commerce has increased from 1.2% in FY 2015 to 4.7% in FY 2020 and 6.0% in FY
2021. The share of total retail through e-commerce is projected to reach 9.6% in FY 2025. Apparel and accessories as
4 a category have also witnessed an increase in e-commerce sales share going up from 3.5% in FY 2015 to 17.5% in FY
2020 and projected to reach 22.0% in FY 2025

• In terms of market landscapes, emerging businesses have captured the market, however there are large white spaces that
5 need to be consolidated

Source: Avendus Capital’s report on Women’s Apparel Landscape in India

Omni-Channel Retail Sector and Supporting Economic Indicators

Omni-Channel Retail Industry Forecast Growth in India India Forecast GDP Growth Rate

55 8.2%

6.9% 7.0% 7.0%

6.5%
40 6.2%

29

21

15
11

2022A 2023E 2024E 2025E 2026E 2027E 2022A 2023E 2024E 2025E 2026E 2027E

• Based on Images group study of more than 100 brands in various retailing • Stable GDP growth of c.7% to assist in the growth of sales via various
sectors, including f&b, grocery, fashion & lifestyle etc. channels especially in women’s apparel

Source: Market Research, Statista

 Illustrative Approach - Equity Infusion - Base Case
Assumptions & Calculations
• The case entails financing of operations via equity raise of ₹200Cr, resulting in 4-5x growth in 5 years Transaction Date 31-Dec-22
• Based on 36 transactions in the broader retail and e-commerce sector in India an EV/EBITDA multiple WACC 11.0%
of c.20x is used to get to an Enterprise valuation of ₹494Cr based on 2022A EBITDA TV/Terminal EBITDA 7.0 x
NPV of Unlevered FCF 38
• The inferred 2023 EV/EBITDA multiple of 15.5x for the base case translates into a 2022 EV/EBITDA Terminal Value 823
multiple of c.23x Present Value of Terminal Value 528
• Although this method gives the highest intrinsic value for EV, due to equity infusion it is considerably Enterprise Value 567
risky to consider this method Implied EV/2022A EBITDA 23.1 x
Implied EV/2023E EBITDA 15.5 x
CAGR
FYE Mar (₹Cr) 2023E 2024E 2025E 2026E 2027E TV 22-27E
Revenue 472 638 860 1,161 1,567 1,567 35.0% Sensitivities
% Growth 35.0 % 35.0 % 35.0 % 35.0 % 35.0 % - EV (Mar '22) (₹Cr)
WACC
EBITDA 37 51 72 102 137 137 39.1%
9.0% 10.0% 11.0% 12.0% 13.0%
% Margin 7.8 % 7.9 % 8.4 % 8.8 % 8.8 % 8.8 %

TY EV/EBITDA
5.0 x 515 496 479 461 445
D&A - - - - - -
5.5 x 563 542 523 504 486

Multiple
EBIT 37 51 72 102 137 137 39.1% 6.0 x 610 588 567 546 527
(+) D&A - - - - - - 6.5 x 658 634 611 588 567
(-) Capex (11) (17) (28) (44) (59) (10) 7.0 x 705 679 655 631 608
(-) Change in NWC (6) (10) (16) (24) (36) (10)
Implied EV / 2023E EBITDA
(-) Tax on EBIT (7) (11) (16) (24) (33) (33)
WACC
Tax Rate (%) 26.0 % 26.0 % 26.0 % 26.0 % 26.0 % 26.0 %
9.0% 10.0% 11.0% 12.0% 13.0%
Unlevered FCF (UFCF) 13 12 12 9 10 10

TY EV/EBITDA
5.0 x 14.1 x 13.6 x 13.1 x 12.6 x 12.2 x
Discount Period (Mid Year) 0.13 0.75 1.75 2.75 3.75 5.5 x 15.4 x 14.8 x 14.3 x 13.8 x 13.3 x

Multiple
Discount Factor 0.99 0.92 0.83 0.75 0.68 6.0 x 16.7 x 16.1 x 15.5 x 14.9 x 14.4 x
Discounted FCF 3 12 10 7 7 6.5 x 18.0 x 17.3 x 16.7 x 16.1 x 15.5 x
7.0 x 19.3 x 18.6 x 17.9 x 17.2 x 16.6 x
Source: Operating Model, Valuation Analysis
 Illustrative Approach - DCF - Base Case
Assumptions & Calculations
Valuation Date 31-Dec-22
• As against Equity Infusion, the base assumption in this case is that no changes are made to the WACC 11.0%
capital structure in order to achieve growth and a valuation is derived in a organic manner to get to the TV/Terminal EBITDA 6.0 x
Enterprise value NPV of Unlevered FCF 75
Terminal Value 703
• The inferred 2023 EV/EBITDA multiple of 14.8x for the base case translates into a 2022 EV/EBITDA Present Value of Terminal Value 451
multiple of c.22x Enterprise Value 526
Implied EV/2022A EBITDA 21.5 x
Implied EV/2023E EBITDA 14.8 x
CAGR
FYE Mar (₹Cr) 2022A 2023E 2024E 2025E 2026E 2027E TV 22-27E
Sensitivities
Revenue 458 598 783 1,023 1,338 1,338 30.8% EV (Mar '22) (₹Cr)
% Growth 30.8 % 30.8 % 30.8 % 30.8 % 30.8 % - WACC
EBITDA 35 47 66 90 117 117 34.8% 9.0% 10.0% 11.0% 12.0% 13.0%

TY EV/EBITDA
% Margin 7.8 % 7.9 % 8.4 % 8.8 % 8.8 % 8.8 % 5.0 x 484 467 451 436 421
5.5 x 525 506 489 472 456

Multiple
D&A - - - - - -
EBIT 35 47 66 90 117 117 34.8% 6.0 x 566 546 526 508 490
6.5 x 606 585 564 544 525
% Margin 7.8 % 7.9 % 8.4 % 8.8 % 8.8 % 8.8 %
7.0 x 647 624 601 580 560
(+) D&A - - - - - -
(-) Capex (8) (12) (16) (25) (32) (10) Implied EV / 2023E EBITDA
(-) Change in NWC (5) (9) (13) (19) (28) (10) WACC
(-) Tax on EBIT (7) (10) (15) (21) (28) (28) 9.0% 10.0% 11.0% 12.0% 13.0%

TY EV/EBITDA
5.0 x 13.7 x 13.2 x 12.7 x 12.3 x 11.9 x
Tax Rate (%) 26.0 % 26.0 % 26.0 % 26.0 % 26.0 % 26.0 %
5.5 x 14.8 x 14.3 x 13.8 x 13.3 x 12.8 x

Multiple
Discount Period (Mid Year) 0.13 0.75 1.75 2.75 3.75
6.0 x 15.9 x 15.4 x 14.8 x 14.3 x 13.8 x
Discount Factor 0.99 0.92 0.83 0.75 0.68
6.5 x 17.1 x 16.5 x 15.9 x 15.3 x 14.8 x
Discounted FCF 4 16 18 18 20 7.0 x 18.2 x 17.6 x 17.0 x 16.4 x 15.8 x
Source: Operating Model, Valuation Analysis
 Focus Approach - LBO - Base Case
Sources ₹Cr
New Debt 100
• Entry in 31 December 2022 at 14.5x 2023E EBITDA of ₹36Cr and Exit in 31 March 2027 with 2022A Sponsor Equity 421
EBITDA of ₹25Cr as financing EBITDA Total 521
• The base case implied Enterprise Value of ₹514Cr corresponds to a IRR of c.34% with a multiple of Uses ₹Cr
Purchase Consideration 514
invested capital of 3.5x Illustrative Fees 7
• A mix of leverage and debt gives the capital structure a diverse and relatively stable flavor as Total 521
compared to to the equity infusion case Sensitivities
Implied IRR
Entry Multiple (FY23E)
₹Cr 2023E 2024E 2025E 2026E 2027E Ability to Pay Analysis ₹Cr 33.8% 12.5x 13.5x 14.5x 15.5x 16.5x
11.0x 36.8% 33.8% 31.0% 28.5% 26.3%

Exit NTM

Multiple
EBITDA
Revenue 458 598 783 1,023 1,338 Target IRR 34% 11.5x 38.3% 35.2% 32.4% 29.9% 27.7%
12.0x 39.7% 36.6% 33.8% 31.3% 29.0%
Growth 30.8 % 30.8 % 30.8 % 30.8 % 30.8 % Exit NTM Multiple 12.0x 12.5x 41.1% 37.9% 35.1% 32.6% 30.3%
13.0x 42.5% 39.3% 36.4% 33.8% 31.5%
£m Entry Exit Exit NTM EBITDA 124
Implied MOIC
EBITDA 9 47 66 90 117 Implied EV at Exit 1,489 Entry Multiple (FY23E)
Margin 7.8 % 7.9 % 8.4 % 8.8 % 8.8 % (-) Net Debt at Exit (37) 3.4x 12.5x 13.5x 14.5x 15.5x 16.5x
11.0x 3.8x 3.4x 3.2x 2.9x 2.7x

Exit NTM
(-) Change in NWC (1) (9) (13) (19) (28) Implied Exit Equity Proceeds 1,452

Multiple
EBITDA
11.5x 4.0x 3.6x 3.3x 3.0x 2.8x
(-) Capex (2) (12) (16) (25) (32) 12.0x 4.1x 3.8x 3.4x 3.2x 2.9x
Implied Entry Equity from Sponsor 421
12.5x 4.3x 3.9x 3.6x 3.3x 3.1x
Cash Flow before 4.5x 4.1x 3.7x 3.5x 3.2x
6 27 36 46 57 (+) Net Debt at Entry 100 13.0x
Financing and Tax
(-) Financing Fees (7) Implied Enterprise Value (₹Cr)
Target IRR
(-) Net Interest Paid (2) (8) (8) (8) (8) Implied Offer Value 514 655.5x 30.0% 32.0% 33.8% 36.0% 38.0%
Implied 2023E EV/EBITDA 14.5 x 11.0x 528 501 478 452 431
(-) Tax Paid (2) (10) (15) (21) (28)

Exit NTM

Multiple
EBITDA
11.5x 549 520 496 469 447
Cash Flow after Interest Implied 2022A EV/EBITDA 21.0 x 569 539 514 486 462
1 9 13 17 21 12.0x
and Tax 590 558 532 503 478
12.5x
13.0x 610 577 550 520 494
Source: Operating Model, Valuation Analysis
 WACC and Regression Analysis
WACC Overview Regression Analysis

Parameter Comments Source % 60.0x y = 87.786x + 11.509

R² = 0.3918

Asset Beta (Ba) Unlevered Beta Median of Selected Peers 0.82

Debt / Total Capitalization (D/(D+E)) Assumed Long Term Capital Structure Assumption 30.0% GF
50.0x
Debt / Equity (D/E) Assumed Long Term Capital Structure Assumption 42.9%

Equity Beta (Be) Ba*(1+(1-t)*D/E) 1.08 40.0x

Risk Free Rate (Rf) Repo Rate 5.9% TCNS

VMR
Market Risk Premium (Rp) Equity Market Risk premium Estimate 6.4% 30.0x
ABFS
BC
Cost of Equity (CoE) Rf+(Be*Rp) 12.8% ACM
SSL
20.0x
IC
Pre-Cost of debt (Kd) Assumed Cost of Refinancing Assumptions 5.0% SPR
IT OHR
Tax Rate (t) Statutory Tax Rate India Tax Rate 26.0% 10.0x TS V2 ARC

Post-Tax Cost of Debt (Kdpt) Kd*(1-t) 3.7%

0.0x
WACC (Nominal Terms) CoE*(1-(D/E)/(1+(D/E))+Kdpt*((D/E)/(1+(D/E)) 11.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

• WACC has been calculated for select peers belonging to retail industry including department stores, online • Implied Enterprise Value: ₹433Cr; with an implied 2022A EV/EBITDA multiple of
retail, retail apparel and specialty retail sub-sectors mentioned in the footnote c.18x

Source: Company Filings, TickerTape

WACC has been calculated based on financial information for Shoppers Stop,Trent, Aditya Birla Fashion & Retail, V2 Retail, Iris Clothing, Future Lifestyle Fashions, Thomas Scott (India), Go Fashion, TCNS Clothing and FSN E-commerce (Nykaa)
SSL: Shoppers Stop Ltd, VMR: V-Mart Retail, SPR: Spencer's Retail, OHR: Osia Hyper Retail, BC: Brand Concepts, IT: Intrasoft Technologies, ABFS: Aditya Birla Fashion and Retail, V2: V2 Retail, IC: Iris Clothings, TS: Thomas Scott (India), GF: Go
Fashion, TCNS: TCNS Clothing, ACM: Aditya Consumer Marketing, ARC: Archies
Analysis at Various Prices
EV (₹Cr) 350 400 450 500 550 600 650 700 750 800

LBO Range

DCF Range

Equity Infusion Range

Trading Multiples Range

Precedent Txns. Range

EV / EBITDA ₹Cr
FY22A 25 14.3 16.3 18.4 20.4 22.4 24.5 26.5 28.6 30.6 32.7
FY23E 35 9.9 11.3 12.7 14.1 15.5 16.9 18.3 19.7 21.1 22.6
FY24E 47 7.4 8.4 9.5 10.5 11.6 12.7 13.7 14.8 15.8 16.9

EV / DCF ₹Cr
Midpoint 526 0.67 0.76 0.86 0.95 1.05 1.14 1.24 1.33 1.43 1.52

EV / LBO ₹Cr
Midpoint 514 0.68 0.78 0.87 0.97 1.07 1.17 1.26 1.36 1.46 1.56

Source: Operating Model, Valuation Analysis

Football Field
Methodology EV Spread Comments

• 2022A EBITDA of ₹25Cr, 2023E EBITDA of ₹36Cr

472 585
DCF (Base Case) • Implied 2022A EBITDA multiple range of 19.2x-23.9x
• WACC: 11%, Terminal Year EBITDA Multiple of 6.0x

• Implied 2022A Multiple range of 19.2x-22.8x

LBO (Base Case) 469 558 • Entry at 31-Dec-22 and exit at 31-Mar-27 with illustrative leverage of c.4x on
2022A Financing EBITDA of ₹25Cr resulting in an IRR of c.34%

• 4-5x growth via equity infusion of ₹200Cr

Equity Infusion (Base Case) 504 634
• Implied 2022A EBITDA multiple range of 20.6x-25.9x

• 2022A range of 20.3x-29.0x reflecting a range trading at a premium to

Trading Multiples 497 709
comparable like V2 retail, Thomas Scott, Future Lifestyle Fashions and Iris
Clothing

• 2022A range of 26.1x-30.4x reflecting a range trading at a premium to

Transaction Multiples 638 745
comparable precedent transactions

Source: Operating Model, Valuation Analysis

Precedent Transactions
• Select deals included based on broader retail and e-retailing sectors operating in India
• Average EBITDA multiple for the restaurants sector is c. 20x1 with control premium paid of c.20%

32,660

23,729

9,159
8,278 7,745
4,569 Median: 6,157

2,362
1,243 648 233

Ann. Date 24-May-22 23-Oct-20 21-May-18 15-Jun-16 03-May-15 02-Nov-16 18-Aug-16 01-Jan-18 09-Sep-17 23-Feb-15
Flipkart Madhukar
GIC Private Bombay Rayon Aditya Birla PremjiInvest & TA Associates Reliance Brands Future Consumer
Acquiror Investments Pvt L Catterton Asia Gangadi ( Private
Limited Fashions Ltd Fashion & Retail Lighthouse Funds Management Ltd Ltd
Ltd Investor)
Madura Aadhaar
Bombay Rayon
Aditya Birla Aditya Birla Future Lifestyle Garments FabIndia TCNS Clothing MedPlus Health Genesis Luxury Wholesale
Target Fashions Ltd
Fashion & Retail Fashion & Retail Fashions Ltd Lifestyle Retail Overseas Pvt Ltd Co Ltd Services Pvt Ltd Fashion Pvt Ltd Trading &
(Lenders)
Co Ltd Distribution Ltd
EV / Sales 4.0x 2.7x 2.0x 2.0x 2.1x 4.3x 4.2x 6.2x 2.2x 1.8x
EV / EBITDA 29.7x 18.6x 20.7x 10.2x 17.5x 32.9x 21.7x 17.8x 55.7x 22.8x
Source: Company Website, Public Filings, Press
Note: All values in ₹Cr 1 Based on 36 deals on Mergermarket for Consumer retail and e-retailing sectors
Potential Buyer Universe
Tier I Tier II

Strategics

Sponsors

Source: Market Research