Understanding Business, Risks, Financials and Valuation of Cellecor Gadgets SME IPO

Brief about Cellecor:

(i) Cellecor Gadgets Limited ek consumer electronics company hai jo India mein apne flagship brand ‘CELLECOR’ ke naam se televisions, mobile phones, aur various smart wearables jaise ki smart watches aur neckbands bechti hai. Iske alawa, company mobile accessories, jaise ki power banks, data cables, aur USB chargers, bhi offer karti hai.

(ii) The company is engaged in the procurement, branding, and distribution of televisions, mobile phones, Smart Wearable, mobile accessories, smart watches, and neckbands. We sell our products under our flagship brand, i.e., CELLECOR.

(iii) They do not have in-house manufacturing facility and rely completely on third-party manufacturers for manufacturing of the products. So, they are basically a marketing company similar to Boat.

(iv) 97% of the sales comes from Offline channel and rest 3% comes from online.

Business Verticals:

(i) Entertainment and Communication: Is segment mein company televisions, sound systems, aur mobile phones bechti hai. In products ko design karne mein khaas focus user-friendly experience aur advanced features par hota hai.

(ii) Peripherals: Is category mein company True Wireless Earbuds, Neckbands, aur Smart Watches ko target karti hai. Yeh products especially younger generation ke liye designed hain jo technology ko actively use karte hain.

(iii) Modern Accessories: Is segment mein Cellecor power banks, data cables, aur various types ke chargers offer karti hai.

Market Presence:

(i) Company ke pass 1200+ service centers hain.

(ii) 800+ distributors ke saath tie-up hai.

(iii) 24,000+ retail stores mein inke products available hain.

Leadership:

Company ka leadership Mr. Ravi Agarwal ke haathon mein hai, jo ke 12 years se zyada industry experience ke saath company ko lead kar rahe hain. Unki leadership mein company ne distributor se brand bann kar ek badi journey tay ki hai.

Financials and Valuation of Cellecor Gadgets :

(i) The company has given 2 years results wherein the revenue in Fy22 was INR 121 cr and Fy23 is INR 264 Cr.

(ii) EBITDA in Fy22 was INR 3 Cr to INR 13 Cr in Fy23. EBITDA margins are 5%.

(iii) PAT has increased from INR 2 Cr in F22 to INR 8 Cr in FY23.

(iv) ROE post Issue would be ~12% which is decent.

(v) In April 2023, Cellecor Gadgets Limited issued 25,945 shares to Tano Investment Opportunities Fund at a price of INR 5875 per share. Subsequently, the company rolled out bonus shares in a 110:1 ratio, effectively diluting the share price to approximately INR 52 per share. With an upcoming Initial Public Offering (IPO) priced at INR 92 per share, this represents a substantial gain for the company.

(vi) EPS of Fy23 is 3.81 and P/E is 25x. Mcap of company is INR 192 Cr. Valuation looks strectched.

Tax Dispute of INR 4.70 Cr:

The Income Tax department has raised a Tax Deducted at Source (TDS) demand of INR 4.70 Cr for the Financial Year 2021-22 against the company. The Directorate General of Goods and Service Tax Intelligence (DGGI) conducted an inspection relating to the company’s suppliers, who are suspected to be in violation of certain GST regulations. During this inspection, all the required documents and information were provided by the company. As of now, no formal legal notice has been issued against the company regarding this matter.

Aim of Company:

Company ka primary objective ‘Bharat’ ke har kone mein high-quality tech aur electronic products pohochana hai, jo ki affordable prices par available honge.

Conclusion:

Cellecor Gadgets Limited appears to be a robust player in the Indian consumer electronics market. The company operates under three key verticals: Entertainment and Communication, Peripherals, and Modern Accessories. Despite not having an in-house manufacturing facility, the brand has carved out a significant market presence through strategic third-party manufacturing partnerships, akin to the business model of brands like Boat.

One of the remarkable aspects is their heavy reliance on offline channels, accounting for 97% of sales, which is both an asset and a potential limitation given the rise of e-commerce. Their leadership under Mr. Ravi Agarwal brings in a wealth of experience, steering the company through significant growth, as evident from their jump in revenue and EBITDA over the past two years.

However, it’s essential to note that Cellecor operates in a highly competitive and brand-conscious sector. Consumer electronics is an industry where brand perception can make or break a company, and constant innovation is vital for survival. While their financials look promising, with an upcoming IPO slated at a substantial gain, the valuation does seem stretched with a P/E of 25x and a market capitalization of INR 192 Cr.

The company’s aim to penetrate every corner of “Bharat” with high-quality, affordable tech products is commendable. Yet, given the competitive landscape, achieving this aim would require not just maintaining but also elevating their brand image, diversifying sales channels, and possibly considering in-house manufacturing for better quality control. The substantial gain from the recent share issuance to Tano Investment Opportunities Fund and the planned IPO are positive financial indicators but must be leveraged wisely for sustainable growth.