Understanding of Business, Financials, Risks and Valuation of Mish Design SME IPO

A) Business Model and Operations

1. Product Portfolio: MISH offers a wide variety of products in the women’s western wear segment, including Dresses, Gowns, Tops, Co-Ords, T-shirts, Trousers, and Palazzos. This diverse range likely helps in attracting a broader customer base.

2. Design and Manufacturing: With an in-house design team and a manufacturing unit employing over 54 people, MISH appears to have good control over its supply chain, from design to production.

3. Digital Presence: The company has strategically partnered with major e-commerce players like Myntra, Nykaa, and others, which is a smart move given the increasing shift towards online shopping.

4. Business Mantra: “Dresses that make you stand out” suggests that the brand positions itself as a provider of unique, attention-grabbing apparel.

5. Workforce: With over 54 employees in the manufacturing unit, the company seems to have a decent-sized operation, which is likely necessary to maintain their extensive product range.

B) Market Strategy

1. Focus on E-commerce: MISH has astutely focused on digital platforms for its sales, a strategy that appears to be paying off given its revenue growth.

2. Affordability: MISH’s focus on affordability likely makes it appealing to a larger consumer base in a price-sensitive market like India.

3. Trend-Driven: With a collection of over 1000 trending designs, the company is clearly aiming to be a trendsetter in the market.

C) Challenges and Areas for Improvement

1. Dependency on Third Parties: While e-commerce platforms offer visibility and customer reach, dependency on them exposes MISH to the risk of increased commission and logistics fees.

2. Negative Cash Flows: Negative cash flows from operations and investing activities indicate a need for better cash management.

3. Low Sales Through Own Website: Currently, just 1.34% of revenue comes from sales through the company’s own website, which could be a missed opportunity for higher margins.

4. Inventory Management: The increase in inventories could lead to higher holding costs and potential obsolescence, especially in a fast-moving industry like fashion.

D) Growth in Revenue

1. The company has seen a significant increase in revenue over the last three years. It went from ₹4.18 Cr in FY21 to ₹11 cr  in FY23, showcasing a robust growth trajectory.

2. Revenue Sources: The majority (87.15%) of the revenue comes from online e-commerce platforms, followed by offline modes (11.51%) and their own website (1.34%). The company have a strong partnership with platforms like Myntra and Nykaa, which contribute significantly to the revenue.

3.  Gross Margins: The gross margins stand at 43%, indicating that the company is able to maintain a reasonable markup on its products.

4. Net Profit Margin (NPM): With an NPM of 5.45%, the company  is maintaining its profitability, albeit at a lower scale compared to its gross margins.

E) Expense Management

1. Commission and Logistics: These are significant costs for the company, consuming 30.26% of the revenue as of FY23. This is an increase from 24.21% in FY22 and 23.58% in FY21, indicating rising costs in these departments.

2. Negative Cash Flows: The company had negative cash flows from operating and investing activities, mainly due to the increase in trade receivables and inventories. This could be a concern for liquidity and should be closely monitored.

F) Valuation

1. Market Capitalization: The company is valued at ₹34 Cr with a PAT (Profit After Tax) of ₹60 lakhs.

2. Price-to-Earnings (P/E) Ratio: With a P/E ratio of 56x, the company does appear to be costly, especially when considering the operational costs and cash flow statuses.

G) Risks and Recommendations

1. Dependence on Third Parties: Heavy reliance on third-party e-commerce platforms exposes the company to the risk of increased commission fees and logistics charges, especially as demand for these platforms grows.

2. Customer Satisfaction: Being in a niche market of women’s western wear, customer satisfaction becomes extremely crucial. Any lack of it can adversely affect the business.

3. Expense Management: Given the increasing percentage of revenue spent on commissions and logistics, the company needs to look into better negotiation with partners or potentially explore other efficient options.

4. Diversification: Since 87.15% of revenue comes from third-party platforms, diversifying the revenue stream by boosting sales through its own website could be beneficial.