Myntra Designs Pvt Ltd

MYNTRA DESIGNS PVT LTD

Company Report: India-ecommerce-Unlisted 30 SEP 2014

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COMPANY BACKGROUND

Beginning

Myntra Designs Pvt Ltd (Myntra) claims to be India’s largest fashion e-tailer. The company was founded in 2007 by IITians Mukesh Bansal, Ashutosh Lawania and Vineet Saxena with a focus on personalization of gift items. By 2010, Myntra shifted its focus to the online retailing of branded apparel.

Since inception, the company appears to have raised 7-8 rounds of funding aggregating around Rs 6.9b (Rs 689 crore) from reputed investors like Accel Partners, Tiger Global, IDG Ventures, NEA Indo-US Venture Capital and Premji Invest. It was acquired by online hypermarket Flipkart in May’14 for a valuation of Rs 20.1b.

Promoters

Flipkart was promoted by 3 people: Mukesh Bansal, Vineet Saxena and Ashotosh Lawania in Feb’07. These were the founder directors as well. The latter two quit the board on Oct’08. However, Ashutosh Lawania continued to the included in the term ‘founders’ in subsequent legal documents.

Currently, Mukesh Bansal is the main promoter of the company. The shareholding patter as on Sep’13 was as follows (with an issued equity capital of 5.1m shares of Rs 1 each) :

As on Sep’13

Directors 53%

Venture Cap 6%

Foreign Companie

s 34%

Bodies Corp 7%

Shareholding Pattern

Board of Directors

Name Designation

Mukesh Bansal Director

Vani Kola Director

Subrata Mitra Director

Lee Jared Fixel Director

Ankit Nagori Director

Address

AKR Tech Park, 3rd Floor, 7th Mile Krishna Reddy Industrial Area Hosur Road, Bangalore - 560068

Financial Summary

Year ending June 30 FY11 FY12 FY13

Net Sales (Rs mn) 181.1 671.6 2124.9

EBITDA (Rs mn) -141.9 -493.1 -1308.0

EBITDA Margin (%) -78.3 -73.4 -61.6

PAT (Rs mn) -151.7 -512.6 -1347.6

Net worth (Rs mn) 841.8 1783.6 3856.8

Debt (Rs mn) 38.4 5.0 109.2

Sales Growth (%) 92.9 270.8 216.4

PAT Growth (%) 106.4 238.0 162.9

ROE (%) -28.4 -39.1 -47.8

ROCE (%) -33.7 -45.6 -56.6

D/E (x) 0.0 0.0 0.0

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India-Ecommerce-Unlisted Myntra Design 30 Sep’14

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From FY13 Annual Report

However, the above was not indicative of the true equity holding, given that PE investors held 28.2m preference shares.

In other words, if the PE shares were converted to common shares, promoter holding would reduce from 53% as shown the previous pie chart, to 8.16%.

BUSINESS HIGHLIGHTS

Fashion Retailer: Myntra initially was into personalised gift items. It mainly operated on the B2B (business to business) model during its initial years.

Between 2007 and 2010, the online portal allowed customers to personalize 15 products such as t-shirts, mugs, mouse pads, calendars, watches, teddy bears, pendants, wine glasses and jigsaw puzzles. Customers could order for these online and these would be home delivered in 3 days’ time

Within the initial 3 years, Myntra became India’s largest personalization platform with more than 50% of the market share. It also offered the personalization of jerseys of various cricket and football teams including the Indian cricket team, the IPL teams and the Premier League football teams.

In 2010, it expanded its catalogue to include fashion and lifestyle products. Myntra tied up with various popular brands to retail a wide range of latest merchandise from these brands.

Myntra offered products from 350 Indian and International brands by 2011. Brands like Nike, Puma, Converse, Adidas, Decathlon, Reebok, Lee Cooper, Numero Uno, Sketchers, Crocs, Fila, Lotto, ID, Catwalk, Carlton London and Red Tape found the perfect online retail platform. Myntra also had casual wear for men and women from brands like Jealous 21, Forever New, Classic Polo, Inkfruit, Lee, Nike, Inc., Probase, Puma, Adidas, Reebok, Ed Hardy, Decathlon, Lotto, Mr. Men, Tantra and Guerilla. The website saw the launch of Fastrack watches and of Being Human, the brand

The company now offers over 500 leading Indian and international brands.

Marketplace: Myntra has about 100 sellers on board and plans an aggressive increase to to 1,000 by FY15 end.

Logistics: Myntra delivers most orders within 7 days from the order date. The orders are dispatched through our own courier service - Myntra.com Logistics, or through other courier partners such as Blue Dart, Quantium, etc.

For all the subsequent purchases of Rs. 999 or more, Myntra delivers the order at the customers home free of cost. A shipping charge of Rs. 99 is applicable to all orders under Rs. 999.

People: According to media reports, Myntra employs around 1500 people currently.

FINANCIAL HIGHLIGHTS

The one positive thing Myntra has done is – to grow topline robustly. It appears growth has picked up recently. In FY12 and FY13, revenues grew more than 3x the previous year. In FY14, according to media reports, the company has reported revenue of Rs 800 crore, which is 3.8x FY13 revenue. This is astounding, to say the least.

However, the flipside is the profitability performance. That is, in one word, horrible. Check the chart below. Earnings before depreciation and tax, in other words, cash profit, were -60% of sales in FY13, fully five years after starting operations.

This raises the question – is this a real business?

The other thing Myntra was very smart at, was raising funding (next section)

-110.7%

-72.0% -78.3% -73.4%

-60.7%

FY09 FY10 FY11 FY12 FY13

EBDT (or Cash Profit) margin



FUNDING AND FUTURE PLANS

Myntra is now owned by Flipkart, but while it was around, it did very well in terms of raising funding, and at increasing better valuations.

In its 7 years of existence, Myntra raised funding atleast once in each year.

When Amount (Rs m)

Price (Rs) Investors

FY08 7.5 78.95 Erasmic, Sasha Mirchandani

FY09 173.5 45.5 IDG, NEA

FY10 45.5 36.8 Tiger Global

FY11 617.4 78.2 Tiger Global

FY12 921.3 164.6 IDG, Accel, Tiger

FY13 1350.5 218.1 IDG, Tiger, Accel

FY13 722.7 302.5 Exclusively.in Inc

FY14 3055.2 261.2 PIOF, Tiger, IDG, Accel FY15 2102.1 400.0 Flipkart

In round in FY12 was raised in was raised in Aug’11. It appears the company was struggling for funds by end of FY12, since it seems to have taken a Rs 15 crore loan from SVB India Finance, a subsidiary of US-based Silicon Valley Bank. In return, SVB got right to subscribe to preference shares. It does not seem to subscribed to those rights, unless it did just before the Flipkart transaction.

The total funding raised till FY14 was around Rs 6.9b (Rs 689 crore). With the additional Rs 2.1b put in by Flipkart, the funding goes upto Rs 9b (Rs 900 crore).

There seem to be instances were a dilution has occurred at a price less than the previous round. That should ideally lead to triggering of price protection clause.

Merger with Flipkart: It is not clear if Flipkart paid cash for existing shares, or the shares will be swapped, and Myntra ultimately merged with Flipkart.

It appears the company may have been facing difficulties in fund raising by FY14. The last round appears to have been at a lower price, though it was a good size. This round was raised in Feb’14. With the increasing aggression by global e-commm player Amazon, it seems both Flipkart and Myntra felt it was better to join hands. Common investors like Accel and Tiger would certainly have helped in this.

Within 4 months of this round, the company announced acquisition by Flipkart, which put in fresh capital of Rs 2.10b.

If we value existing equity at Rs 400, then Myntra’s valuation does come to Rs 20b, as reported by the management

As per our estimates, the progression of valuations is as follows:

*this assumes that one preference converts into one equity share without adjustment of premium

The last column represents Flipkart deal, where the company valuation touched Rs 20b.

Since Myntra is making huge losses, Price/Sales metric could be the one used for making these deals. Flipkart seems to have invested at 2.5x FY14 (trailing) sales.

That is astronomical to say the least. Typical sales multiple of 2-3x or more are seen in sectors like FMCG and pharma, where there is considerable entry barrier – brand value / intellectual property etc. Profit making retailers typically quote at less than 1x sales.

-

2

4

6

8

10

12

-

5,000

10,000

15,000

20,000

25,000

FY09 FY10 FY11 FY12 FY13 FY13 FY14 FY15

Myntra Valuation Progression*

Valuation (Rs M), LHS

P/S, RHS



Growth Plans: Post deal with Flipkart, the following targets are getting reported in the media:

Rs 20b revenue by FY15

Myntra claims to have 30 per cent share of

online fashion market and along with its new

parent Flipkart, its share in the segment is 50

per cent. It plans to raise market share to 65-

70% in 2 years (presumably FY17)

It has launched private label brands

It is planning a fashion incubator, and fashion

weeks



FINANCIAL DETAILS

P&L (Rs mn) FY09 FY10 FY11 FY12 FY13

Net Sales 37.7 93.9 181.1 671.6 2124.9 EBITDA -41.7 -67.6 -141.9 -493.1 -1308.0 Margin (%) -110.7 -72.0 -78.3 -73.4 -61.6 Interest 0.0 0.0 0.0 0.0 21.3 Other Income 0.0 0.0 0.0 0.0 39.4 PBDT -41.7 -67.6 -141.9 -493.1 -1290.0 Depreciation 2.6 5.9 9.8 19.6 57.6 Extraordinary Item

0.0 0.0

PBT -44.3 -73.5 -151.7 -512.6 -1347.6 PAT -44.3 -73.5 -151.7 -512.6 -1347.6 PAT Margin (%) -117.5 -78.2 -83.7 -76.3 -63.4

FY14 revenue was reportedly Rs 8b as per media reports

Balance Sheet

(Rs mn) FY09 FY10 FY11 FY12 FY13

Liabilities

Equity Capital 9.2 10.5 18.4 24.2 33.3 Reserves 169.6 213.9 823.5 1759.4 3823.5 Shareholder Funds 178.9 224.4 841.8 1783.6 3856.8 Debt 0.0 9.2 38.4 5.0 109.2 Deferred tax liability 0.0 0.0 0.0 0.0 0.0 Other Long Term Lialilites 0.0 0.0 0.0 1.4 1.9 Total Liabilities 178.9 233.6 880.3 1790.0 3967.9

Assets

Fixed Assets (net) 9.5 14.6 27.3 145.7 172.2 Investments 111.3 29.5 410.0 0.0 137.4

Inventories 2.7 5.3 21.1 365.8 547.2 Debtors 7.1 21.3 42.4 236.0 398.9 Cash 3.2 60.7 152.0 267.9 661.9 Loans & Advances 4.1 7.1 30.5 23.3 42.2 Other CA 0.0 0.0 0.0 1.6 4.2

CL & Provisions 11.9 31.6 80.6 345.4 814.9 Net Current Assets 5.2 62.8 165.4 549.2 839.5 Misc Expenses 53.0 126.4 278.1 790.7 2132.7



Total Assets 178.9 233.4 880.7 1485.6 3281.8

Ratios

FY09 FY10 FY11 FY12 FY13

Growth (%) Sales

149.3 92.9 270.8 216.4

PBDIT 517.4 62.1 109.9 247.6 165.3

PBT 550.9 66.0 106.4 238.0 162.9

PAT 550.9 66.0 106.4 238.0 162.9

Margins (%) PBDIT -110.7 -72.0 -78.3 -73.4 -61.6

PAT -117.5 -78.2 -83.7 -76.3 -63.4

Balance Sheet Ratios ROE (%) -49.5 -36.4 -28.4 -39.1 -47.8

ROCE (%) -50.4 -42.2 -33.7 -45.6 -56.6

D/E (x) 0.0 0.0 0.0 0.0 0.0

Inventory t/o (days) 12.9 15.6 26.7 105.1 78.4

Debtors t/o (days) 34.2 55.2 64.3 75.7 54.5 WC Cycle (days) -6.0 -10.6 -19.3 98.1 68.4

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