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boAt Floats an IPO - Read All About It

Feb 9, 2022 1:41 PM 6 min read

The first Indian D2C (direct-to-consumer) company to hit the bourses has finally emerged. 

Imagine Marketing, the parent company of the boAt brand of earphones and smartwatches, filed its prospectus with SEBI to go public recently. 

The six-year-old company has quickly turned into one of the largest digital-first brands in India by capturing a sizable market share in the consumer electronics space. It currently leads the markets with its multiple and fast-growing product categories that have become a favourite with customers and investors alike for their utility and value proposition respectively. 

Well, now, time to decode its IPO proposition!  

Quick Facts

  • Issue Size: ₹2,000cr ($268.4m) 
    • Fresh Issue: ₹900cr ($120.8m)
    • Offer for Sale: ₹1,100cr ($147.6m)
  • Targeted Valuation: $1.5-2bn
  • Issue Type: Book-built
  • Issue Breakup: QIBs (60%), rest unknown


Shareholding Pattern

The promoters (Aman Gupta and Sameer Mehta) each hold 28.26% on a fully diluted basis while Warburg Pincus (via its affiliate South Lake Investment) remains the largest shareholder with a 36.48% stake in the company. Other shareholders include Fireside Ventures (3.76%), Qualcomm Ventures (2.6%) etc. 

It has also raised venture debt from Flipkart co-founder Sachin Bansal's BAC Acquisitions, InnoVen Capital etc.

Post-issue, the promoters will sell shares worth ₹150cr ($20.1m) each and Warburg Pincus will sell ₹800cr ($107.3m) in a secondary offering (what is secondary sale?). 


Funding and IPO Spends

The company has raised nearly $116m in funding till date. It may additionally raise up to ₹180cr ($24.1m) through private placement, preferential issue or other ways to secure anchor investments in the run up to the IPO. 

The IPO proceeds are expected to be used for repayment (and prepayment) of loans and towards general corporate purposes. 


Captain and Tennille of This boAt

Although the origin story isn't so illustrious, the success story of boAt is. A couple of business-minded chaps from Delhi joined hands to set up the company back in 2013 to market a brand of durable, fashionable and, most importantly, affordable audio electronic accessories in the country. 

The goal was to offer an alternative to "another me-too sourced" product from China. Mehta cements this vision by describing the company as the "Zara of electronics, not highly-priced like luxury brands or cheap like Chinese products". 

Within less than a decade of its incorporation, the company has implemented a highly profitable business model that has enabled it to sell four products every minute and triple revenues in a year. The founders have cultivated an intricate customer-brand relationship where the buyers are considered a part of the "boAt family". The Indianness of the brand has also been marketed heavily through a wide range of celebrity endorsements. 

FYI: The name boAt is a pun on the journey of an individual to a place where they feel at ease and lose their troubles, sort of like a "plug into nirvana"state - a line which happens to be the official tagline of the company. 


boAting Out of the Harbour

The timing of boAt's launch itself was rather inauspicious because around the early 2010s, Chinese smartphone and electronics brands were flooding into the Indian markets and often drowning out local players in the process.

But the company showed exceptional brilliance by turning this inauspiciousness into opportunity. It started small by launching portable chargers and cables. Slowly, it built upon the quality and premium index of the products. Instead of a sourcing-from-China model, boAt devised a contract-manufacturing-in-China-while-owning-design IP-in-India model. This remained key to its staying ahead in the race. 

Another factor that contributed to boAt's success is its products being a hit among the younger buyers. Why so? 

One, the design language - increasingly muted but highly stylised and often featuring graphics from its collaborations with other popular brands like Marvel, Bira, Masaba Gupta (designer) etc. 

Two, heavy marketing through high-profile partnerships (e.g. IPL, Sunburn, Lakmé Fashion Week). 

Three, continued feedback engagement from the customers and boAt's online community who are often dubbed as "boAtheads". The consumer-first approach is the reason why the brand has resonated well with the younger audience which tends to be more active online and more receptive to a product that can be a part of its lifestyle. 


Company Financials

BoAt's primary sales routes are online marketplaces like Amazon and Flipkart - a whopping 83.24% of its revenues from operations comes from the online channels. Even though its product portfolio is fairly diverse, audio products (earphones, headphones, speakers etc.) account for nearly 83% of sales and wearables (watches, wristbands etc.) account for 14.05%. 

The company's target revenue has doubled from ₹500cr ($67.1m) in 2019 to ₹1,000cr ($134.2m) by Fiscal 2024, a target that it seems to have surpassed given FY22 sales. 

BoAt's last valuation stood at ₹2,200cr ($295.3m) in April 2021. Its target valuation post-IPO is $1.5-2bn, as reported in the media, which gives an EV/Sales multiple of 10x in FY21 (calculated using median valuation of $1.75bn). Based on 6MFY22 and loosely annualising it for the year, the EV/Sales comes out to be roughly 5x - lofty multiple for lofty growth! 

Besides making a killing in sales, boAt has also orchestrated useful acquisitions, like the Singapore-based Kaha (an IoT product development company) and Kimirica Lifestyle (a subsidiary of India's largest luxury toiletries manufacturing company). This is highly favourable as far as expansion of business and product diversification are concerned. 

However, the company has witnessed negative cash flows over the past few fiscal years (see chart above) which is anomalous given its hyper revenue growth. If that continues, it may be difficult to successfully integrate or leverage its business expansion plans in the future. 

But the company remains largely profitable. In fact, it is the second profitable startup in India (after Nykaa) to have opted for an IPO. Coincidentally, it is also the second Indian startup (after Nykaa) where promoters will maintain more than 50% ownership post-issue. 


Things to Look Out For

Although there are no listed industry peers of boAt, the hearables (wired/wireless earphones and headphones) market in India is stacked at the moment. BoAt is joined by many other brands who are riding high on the increasing demand for consumer electronics in the country - Noise, Fire-Boltt, Ptron, Titan etc.

But boAt has managed to carve out its own place in a cluttered market, something that was highly aspirational for an Indian brand given the economics of scale involved in competing with Chinese electronic brands. Even a global major like JBL was compelled to make a "downward revision" of its product prices in India at one point to compete with boAt in the affordable audio segment. 

Having said that, the company's massive imbalance in online-offline sales (85:12) is worrisome. The top two online marketplaces - Amazon and Flipkart - accounted for 75.02% of its revenue. This excessive dependence could be counterproductive for a company which seems to have real growth potential because however profitable (and exclusive) it seems, a relationship with e-commerce intermediaries can go south in an instant and thus impact financials in a very tangible way. If there's anything we have learnt from Amazon's preferential behaviour with merchants, it's that it favours its own above all else. (What are we talking about?)

Another point to note is the contract manufacturing business model of boAt. Almost 89% of all its products are made in China which is bad for both business as well as optics right now. It is not just the threat of a protracted trade war that is concerning but also the fact that a singular manufacturing reliance on this scale is never advisable.

Perhaps, it's a good thing that the promoters are evidently making efforts to reduce this reliance by farming out contracts to manufacturers based in Vietnam and India (Dixon Technologies). 

Considering Aman Gupta's impressive tryst with investments in Shark Tank India, we can probably rest assured that he knows what he's doing with his business by taking it public. Here's waiting to see whether it's going to be rough seas or a smooth sailing for this boAt ahead. 


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