Fone4 Communications (India) coming with an IPO to raise Rs 6.80 crore

Fone4 Communications (India)

• Fone4 Communications (India) is coming out with an initial public offering (IPO) of 68,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 10 per equity share.
• The issue will open on April 25, 2022 and will close on April 27, 2022.
• The shares will be listed on SME platform of BSE.
• The share is priced at par of its face value of Rs 10.
• Book running lead manager to the issue is Finshore Management Services.
• Compliance Officer for the issue is Nisha Shaw.

Profile of the company

Fone4 Communications (India) Limited is an online E-commerce Electronics outfit which commenced its business in the year 2014. The company is promoted by its visionary promoter Sayyed Hamid and headquartered at Cochin, Kerala. Inspired by the growth in the Online E-Commerce segment particularly for electronics and electricals gadgets, the company developed a robust Technological Platform www.fone4.in, wherein customers could buy their desired products through online E-Commerce with attractive offers and more particularly during festive and other seasons. The company has a wide range of offerings through both online as well as offline platform for electronic gadgets and accessories for Smart Phones, Laptops, Smart Television etc on the likes of Apple, Samsung, Oppo, Vivo, Xiaomi, Nokia, Redmi, Techno, Karbonn, One Plus, Dell, Lenovo, Asus, HP, Acer, Avita, TCL, LG, Sansui etc.

In a bid to boost the online E-commerce sales in the State of Kerala, the company gradually started opening up retail stores at strategic locations and presently the company has 25 showrooms spread at: (Calicut (02), Cochin (06), Kollam (02), Kottayam (02), Malappuram (01), Palakkad (07), Thrissur (02), Trivandrum (03). Whilst the retail stores are located at prominent locations to attract greater footfalls but the overall idea was to effectively deliver the products booked through online. The company has emerged as one of the most trusted online platform outfit for purchase of Electronics gadgets and accessories in the State of Kerala.

Though E-Commerce has no boundaries but to be more effective the delivery logistics chains play a key role in this model to be more successful. The company has a plans to expand the base to the entire Southern Region by either having its own Retail Stores or through a franchise model. The presence in the Southern Region will make the company as well as its E-Commerce model a One Stop Techno Hub for buying leading brands of electronics gadgets and accessories.

Proceed is being used for:

• Meeting working capital requirements.
  
• Meeting meet the Issue Expenses.
  
• General corporate purposes.

Industry overview

E-commerce has transformed the way business is done in India. The Indian E-commerce market is expected to grow to $111.40 billion by 2025 from $46.2 billion as of 2020. By 2030, it is expected to reach $350 billion. By 2021, total e-commerce sales are expected to reach $67-84 billion from the $52.57 billion recorded in 2020. India’s e-commerce market is expected to reach $111 billion by 2024 and $200 billion by 2026. Much of the growth for the industry has been triggered by an increase in internet and smartphone penetration. As of July 2021, the number of internet connections in India significantly increased to 784.59 million, driven by the ‘Digital India’ programme. Out of the total internet connections, 61% connections were in urban areas, of which 97% connections were wireless.

India's consumer digital economy is expected to become an $800 billion market by 2030, growing from $537.5 billion in 2020, driven by strong adoption of online services such as e-commerce and edtech in the country. With a turnover of $50 billion in 2020, India became the eighth-largest market for e-commerce, trailing France and a position ahead of Canada. According to NASSCOM, despite COVID-19 challenges/disruptions, India's e-commerce market continues to grow at 5%, with expected sales of $56.6 billion in 2021. Propelled by rising smartphone penetration, launch of 4G network and increasing consumer wealth, the Indian E-commerce market is expected to grow to $200 billion by 2026 from $38.5 billion in 2017. Online retail sales in India is expected to grow 31% to touch $32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.

The E-commerce industry has been directly impacting micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well. Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest E-commerce market in the world by 2034. Technology enabled innovations like digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements will likely support the growth in the sector. The growth in E-commerce sector will also boost employment, increase revenues from export, increase tax collection by exchequers, and provide better products and services to customers in the long-term. Rise in smartphone usage is expected to rise 84% to reach 859 million by 2022.

Pros and strengths

Strategic location and facilities: The company has 25 showrooms in Kerala where its products are displayed for customers to try before purchasing them. The company’s stores are strategically located in areas of high foot traffic drawing customers at all times of the day, on weekdays and weekends. The company has a centralised warehouse, located in the registered office and it uses trusted courier agency for stock movement. Its cost efficient supply chain management results in a significant reduction in its operational costs. With its experience, the company is able to procure its raw materials at a competitive price. The location of its current facilities gives it a significant competitive cost advantage in terms of lower logistical costs.

Wide distribution and marketing network: For deeper market penetration, establishment of strong chain store network is an integral part of its business operations. The company has been working tirelessly on expanding its chain store network. At present, the company has an extensive network of 25 stores in most of the major cities in the state of Kerala. As it continues to grow, the company needs to maintain strong distribution network enabling it to achieve market penetration.

Diversified products portfolio and innovation: The industry is highly exposed to the risk of frequent change in customer preference for designs trends and obsolescence of technology. It insulates itself from these changes by keeping pace with changing preference trends and stocking new and innovative designs and products. The company does not have slow moving products. Also, it has a buy back arrangement with manufacturers if a product is not moving as expected. The company’s comprehensive range of products enables it to capitalize on growth opportunities and demand in the electronic gadgets and accessories market.

Risks and concerns

Maximum revenue comes from limited number of brands: At present, the company derives most of its revenues from the sale of products from limited number of brands. For the year ended March 31, 2021, the revenue from its top five brands was 87.99% of its revenue from sale of products - consumer electronics and durables. Its business and results of operations will be materially and adversely affected if it is unable to maintain a continuing relationship with these brands or develop and maintain relationships with other new brands. The loss of a significant brand or a number of significant brands due to any reason will result in sales getting impacted which will have a material adverse effect on its business prospects and results of operations. The company cannot assure that it will be able to maintain historic levels of business from such significant brands, or that it will be able to significantly reduce its dependence on such limited number of brands in the future.

Geographical constrain: The company has derived a substantial portion of its revenue from products sold to customers based in Kerala only. If the economic conditions of Kerala become volatile or uncertain or the conditions in the financial market were to deteriorate, especially in recent times due to the COVID-19 pandemic, or if there are any changes in laws applicable to its industry or if any restrictive conditions are imposed on it or its business, there will be a severe impact on the financial condition of its business. Further, the ultimate customers located in these geographies may reduce or postpone their spending significantly which would adversely affect its operations and financial conditions.

Business is subject to seasonal and cyclical volatility: The company offers products at its stores that its consumers require and its success is dependent on its ability to meet its consumers’ requirements. The retail consumer spending is heavily dependent on the economy and, to a large extent, on various occasions such as festivals, seasonal changes, weddings, etc. Any year also has phases of lean sales. The company has historically experienced seasonal fluctuation in its sales, with higher sales volumes associated with the festive period in the third quarter of each Financial Year. It has also seen higher sales volume of particular products in a certain season. These seasonal variations in consumer demand subject its sector to a considerable degree of volatility. Also, since its business is seasonal in nature, it is vulnerable to non-availability of products during the peak season where there are higher number of footfalls. Such instances may lead to its customers approaching its competitors. This may lead to a reduction in its customer base. Further, it is vulnerable to demand and pricing shifts and to suboptimal selection and timing of merchandise production. If sales do not meet expectations, too much inventory may lower planned margins. The company’s brand image may also suffer if customers it is no longer able to offer the latest products. The occurrence of these events could adversely affect its cash flows, financial condition and business operations.

Outlook

Fone4 Communications (India) is an online Electronic E-Commerce company and distributes a wide range of products online and offline such as electronic gadgets and accessories for Smart Phones, Laptops, Smart Television, etc. from major manufacturers such as Apple, Samsung, Oppo, Vivo, Xiaomi, Nokia, Redmi, Techno, Karbonn, One Plus, Dell, Lenovo, Asus, HP, Acer, Avita, TCL, Xiaomi, LG, and Sansui. On the concern side, a large part of the company’s revenues is dependent on a limited number of brands. The loss of any of its major brands or a decrease in the supply or volume from such brands, will materially and adversely affect its revenues and profitability. Moreover, the company’s revenues are highly dependent on its operations in certain geographical region of Kerala. Any adverse development affecting its operations in these regions could have an adverse impact on the business, financial condition and results of operations.

The company is coming out with a maiden IPO of 6800000 equity shares at a fixed price of Rs 10 per share to mobilize Rs 6.80 crore. On performance front, the company’s total revenue during the period (Apr 01, 2021 to December 31, 2021) was Rs 4212.57 lakh. The revenue from operation was Rs 4195.96 lakh which is almost 99.61% of total revenue which consist of sales of Consumer electronics products. The restated net profit after provision for tax as per restated financials for the said period (Apr 01, 2021 to December 31, 2021) was Rs 8.64 lakh which is 0.21% of total revenue. Going forward, the company intends to expand its footprint across all states in South India, as an initial step it will start with one store in all major towns in South India, then expanding to Tier 2, Tier 3 & Tier 4 towns. Its plan is to reach 400 Retail Stores and be rated as the most trusted electronics goods retail chain in South India by its customers. Moreover, the company’s strength has been the quality and the diverse range of products which it offers to its customers. The company has been upgrading and renovating the retail outlets at regular intervals with a view of operating better operational efficiency and customer experience.