Lloyds Luxuries coming with an IPO to raise Rs 24 crore

Lloyds Luxuries

• Lloyds Luxuries is coming out with an initial public offering (IPO) of 60,00,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 40 per equity share.
• The issue will open on September 28, 2022 and will close on September 30, 2022.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 4 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Hem Securities.
• Compliance Officer for the issue is Shubhada Mahendra Shirke.

Profile of the company

Incorporated in 2013, the company is amongst the organized player of salon services and beauty products in India, focused on grooming men to perfection. It owns exclusive franchisee of Truefitt & Hill, which is an international brand offering a wide range of beauty products and salon services for men through the luxury barbershops operating across many countries. The brand is exclusively owned by Truefitt & Hill (Gentlemen’s Grooming) Limited, a company registered under the law of England and Wales and having its office in London, United Kingdom.

It begins its relationship with Truefitt & Hill in 2013, when it commenced operations of its luxury barber store in Mumbai. It has subsequently continued to expand its operations and as of March 31, 2022, it operates 14 barber stores under the brand Truefitt & Hill across 7 cities in India. The company holds the Master Franchise Agreement of “Truefitt & Hill” upto 2043. Under the franchise agreement, it owns exclusive rights to open stores in the brand name of “Truefitt & Hill” either directly or through sub franchisee arrangements in India, Nepal, Sri Lanka, Bhutan, Vietnam, Myanmar and Bangladesh. As of March 31, 2022, it has assigned sub-franchisee of Truefitt & Hill to 12 barber stores operating in 11 cities of India, through which it earns royalty and franchisee income. In 2017, it was successful in expanding its reach internationally through opening of first barber store in Dhaka, Bangladesh as sub-franchisee store. It provides sub-franchise with a comprehensive system of business training, stylist education, professional marketing, promotion, and advertising programs, and other forms of on-going support designed to help franchisees build successful businesses.

In addition, it has obtained exclusive franchise for MARY COHR in 2019 for 10 years, a French Beauty Salon which has presence across the Globe. Under the exclusive master franchise agreement, it owns exclusive rights to open stores in the brand name of “MARY COHR” either directly or through sub franchisee arrangements in India. Currently, it is operating a MARY COHR store at Santacruz, Mumbai.

Proceed is being used for:

• Financing the expenditure for opening new stores.
  
• Repaying of short term borrowings.
  
• Meeting working capital requirements.
  
• General corporate purpose.
  
• Meeting issue expenses.

Industry Overview

The Global Wellness Institute is the authoritative source for research on the ($4.4 trillion) global wellness economy, and the go-to resource for businesses, policymakers and academics. It’s the only organization that produces market data and deep analysis for all 11 wellness market sectors. The cosmetics and personal care industry is one of the fastest growing consumer products sectors in India with a strong potential for foreign companies. The personal care and cosmetics sector in India has shown continued strong growth, with increasing shelf space in retail stores and boutiques in India, stocking cosmetics from around the world. The Indian cosmetics and beauty products segment has been witnessing steady growth of late. It is primarily categorized into five major categories - body care, face care, hair care, hand care and color cosmetics. Indian beauty and personal care (BPC) industry is estimated to be worth $8 billion. India’s per capita spend on beauty and personal care is it is growing in line with India’s GDP growth.

Many international brands like Revlon (the first international cosmetics brand to enter India in the midnineties), Avon, Burberrys, Calvin Klein, Christian Dior, Estee Lauder, L’Oreal, Max factor, Max Mara, Body Shop, Maybelline New York, MAC, Bobbi Brown and many more have been present in India for an extensive period of time. The top three players in the Indian market are international players, namely Hindustan Unilever, Colgate-Palmolive India and L'Oréal India. The other prominent international players with a strong presence in the Indian market include Gillette India, Johnson & Johnson (India), Reckitt Benckiser (India) and Procter & Gamble Home Products. Domestic players were catching up over the review period with the emergence of the trends towards natural, herbal and Ayurvedic products. Prominent domestic players include Godrej Consumer Products, Dabur India, Marico, Wipro Consumer Care & Lighting, Emami and Patanjali Ayurved.

The swift growth of the beauty business has not only impacted Indian firms to encourage competition in the space, but has also lured numerous international brands to the country. To give an instance, today, India has very few professional make-up lines that can cater to the wide range of salons and professional make-up artists across the country. This gives an opportunity to international professional make-up lines to penetrate into the market. Similarly, the skincare segment in the Indian market is flooded with natural ingredients based products at present. Demands are high for products that are formulated using key ingredients like seaweed extracts and sea salts and other mineral-rich elements. Since these ingredients being exotic are found majorly in premium skincare segment, international players can seek to occupy a large share of the total space in the premium mass segment in the future.

Pros and strengths

Established brand name: It operates all its barbershops under the brand Truefitt & Hill, which have a pan-India appeal across regions. The brand is exclusively owned by Truefitt & Hill (Gentlemen’s Grooming) Limited, a company registered under the law of England and Wales and having its office in London, United Kingdom. It begins its relationship with Truefitt & Hill in 2013 through a master franchise agreement dated October 24, 2013, initially for 10 years, which was extended for the period of 20 years. As a franchisee partner, it has entered into a franchisee agreement to take the brand across India and to other countries rapidly. Dealing in the brand name of Truefitt & Hill provides it with the advantage of the customers relying on the quality of the product. Over the years, through the customer centric approach it has maintained the trust that the customers’ have in the brand name, which has been rewarded through the customers’ loyalty.

Online business, E-commerce and omni-channel: The company’s retail stores are supported by the company-owned e-commerce business in India, through its websites, and business accounts on social media platforms and e-commerce trading platform such as Amazon, Nykaa, flipkart etc. These virtual store fronts are designed with the intention of providing customers a positive shopping and brand experience, showcasing its products in an easyto-navigate format, allowing consumers to browse its selection of products. It is also present online through e-commerce platform. Total Online Product Sales amounted to Rs 27.80 lakh, Rs. 76.33 lakh and Rs 118.43 lakh, in Fiscal 2020, 2021 and 2022 respectively, and represented 4.41%, 11.15%, and 21.49% of its revenue from product sales for such periods, respectively.

Prime location of salons: The selection of the franchisee and the location of the store plays a crucial role in the success of its business. The location of the store is important from two aspects i.e., increasing the foot fall of the customers and secondly visibility of the store. The company’s franchisee store is located in the area which help in increasing the customer footfall which in-turn is converted into sales. All its owned barber stores are located in the prime areas of Mumbai, Pune, Delhi, Gurugram, Kolkata, Hyderabad and Bangalore.

Risks and concerns

Business wholly depends on franchise taken from Truefitt & Hill and Mary Cohr: In 2013, the company has entered into a Master Franchise agreement with Truefitt & Hill (Gentlemen’s Growing) under which it owns exclusive rights to open stores in the brand name of “Truefitt & Hill” either directly or through sub franchise arrangements in India, Nepal, Sri Lanka, Bhutan, Vietnam, Myanmar and Bangladesh. In 2019, it has entered into another Master Franchise agreement with Mary Cohr under which it owns exclusive rights to open stores in the brand name of “Mary Cohr” either directly or through sub franchise arrangements in India. All its salon stores exclusively use products of Truefitt & Hill (Gentlemen’s Growing) and Mary Cohr and if it is unable to source its materials on timely basis and execute its orders on time it may not be supplied required inventories and its sale of products and services will be adversely affected. Further, if it is un-presented hike in the prices of such products the company may be unable to source them at commercially acceptable prices, or at all, which will have an adverse effect on its business, financial condition and results of operations.

History of net losses: Based on the restated financial statements for the financial years 2021-22, 2020-21 and 2019-20 it has incurred losses of Rs. 916.78 lakh, Rs. 303.07 lakh and Rs. 323.80 lakh respectively. It expects to continue to incur net losses for the foreseeable future and it may not achieve profitability in the future. Because the market for its products and services is evolving, it is difficult for it to predict its future results of operations or the limits of its markets opportunity. It expects its operating expenses to increase as it hires additional personnel, broaden its marketing efforts and promotional activities, expand its operations and infrastructure, continue to enhance its brand, and develop and expand its capabilities, expand its products and services which may result in an increase in net losses.

No control over the businesses of sub-franchises: The company’s sub-franchise is independent operator and, while it can mandate certain operational standards and procedures through the enforcement of its sub-franchise agreements, they may take actions or conduct their businesses in a manner that could harm its business reputation and it may not be able to enforce its rights under the sub-franchise agreement in sufficient time to prevent damage to its reputation or at all. Moreover, sub-franchise may be less directly interested in preserving or enhancing the brand and reputation than it is. While it can terminate sub-franchises that do not comply with the terms and conditions of its sub-franchise agreements, its brand and reputation may nonetheless suffer as a result of the activities of its sub-franchises.

Outlook

Lloyds Luxuries is among the organized player of salon services and beauty products in India, focused on grooming men to perfection. The company owns the exclusive franchisee of Truefitt & Hill, which is an international brand offering a wide range of beauty products and salon services for men through luxury barbershops operating across many countries. On the concern side, the company’s business wholly depends on franchise taken from Truefitt & Hill (Gentlemen’s Growing) and Mary Cohr. It has entered into a Master Franchise Agreement with them, which imposes certain restrictions and other obligations on its operations and the termination of which would adversely affect its business, financial condition and prospects.

The company is coming out with a maiden IPO of 60,00,000 equity shares of Rs 10 each. The issue has been offered at a fixed price of Rs 40 per equity share. The aggregate size of the offer is Rs 24 crore. On performance front, the total income for the financial year 2021-22 stood at Rs 2086.05 lakh whereas in Financial Year 2020-21 the same stood at Rs 1855.58 lakh representing an increase of 12.42%. The main reason of increase was increase in the business operations of the company. The company reported restated loss after tax for the financial year 2021-22 of Rs. 916.78 lakh in comparison to Rs. 303.07 lakh in the financial year 2020-21. The company’s ability to continue its growth across geographies depends upon the strength of its brand, product offering and store economics. It is already present in Metropolitan and Tier I Cities, it will focus on increasing penetration by opening new stores. The key factor influencing the expansion of its stores is the selection of suitable locations. With increasing number of stores in other cities, it will be able to better capitalise on economies of scale which will enable it to drive better margins and enhance profitability, while also ensuring that it continue to be within easy reach of existing and prospective customers.