On Door Concepts coming with IPO to raise Rs 31.18 crore

On Door Concepts

• On Door Concepts is coming out with an initial public offering (IPO) of 14,98,800 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 208 per equity share.
• The issue will open for subscription on October 23, 2023 and will close on October 27, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 20.80 times higher to its face value of Rs 10.
• Book running lead manager to the issue is First Overseas Capital.
• Compliance Officer for the issue is Vaishali Bakliwal. 

Profile of the company

The company is engaged in the business of retailing household and consumer products through e-commerce platform and departmental stores. The company is a fast-upcoming regional Omni-channel retailer of groceries and household essentials. The company has the advantage of being one of early entrants in the supermarket industry to offer the convenience of both the colony stores as well as hyperlocal home delivery through online orders, most of its stores in the respective areas fulfil the on-line orders from their respective shelves. It opened its first store in Bhopal, Madhya Pradesh in January 2015. As of March 31, 2023, the company operates 55 stores in the cities of Madhya Pradesh. Out of 55 stores, the company owned and company operated (COCO) stores are 17 and the rest are operated through franchisee model.

On and average, its stores are in the format of colony convenience stores ranging from a size of 200 sq. ft. to 3500 sq. ft. depending upon the sales potential in the respective area, availability & layout of retail space of the area, number of online orders to be fulfilled from that store and assortment required for the catchment area of the store. The online orders that get allocated to the store get fulfilled completely by the store inventory. This is controlled by the use of technology that has the real-time visibility of the store inventory. The products shown to the consumers on its website and mobile app (On door - Online Grocery Shoppi) are only those products, which are available in the store mapped to their delivery location.

Proceed is being used for:

• Augmenting additional working capital requirements
• General corporate purposes

Industry overview

Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. It accounts for over 10% of the country’s gross domestic product (GDP) and around 8% of the employment. India is the world’s fifth-largest global destination in the retail space. India ranked 73 in the United Nations Conference on Trade and Development's Business-to-Consumer (B2C) E-commerce Index 2019. India is the world’s fifth-largest global destination in the retail space and ranked 63 in World Bank’s Doing Business 2020.

As per Kearney Research, India’s retail industry is projected to grow at 9% over 2019-2030, from $779 billion in 2019 to $1,407 billion by 2026 and more than $1.8 trillion by 2030. Revenue of India’s offline retailers, also known as brick and mortar (B&M) retailers, is expected to increase by Rs 10,000-12,000 crore in FY20. India’s direct selling industry is expected to be valued at $2.14 billion by the end of 2021. E-Retail has been a boon during the pandemic and according to a report by Bain & Company in association with Flipkart ‘How India Shops Online 2021’ the e-retail market is expected to grow to $120-140 billion by FY26, increasing at approximately 25-30% p.a. over the next 5 years. Despite unprecedented challenges, the India consumption story is still robust. Driven by affluence, accessibility, awareness and attitude, household consumption stood at Rs 130-140 trillion in 2021.

The COVID-19 pandemic has caused changes in consumer preferences, habits, and attitudes over the past two years. This has a significant impact on how people buy and consume goods and services. Global retailers are now using cutting-edge business strategies to take advantage of new retail opportunities. Consumers no longer distinguish between offline and online consumption channels. Due to this, major companies are experimenting with different ways to design seamless retail experiences that are integrated across all channels. By utilising both established e-commerce platforms and traditional techniques, retailers are also experimenting with revenue models to improve their customer value offer.

Pros and strengths:

Ondoor’s E-tailing business: Ondoor has a full stack of online business, which starts from android and iOS applications (Ondoor - Online Grocery Shoppi), web portal, a telephone ordering system and a complete backend logistics to retrieve, pack and deliver the order at the customers’ doorstep. The model involves mapping of the delivery location to the nearest Ondoor store. The items visible to the customer are only those which are listed and available at the mapped store. Since the inventory is monitored by its indigenous developed software system, on an online real time basis, the portal and the mobile apps get updated with the latest availability of the merchandise. 

Franchisee model: On Door FOCO model (Franchise Owned Company Operated) is formulated under which anyone whether individual/company etc. in any city (Presently in M.P) can undertake the On Door franchise by approaching the company & Paying the investment amount as set out by the Company depending upon the Locality & Size of the store.

Technology: Its stores are supported by IT and operational management systems specific to its business needs. Its IT systems are built with a wide range of data management tools specific to its business needs and support key aspects of its business, including procurement, sales and inventory control on a daily basis. Its integrated and fully developed IT stack, which includes consumer apps & website, app for the retrieval and delivery staff, store frontend POS, inventory management & procurement, store shelf management, supplier management & payments, analytics suite to predict demand and re-order levels, cash management, logistics systems, human resources and other administrative functions, are developed by its in-house team of software engineers in association with its operations team that continuously translates its on-ground learnings into software logics.

Risks and concerns

Requires high working capital: The Company‘s business demands substantial funds towards working capital requirements. In case there are insufficient cash flows to meet working capital requirement or company is unable to arrange the same from other sources or there are delays in disbursement of arranged funds, or company is unable to procure funds on favorable terms, it may result into its inability to finance working capital needs on a timely basis which may have an adverse effect on its operations, profitability and growth prospects.

Faces competition: The Company faces competition from existing retailers, both organized and un-organised, and potential entrants to the retail industry, it expect that competition will continue to increase. It faces competition across its business activities both in online model and touch n feel (stores) Model. Its competitors from organized retails are national brands like D’Mart, Reliance Retail, Spencer’s, Local/ Regional Chains and in online retail market players like Big Basket, Blinket and lots of new entrants.

Depends on third parties transportation: It does not have an in-house transportation facility and it depends on third party transportation service providers at every stage of its business activity including for procurement of products from its vendors or distributors and for transportation from its warehouse to various stores. For this purpose, it hires third party services of transportation. However, it has not entered into any definitive agreements with any third party transport service providers and engage them on a needs basis only.

Outlook

On Door Concepts is engaged in the business of retailing household and consumer products through e-commerce platform and departmental stores. The company is a fast-upcoming regional Omni-channel retailer of groceries and household essentials. On the concern side, the Indian retail market has become increasingly competitive in recent years. To remain competitive in the market it strives to improve its operational cost and its value proposition is centered on convenience at a reasonable price. It brings the large supermarket products, schemes and quality at the conveniently located colony store, which also delivers at the doorstep. Its tech stack is contemporary and competes with any other e-tailer.

The company is coming out with an IPO of 14,98,800 equity shares of Rs 10 each at a fixed price of Rs 208 per share to mobilize Rs 31.18 crore. On performance front, the revenue from operations for the FY 2023 was Rs 180.15 crore as compared to Rs 173.14 crore during the FY 2022 showing an increase of 4.05%. This increase is mainly due to increase in volume of business. Profit after tax after Extra-ordinary item increased from a loss of Rs 5.37 crore for the FY 2022 to a Profit of Rs 13.06 core in FY 2023. Meanwhile, it plans to expand its store network in western, northern and central India and extend its network to cover certain parts of southern India in next few years. For each of these regions, it opens and operates new stores on a cluster-based approach. When a suitable property in a location it is interested in becomes available on commercially attractive terms, it may further undertake a detailed analysis in relation to opening a new store at such location.