Superb Analysis of TMRVL from STALLION Asset

The Badashah of Dalal Street, Rakesh Jhunjhunwala picked up 12.74% stake in The Mandhana Retail ventures (TMRVL) this quarter. TMRVL hold rights to manufacture and Sell Superstar Salman Khan’s retail venture Being Human.

Lets Understand the Business and Valuations of TMRVL in next 3 mins.

Being Human Started in 2010 as SuperStar Salman Khan’s way of doing charity and partnered with TMRVL for the same. I am sure you know the Being Human brand. Till 2016, 3% of revenues from Being Human would go to charity, but going forward 5% of revenue’s till 2020 from Being Human will go towards Charity as the terms changed this year. Being Human Brand is sold in 600 multibrand outlets and 60 exclusive stores half of which are franchisee’s.

Stallion’s View – Zara’s unique Fast Fashion model has transformed the apparel Industry. We at Stallion Asset access the Quality of apparel retailer using inventory turnover matrix. The secret of success of Zara and H&M is how quickly they sell their apparels. In India,There is a shift from Unbranded to branded happening and branded apparels companies are set to grow at 18-20% for next 5 years. Globally Apparels companies trade at 15-25x, depending on the inventory turnover and margin profile.

Lets Compare TMRVL with its competitors



TMRVL has been growing at 28% CAGR for last 3 years and has achieved this via 11% same store growth and 17% from new selling points. It has an impressive ROE of 34%, EBITDA Margins of 21% similar to Zara and Kewal Kiran (Killer Jeans). Zara in India has the best inventory turnover of 64 days, followed by Mandhana at 90 days, whereas Indian Terrian and Kewal Kiral are at 100 Days. All 3 companies have very little debt, and have ROE of 20%+.

TMRVL Business Model – The company outsources its manufacturing to various companies, brands it using Salman Khans name and sells it. Fashion business is influenced by trends and TMRVL has stood the Inventory turnover test well suggesting that they understand fashion trends well. The company is in its initial days of growth and there is a very long runway ahead.

Salman Khan an Asset or a Liability ?

In FY 2017 TMRVL will do an Revenue of approx 250-260 crores and Profits of 35 Crores, thats amazing for a 6 year old company, a large amount of credit of this success goes to Salman Khan. TMRVL will give Salman Khans Foundation 13 crores this year or 5% of revenue as per new contract till 2020. Salman Khan as per Market information charges 22 crores for being a brand ambassador and gives 2 days a year for shooting adverts whereas for Being human he is always seen around promoting the brand in all media interactions by wearing their T-Shirts. Association will Salman khan is very cheap in the short term, but in the long term every Superstar will eventually fade away and so will Salman khan. The company will still have to pay 5% royalty even after Salman’s popularity decreases. Being Human Brand is owned by Salman Khan and not TMRVL, there are questions on longevity of business.

Risks – 1) Corporate Governance Risk – The Promoters have screwed up bigtime in Mandhana and Mandhana has defaulted on its debt commitments. The Risk is mitigated with promoters having only one board seat in Mandhana Retail and with Rakesh Jhunjhunwala on Board you can’t possibly mess up on Corporate governance. They have appointed KPMG as auditor last quarter and should provide investors some faith in numbers.

2) Longevity – The brand Being Human is owned by Salman Khan, and Salman Khan as he did in 2016 may ask for increased royalty. The Risk is Partially mitigated by the fact the company already has 60 stores and will have 100 stores by 2020 by the time the contract expires. We believe after 100 stores the company Being Human will be bigger than Salman Khan, his popularity is expected to fade away gradually.

Valuation and Conclusion- TMRVL has better financials than KKCL with ROE of 30% with expected growth of more than 25% for next 3 years atleast, We believe that the company is pretty cheap based on financials. There is a 50% discount in valuations of KKCL and TMRVL currently, some of it is justified as TMRVL doesn’t own the brand, and questions on longevity of the business model. We at Stallion Asset have decided to buy TMRVL at extremely cheap valuation of 10-11 PE Multiple where our margin of safety is very high or above 240 when market starts recognizing the value of this company. Overall this is a gem in the retail fashion apparel space, with some problems but there is a 50% discount on it.