After Dropping The Idea Twice, VLCC Finally Files For IPO; Here's What We Know So Far

VLCC (formerly Vandana Luthra Curls and Curves) is a beauty and wellness company that has filed for an initial public offering (IPO). It plans to issue fresh issue shares worth Rs 300 crore, while the promoters and other investors will sell a part of their holdings through an offer for sale.

The company had previously filed a draft red herring prospectus (DRHP) for an IPO in 2015, but cancelled the plans on the advice of investment bankers. It again planned for an IPO in 2017 but abandoned the plans again. If one observes the timing, the company has been trying hard to list during periods of investor optimism, but has been unable to do so.

The company operates in three major segments:

1. VLCC Wellness Clinics: The company has a network of 191 Wellness Clinics spread across 106 cities in 23 states, 88 of which are franchisee operated. While the company-operated Wellness Clinics are located mostly in metropolitan and tier I cities, franchisee-operated Wellness Clinics are located largely in tier II and tier III cities, which has helped VLCC penetrate further into the Indian market.

   The company also operates 25 Wellness Clinics in UAE, Qatar, Oman, Kuwait, Bahrain, Kenya, Sri Lanka, Bangladesh, and Nepal. In order to make its offerings more appealing, it has entered into agreements with the Indian Medical Association (IMA), receiving a “Recommended by IMA” tag. The company claims to have a high retention rate of 60 per cent, which has increased from 50 per cent last year. However, the increase is possibly due to the overall fall in FY21 numbers.

2. Personal Care Products: VLCC operates in the personal care products segment through its brand VLCC Natural Sciences. It has 118 personal care products under its umbrella, with 108 manufactured in its own plant. While the company sells to 110,000 retail outlets contributing to 74 per cent of sales, 24 per cent of its sales come from online channels.

   The share of online sales was 9 per cent in the last year. The rapid increase was due to the decrease in physical store sales and an increase in online sales during the lockdowns. Its Singapore-based subsidiary manufactures and sells premium personal care products, while another subsidiary, VLCC Wellscience, sells nutraceuticals.

3. VLCC Institutes: VLCC operated 94 Institutes located in 67 cities across India, of which 42 were franchisee operated. Between Fiscal 2019 to Fiscal 2021, the institutes trained 7,300 students annually on average. The figures appear lower than the numbers in the 2015 prospectus. The company had trained 10,000 plus candidates in 2015 alone.

Financials:

The company’s revenues have decreased each year from Rs 852 crores in FY19 to 532 crores in FY21. The company had also posted net losses for the past two years. The DRHP claims that the company was exiting loss-making non-core businesses like certain wellness services that caused losses and a fall in revenue. It has also said that operations were impacted by Covid in March 2020, which caused the company’s wellness centres and physical outlets to shut down.

The company’s 2015 DRHP shows a secular increase in revenues until 2015. Unless the market has changed drastically, the company might be able to come back to its original growth phase. However, in spite of operating losses, the company has continually generated positive cash flows for investors. It has used the cash flows to lower its debt burden.

The company has not paid its previous employees the money it owes after having removed them. It is certainly questionable as to why the company is not paying back amounts. The company and its subsidiaries together are required to pay around Rs 15 crore to the employees. The company’s liquidity position is relatively strong. Therefore the non-repayment of due does raise several questions.

The company’s net fixed asset turnover ratio has been decreasing from more than 3x to 2x. The decrease has been due to the decrease in sales, rather than decreasing efficiency. The company operates its wellness clinics on a leasing model that helps keep capital expenditures low. Similarly, the franchise model helps it leverage its brand value without having to invest in new locations.

The company still hasn’t given any valuation figures; however, given its desire to list only during periods of market frenzy, you can expect it to value itself quite high.

Key Risks:

Low Barriers to Entry:

The business has low barriers to entry, with many unorganised and organised competitors. The intense competition can affect the company adversely.

Revenue Concerns:

Covid has hit the company hard, and the company’s revenues have fallen for the past two years across segments due to supply chain disruptions and lockdown.