Style Baazar IPO: A Fashionable Bet or a Risky Investment? Here’s What You Need to Know

Kolkata-based value fashion retailer, Baazar Style Retail, known by its brand name “Style Baazar,” is about to go public. The company, which has backing from well-known investor Rekha Jhunjhunwala, is looking to raise ₹835 crore through its initial public offering (IPO), with shares priced between ₹370 and ₹389. This would value the company at ₹2,900 crore. Style Baazar is also planning to expand its presence beyond the eastern region of India. The question is: can Style Baazar become a major player in the national fashion market?

Strong Financial Performance

Style Baazar has shown impressive financial growth in recent years. The company went from making a profit of ₹5.1 crore in FY2023 to ₹22 crore in FY24. This jump in profit has been supported by an increase in its earnings before interest, taxes, depreciation, and amortization (Ebitda) margins, which rose from 10.9% in FY21 to 14.6% in FY24.

The company also makes efficient use of its store space, leading to higher sales per square foot. This figure increased from ₹5,226 to ₹7,758 over the past four years. Additionally, Style Baazar has strong customer loyalty, with repeat sales contributing around 72% to its total sales, up from 70% in FY23.

Style Baazar has also been expanding rapidly. Between 2019 and 2024, the company increased its store count at a compound annual growth rate (CAGR) of 35.8%. It now operates 162 stores across several states, outpacing competitors like Baazar Kolkata, M Baazar, Citykart, V2 Retail, and V Mart.

Focus on Apparel and Regional Presence

However, Style Baazar’s business is heavily reliant on apparel, which made up 84% of its revenue in FY24. This focus makes the company vulnerable to changes in fashion trends and consumer preferences.

Moreover, despite its strong presence in eastern India, the company’s revenue is highly concentrated in this region. Currently, about 87.3% of its revenue comes from stores in West Bengal, Odisha, Assam, and Bihar. This geographic concentration could be a risk if the regional economy faces challenges.

Risks of Cluster-Based Expansion

Style Baazar’s strategy of opening multiple stores in close proximity to each other, known as a cluster-based expansion model, has its advantages, but it also comes with risks. One potential issue is that the stores could end up competing with each other for customers, leading to lower sales for individual locations.

The fashion retail industry is also highly competitive, with numerous players in both the physical retail and e-commerce spaces. Style Baazar faces competition from both national and local department stores as well as independent retailers offering similar products.

Opportunities in Smaller Cities

Despite these challenges, Style Baazar has significant growth potential, particularly in smaller cities (Tier 2, 3, and 4 cities). These areas are expected to grow at a CAGR of 17%, with the organized retail market projected to double its share from 18% in FY24 to 36% by FY27. This presents a substantial opportunity for Style Baazar, which already has a strong presence in these markets.

The company plans to strengthen its market position by expanding further into these areas, deepening its reach in existing markets like Jharkhand, Uttar Pradesh, and Chhattisgarh, and focusing on customer retention and brand loyalty.

In summary, while Style Baazar faces some risks due to its focus on apparel and regional concentration, its strong financial performance and growth potential in smaller cities make it an interesting investment opportunity.