(Imagine Marketing) - parent company of audio wear maker "BoAt" filed for its IPO last week. And in a sea of Indian software or tech startups, a hardware company going public is a big deal. So in today’s Finshots, we see whether the company has wind in its sails or if it’s running into choppy waters.

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The Story

What are the benefits of selling on Amazon?”

If you ask Google this question, it’ll spit out 10.4 crore results.

“What are the dangers of selling on Amazon?”

That will give you a whopping 16.8 crore results.

Yikes!!! If you take everything on the internet at face value, you’ll probably think that the risks of selling on an e-commerce platform like Amazon far outweigh the benefits associated with it.

But homegrown audio and wearables maker "boAt" doesn’t think so. In fact, for large parts of their existence they’ve almost exclusively dealt with Amazon and they have thrived in the process.

By March 2020, their sales hit ₹600 crores, with profits hovering at a cool ₹50 crore. A couple of years ago boAt upped its relationship with Flipkart as well by listing exclusives on its platform. And in just the first half of 2021 (April to September), it grossed ₹1500 crores. Its profits hit triple digits — ₹118 crores — for the first time ever.

boAt is a real unicorn. And we mean it in a very literal sense — “something that is highly desirable but difficult to find or obtain.”

A 6-year old homegrown hardware startup that holds immense growth potential and is highly profitable.

So how did it get here?

Well, apart from the obvious merits of quality, boAt’s pricing and positioning aim to reduce cognitive dissonance. It’s the thing you feel when your ideas, beliefs or behaviours contradict each other. And if you have doubts about your purchase and its ability to provide maximum value for the best price, there is a high chance that you will avoid making a similar purchase again.

Imagine buying a Portronics headphone and then finding out you could have had a boAt by paying a slight premium — or sporting a JBL and then seeing a boAt sell at a small discount. It's this feeling of possible regret that the human brain tries to avoid whilst making a purchase and boAt’s brand image is tailor-made to reduce the internal conflict within you. A Portronics is affordable, a JBL — Premiumish. boAt, for the lack of a better term, is both.

There’s also the marketing element. Co-founder Aman Gupta had spent years handling sales at Harman International — the company behind audio brands like JBL, Harman, and AKG. And it’s safe to say he knows a thing or two about pitching audio products.

There’s also the aspirational aspect. boAt has partnered with a slew of cricket stars and IPL teams to build a community of what they call “boAtheads.” It’s worked out quite well for them. And finally, it’s a homegrown brand, a truly local company and that counts for something, no?

However, not everything is hunky-dory.

For one, their dependence on Amazon and Flipkart could come to bite them back. They sell 8 out of 10 products through these intermediaries and any change in their relationship could have an adverse impact on the company's financials.

Also, it’s imperative to note that the company doesn’t make anything in-house. Instead, it procures them from manufacturers — mostly situated outside India. According to reports, about 89% of all products are made in China. And that presents some interesting challenges. For one, our relationship with China is a bit frosty. A protracted trade war can affect operations. And even if this weren’t problematic per se, it’s never a good idea to be this deeply reliant on one country. If the Chinese Premier decides to institute policies that adversely affect manufacturers in the country, boAt could feel the pinch as well.

Which explains why they’ve made a conscious decision to diversify. The company is now trying to work with manufacturers in Vietnam and India (Dixon Technologies) in a bid to reduce the overreliance on China.

But perhaps the biggest issue with boAt is pricing. The IPO price to be specific. They’re asking for a lot of money and not everybody is convinced that there’s a bargain on the offering here.

  1. For starters, the company’s financials are decent but it isn’t extraordinary. Take for instance boAt’s financial statements. It will tell you that they’ve witnessed enviable growth so far, but it also points out that they have some issues with cash flow management.
  2. Is the massive spurt in sales wholly due to the pandemic? And are growth rates going to sustain moving ahead? It’s a question that needs a bit of deliberation.
  3. And what about the jump in valuation? In January 2021 boAt raised $100 million from PE firm Warburg Pincus at a valuation of $300 million. In January 2022, it’s seeking a valuation of nearly $2 billion. A 7x jump in just a year. That’s…. interesting.
  4. Finally, companies that have gone on to list at a premium — The likes of Zomato and Nykaa for instance haven’t done all that well since they debuted on Dalal Street. So you could argue that boAt may also have to deal with similar sentiments.

So yeah, boAt’s story is hugely impressive no doubt, but is it asking investors to pay far too much?

Well, how about you let us know?

Until then…

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