Homeshop18 IPO: Fineprint and Facts So Far

Homeshop18 has filed for a $75 Mn IPO in Nasdaq. Here are a few key facts and disclosures made by the company in its SEC filing.
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Homeshop18 has filed for a $75 Mn IPO at NYSE. Owned by Network18, Homeshop18 has hit $51 million in sales by for the 12 months ended September 30, 2013. Here are a few key facts and disclosures made by the company in its preliminary prospectus to the SEC.

Name Upon Listing: NW18 HSN Holdings Plc

Number of Employees: Increased from 524 as of March 31, 2013, to 544 as of September 30, 2013.

Ordinary shares outstanding before offering: 46,518,415 shares

“As a condition to the completion of this offering, we will receive the U.S. dollar equivalent of  2.5 billion ($42.3 million based on the March 28, 2014 exchange rate) of the proceeds Network18 Holdings Limited expects to receive from its sale of ordinary shares in this offering to fully fund all of our partially paid preference shares and warrants held by Network18 Holdings Limited. Shortly thereafter, we will use these funds to purchase the equity interest in our Indian subsidiary currently held by Network18,” – SEC Filing

homeshop18

Scale and Transactions So Far

  • COD continues to be the major mode of payment by customers online

  • Is an ‘Emerging Growth’ company, or ,has a revenue of less than $1 billion

RIL’s Interest Disclosure

RIL owned Independent Media Trust or IMT has subscribed for zero coupon optionally convertible debentures in certain Network18 companies through which director Ragahav Bahl holds equity voting shares. The debentures expire on October 30, 2022. RIL through IMT can choose to convert all these debentures, resulting in a change of control of Network18.

Network18 & NW18 HSN Holdings

“After the completion of this offering, Network18 will continue to be able to exercise a significant degree of control over our company and its affairs and business.” SEC Filing

  • Network18 directly and through subsidiaries is HSN’s largest single investor it has made $53.8 Mn investments till date

  • HSN has outstanding borrowings of $4.3 Mn from Network18 as of September 30, 2013

  • Network18 will continue to provide financial support to HSN’s Indian subsidiary through September 30, 2014

  • Network18 has provided corporate loan guarantees without which banks would not/may not have lent to Homeshop

  • Following completion of offering, there will be no intention to avail financial support from Network18 or Raghav Bahl

In such a scenario, IMT will consequently become the beneficial owner of the ordinary shares being issued by HSN.

homeshop18

Risks and What to Watch Out For

  • As of September 2013, the company has an accumulated deficit of $117 Million (banks usually desist from lending to companies with accumulated deficit)

  • It does not expect to reach profitability in the near term

  • Costs are expected to increase with investments into customer acquisition, expanding product categories, alliances and acquisitions and enhancing delivery and logistics infrastructure

Growth Rate

From FY12-FY13, the gross transaction value has increased by 53.4%. It increased by 35.5% from the first six months of FY13 to the first six months of FY12. A majority of its gross transaction value at 79% came from COD transactions in FY13.

Digital Products Account for a Majority of Homeshop18’s Transactions.

The company says that even when they do increase other product offerings, their dependence on the sales of digital products to boost transaction values will not reduce. Any decline in this, could affect the business financially and operationally.

The gross transaction value for digital has seen a fall from FY 2011 to FY 2013.

FY 2011 – 47.9%

FY 2012 – 54.8%

FY 2013 – 44.2%

Total Gross Transaction Value and Cities Contributing

Delhi NCR, Mumbai, Bengaluru, Chennai and Kolkata account for 32.6% of the gross transaction value for FY13. Delhi NCR and Mumbai accounted for 17% and 6.1% of the gross transaction value.

Customer Acquisition & Marketing Strategy

“Our long-term success depends, in large part, on our continued ability to attract new and retain existing consumers in a cost-effective manner.”

More television programming, less online advertising. Costs associated with search engine marketing and purchase of relevant keywords and television programming to increase.

COD and Returns Impact Homeshop18’s Growth

21.4% return rate for COD transactions in FY 2013. The return rate for non-COD products was drastically lower during the same period standing at just 2.8%.

Post IPO Majority Shareholders Will Continue to Be

  • Network18 Holdings controlled by Raghav Bahl

  • SAIF II Mauritius Partners Limited, affiliate of SAIF Partners

  • GS Home Shopping

They will also decide on the 7 of 10 directors to be appointed.

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