Wakefit Submits DRHP for IPO with Financial Insights

Wakefit, a brand known for its home and sleep solutions, has presented its Draft Red Herring Prospectus (DRHP) to the Securities and Exchange Board of India (SEBI) for an Initial Public Offering (IPO). The organization recorded a revenue of Rs 971 crore during the initial nine months of FY25, ending on December 31, 2024. However, the auditors expressed concerns regarding the financial statements.

Financial Performance Overview

Wakefit’s operating revenue reached Rs 971 crore in the first nine months of FY25, closely paralleling the Rs 986 crore reported for the entire FY24. This impressive topline was primarily fuelled by the sale of manufactured goods, which constituted over 97% of its operating income, amounting to Rs 951 crore. Additional revenue sources included the sale of traded goods and other income, elevating the total income to Rs 994 crore during the nine months of FY25.

Expenditure Breakdown

On the expense front, the cost of materials emerged as the principal cost driver, representing 43% of overall expenses at Rs 433 crore. Employee benefits accounted for Rs 126 crore, while spending included Rs 82 crore on advertising and Rs 75 crore related to delivery expenses during this period. Other operational costs, such as depreciation and IT expenses, further contributed to the expense base. Ultimately, total expenses amounted to Rs 1,003 crore in the nine months of FY25, compared to Rs 1,032 crore in FY24.

Profit and Loss Summary

Wakefit recorded a loss of Rs 9 crore in the first nine months of FY25, an improvement from the loss of Rs 15 crore reported in FY24. Nonetheless, the company achieved a positive EBITDA of Rs 76 crore, boasting an EBITDA margin of 7.65% during the same timeframe. Its return on capital employed (ROCE) stood at 1.33%.

Unit Level Insights and Auditor Observations

At the unit level, the company expended Rs 1.03 to generate each rupee of revenue throughout the 9-month period. Current assets were valued at Rs 577 crore, comprising Rs 19 crore in cash and bank balances.

Delving deeper into the DRHP, auditors highlighted discrepancies such as mismatches between financial records and bank submissions, overdue statutory payments including disputed GST dues, and the lack of an internal audit system. Additionally, the company experienced cash losses over the past three financial years. Notably, in FY24, the accounting software was found to lack the necessary audit trail feature.

Future Implications

Although these auditor observations did not necessitate adjustments to the reported financials, Wakefit warned that similar comments in the future could adversely affect its reputation and financial health. The company also disclosed its use of various non-GAAP financial metrics like EBITDA, adjusted EBITDA, and return on capital employed to monitor performance. Wakefit cautioned that these figures might not align with standard industry definitions and could differ from those of competitors, urging investors to consider the audited financials under statutory accounting guidelines.