Wakefit’s IPO Announcement: Financial Insights and Audit Concerns

Wakefit, a prominent brand known for home and sleep solutions, has filed its Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) in preparation for an Initial Public Offering (IPO).

Financial Performance Overview

In its balance sheet, Wakefit disclosed a revenue of Rs 971 crore for the first nine months of FY25, ending on December 31, 2024. Despite this positive performance, auditors have expressed concerns regarding discrepancies in the financial statements.

Revenue Breakdown

Wakefit’s operating revenue reached Rs 971 crore within the nine-month span of FY25, closely approaching the Rs 986 crore earned throughout FY24. A significant portion of this revenue stemmed from the sale of manufactured goods, which constituted over 97% of its operating income at Rs 951 crore. Additional revenue sources included sales of traded goods and other income, elevating total income to Rs 994 crore in the first nine months of FY25.

Expense Analysis

The primary contributor to expenses was the cost of materials, accounting for 43% of total costs at Rs 433 crore. Employee benefits totalled Rs 126 crore, while the company also invested Rs 82 crore in advertising and Rs 75 crore on delivery costs during this period. Other overheads, such as depreciation and IT expenses, added further to the overall cost, resulting in a total of Rs 1,003 crore in expenses for the nine months of FY25, compared to Rs 1,032 crore in FY24.

Profitability and Financial Metrics

Wakefit reported a loss of Rs 9 crore in the nine months of FY25, an improvement from a loss of Rs 15 crore in FY24. Despite this, the company highlighted a positive EBITDA of Rs 76 crore, translating to an EBITDA margin of 7.65% during the same period. Additionally, its return on capital employed (ROCE) was noted at 1.33%.

Unit Economics

On a unit level, it cost Wakefit Rs 1.03 to generate a rupee of revenue during the nine-month period. The company currently holds assets worth Rs 577 crore, which includes Rs 19 crore in cash and bank balances.

Auditor Concerns in the DRHP

Upon reviewing the DRHP, auditors highlighted various issues, including mismatches between financial records and bank filings, late statutory payments with disputes over GST dues, and the absence of an internal audit system. Additionally, the company revealed cash losses over the past three financial years. For FY24, shortcomings in its accounting software regarding the mandatory audit trail feature were noted.

Future Implications

While these observations did not necessitate amendments to its reported financials, Wakefit cautioned that similar findings in the future may adversely affect its reputation and financial stability. The company also stated that it employs various non-GAAP financial metrics including EBITDA, adjusted EBITDA, and return on capital employed to evaluate performance. Wakefit advised stakeholders to consider these figures with caution as they may not align with standard industry definitions and could differ from those reported by competitors. Investors are encouraged to focus on the audited financials as per statutory accounting norms.