IPO Analysis: Will this textile company sew up your portfolio gains?
The company delivered a decent return on equity (RoE) of 11 per cent and a return on capital employed (RoCE) of 12 per cent for FY24.
About the Issue
Sanathan Textiles Ltd is preparing to launch its Initial Public Offering (IPO) for equity shares. Below are the issue details.
| IPO Details |
| IPO Opening Date |
December 19, 2024 |
| IPO Closing Date |
December 23, 2024 |
| Issue Type |
Book Built Issue IPO |
| Face Value |
Rs 10 per equity share |
| IPO Price |
Rs 305 to Rs 321 per equity share |
| Min Order Quantity |
46 shares |
| Listing At |
BSE, NSE |
| Total Issue |
1,71,33,958 shares of FV Rs 10* |
| (Aggregating up to Rs 550 Cr)* |
| Fresh Issue |
1,24,61,060 shares of FV Rs 10* |
| (Aggregating up to Rs 400 Cr)* |
| Offer for Sale |
46,72,898 shares of FV Rs 10* |
| (Aggregating up to Rs 150 Cr)* |
| QIB Shares Offered |
50% of the Offer |
| Retail Shares Offered |
35% of the Offer |
| NII (HNI) Shares Offered |
15% of the Offer |
| *At Upper Price Band |
|
Objects of the Issue
The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:
1. Repayment and/ or pre-payment, in full or part, of certain borrowings availed by the company
2. Investment in the subsidiary viz. Sanathan Polycot Pvt Ltd, for repayment and/ or pre-payment, in full or part, of certain borrowings availed by the subsidiary
3. General corporate purposes
Promoter holding
Nimbus Trust, D&G Family Trust, A&J Family Trust, P&B Family Trust, Paresh Vrajlal Dattani, Ajay Vallabhdas Dattani, Anilkumar Vrajdas Dattani and Dinesh Vrajdas Dattani are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 100 per cent in the company.
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Company profile
Sanathan Textiles Ltd operates across three distinct yarn business verticals: (a) Polyester yarn products, (b) Cotton yarn products, and (c) Yarns for technical textiles and industrial applications. The company stands out among its peers in India by maintaining a presence in the polyester, cotton, and technical textile sectors, with these textiles serving a wide range of end-use markets such as automotive, healthcare, construction, sports, outdoor, and protective clothing.
As of June 30, 2024, the company’s Silvassa facility boasts a total installed capacity of 223,750 MTPA across these three verticals. By September 30, 2024, Sanathan Textiles had more than 3,200 active yarn varieties and over 45,000 SKUs, with the capability to produce a diverse portfolio of over 14,000 yarn varieties and 190,000 SKUs, catering to a broad spectrum of end-use applications.
With a global reach, the company serves over 925 distributors across seven countries, including India, Argentina, Singapore, Germany, Greece, Canada, and Israel. Sanathan Textiles is also recognized for its strong focus on value-added products, such as dope-dyed, superfine, micro, functional, industrial, and technical yarns, as well as cationic dyeable and specialty yarns, all developed through extensive in-house research.
Financials
| Rs (in crore) |
FY22 |
FY23 |
FY24 |
Q1FY25 |
| Revenue |
3,201.46 |
3,345.02 |
2,980 |
787.76 |
| Profit Before Tax |
479.12 |
209.43 |
181.41 |
66.77 |
| Net Profit |
355.44 |
152.74 |
133.85 |
50.07 |
The company delivered robust topline and bottom-line performance in FY22 but struggled to sustain those levels in subsequent years. While revenue saw a modest uptick in FY23, it failed to return to its FY22 peak. Profit, on the other hand, plummeted by a substantial 57 per cent in FY23 and declined further in FY24.
Annualized Q1FY25 figures indicate notable growth compared to FY24; however, they still fall short of the FY22 benchmarks. This raises concerns about the company’s uncertain future performance.
Valuation & Outlook
| Company Name |
P/E |
P/B |
RoE (%)* |
| Sanathan Textiles Ltd |
12 |
2 |
11 |
| Listed Peers |
| K.P.R. Mill Ltd |
46 |
8 |
20 |
| Vardhman Textiles Ltd |
20 |
2 |
7 |
| Indo Count Industries Ltd |
26 |
4 |
17 |
| Filatex India Ltd |
26 |
2 |
10 |
| Garware Technical Fibres Ltd |
42 |
8 |
19 |
The issue is priced with a P/BV ratio of 1.74 times, calculated using its Net Asset Value (NAV) of Rs 184.16 as of June 30, 2024. At the upper price cap, it is priced at a P/BV ratio of 1.6 times, considering its post-IPO NAV.
Considering the company's annualized FY25 earnings and fully diluted equity capital, the price-to-earnings (P/E) ratio stands at 12x. The company delivered a decent return on equity (RoE) of 11 per cent and a return on capital employed (RoCE) of 12 per cent for FY24.
Risks
A substantial portion of revenue is derived from customers in Gujarat, Maharashtra, and Punjab. This concentration exposes the company to region-specific risks, which could impact financial performance if adverse conditions arise in these areas. Also, the company has significant working capital needs. If unable to secure sufficient funding, operations could be adversely affected. Additionally, the commissioning of a new manufacturing facility in Punjab through its subsidiary will require further working capital, potentially increasing financial strain. As of June 30, 2024, the company reported total borrowings amounting to Rs 645 crore.
Considering the risks and uncertainties surrounding the company’s future performance, we recommend investors to avoid this issue.