Sanathan Textiles IPO : 7 things to know about
Sanathan Textiles Ltd, one of India’s leading yarn manufacturers, filed its draft red herring prospectus with SEBI for its proposed IPO in early January 2022. The SEBI approval process normally takes 2-3 months so the actual approvals or observations may come in only by April 2022, which will be the next fiscal year. The IPO of Sanathan Textiles Ltd will be a combination of a fresh issue of shares and an offer for sale.
1) Sanathan Textiles Ltd has filed for an IPO in the range of Rs.1,200 crore to Rs.1,300 crore. The overall IPO will consist of a fresh issue of shares of Rs.500 crore and an offer for sale of 1.14 crore equity shares via the OFS route.
Promoters and early equity investors in Sanathan Textiles Ltd will offer their shares as part of the IPO. Currently, the company is awaiting the SEBI approval for the IPO, post which the dates and the price band for the same will be finalized.
2) Let us look at the OFS portion first. The offer for sale will comprise of the sale of 1.14 crore shares to the public. While the actual size of the OFS component will predicate on the price band, the street estimates are pegging the size of the Sanathan Textiles IPO in the range of Rs.700 crore to Rs.800 crore.
The tendering of shares in the OFS will be done by the promoters and early investors in the company. While the OFS does not result in capital enhancement or in EPS dilution, it does result in larger free float of the stock leading to more apt price discovery of the stock value in the market.
3) The Rs.500 crore fresh issue portion will be used predominantly to the extent of about Rs.325 crore for repayment and also for prepayment of loans and borrowings availed by the company. An additional sum of Rs.65 crore has been set aside by the company for its working capital needs while the balance sum will be largely used for general factory and business purposes.
Sanathan Textiles Ltd is also contemplating raising a sum of Rs.100 crore by way of a pre-IPO placement. If the pre-IPO placement is successful, then the size of the IPO would be reduced to that extent.
4) Sanathan Textiles Ltd is textile and yarn based, although it has 3 principal product lines that the company focuses on. Broadly, there are 3 separate yarn related business verticals that Sanathan Textiles Ltd is into. This includes polyester yarn products, cotton yarn products and yarns for technical textiles and industrial applications. The last division is largely a B2B business model that the company deploys.
The technical textiles are manufactured at its plan located in Silvassa facility near Gujarat. Of late, textiles business has been one of the big beneficiaries of the production linked incentive (PLI) scheme announced by the government of India. Textiles has always been a major focus area of government industrial policy due to the strong implication it has for job creation at a direct and at a secondary level.
5) The company enjoys a very robust and enviable client list for its yarn supply business. Some of its marquee clients in the textiles business include Arvind Fashions, Trident, Welspun India, Page Industries, D’décor Home Fabrics, Creative Yarns, Ascent Group and Paragon group. The company has seen rapid growth in top line amidst growing demand and an expanding client base.
6) Sanathan Textiles Ltd had robust financials for the last 2 fiscal years. For FY21, the company reported sales revenues at Rs.1,918 crore and net profits at Rs.185.63 crore implying net profit margins at a robust level of 9.7%.
However, numbers would have been much better had it not been for the COVID impact. For the Sep-21 H1-FY22, the net margins have already shot up to 11.6%. The company reported return on equity (ROE) of 29.42% for FY21, which should be accretive for the stock valuation.
7) The IPO of Sanathan Textiles Ltd will be lead managed by Edelweiss Financial Services and JM Financial. They will act as the book running lead managers or BRLMs to the issue.
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