Sanathan Textiles Limited, a prominent yarn manufacturer, has launched its Initial Public Offering (IPO) on December 19, 2024. The IPO is open for subscription until December 23, 2024. The company specializes in polyester and cotton yarn products, serving various industries including automotive, healthcare, and sports.
About Sanathan Textiles
Sanathan Textiles Limited, established in 2005, manufactures cotton, and technical yarns used in various sectors, including automotive, healthcare, and construction. The company operates from a facility in Silvassa, with an installed capacity of 223,750 MTPA.
As of September 2024, it produces over 3,200 active yarn varieties and 45,000 stock-keeping units (SKUs), with the ability to create a diverse range of yarn products.
Sanathan Textiles exports to several countries and has a network of distributors across India and internationally. The company supplies yarn to clients in the textile and manufacturing sectors.
IPO Details:
- Issue Size: ₹550 crore, comprising a fresh issue of ₹400 crore and an offer for sale (OFS) of ₹150 crore.
- Price Band: ₹305 to ₹321 per share.
- Lot Size: 46 shares, requiring a minimum investment of ₹14,030.
IPO Timeline:
- Opening Date: December 19, 2024.
- Closing Date: December 23, 2024.
- Allotment Date: Expected on December 24, 2024.
- Listing Date: Tentatively scheduled for December 27, 2024, on both BSE and NSE.
Objectives of the IPO:
- Repayment or pre-payment of certain borrowings.
- Investment in the subsidiary, Sanathan Polycot Pvt Ltd.
- General corporate purposes.
Company Overview:
Sanathan Textiles operates across three business verticals: polyester yarn products, cotton yarn products, and yarns for technical textiles and industrial uses. As of June 30, 2024, the company had a manufacturing facility in Silvassa with an installed capacity of 223,750 metric tonnes per annum (MTPA). The company boasts a diversified portfolio of over 14,000 yarn varieties and 190,000 stock-keeping units (SKUs).
Financial Performance:
Revenue from Operations:
- Financial Year 2022: ₹3,185 crore.
- FY 2023: ₹3,329 crore.
- FY 2024: ₹2,957 crore.
Net Profit:
- Financial Year 2022: ₹355 crore.
- FY 2023: ₹152 crore.
- FY 2024: ₹134 crore.
Sanathan Textiles IPO Grey Market Premium (GMP):
As of December 19, 2024, the shares are trading at a premium of ₹40 in the grey market, indicating an estimated listing price of ₹361, approximately 12.46% above the upper end of the price band.
Key Financial Metrics:
- Price-to-Earnings (P/E) Ratio: Based on the upper price band of ₹321 and FY24 earnings, the P/E ratio is approximately 12.36x, which is in line with or slightly below the industry average.
- Return on Equity (ROE): The company reported an ROE of ~12% for FY24, reflecting moderate profitability.
- Debt-to-Equity Ratio: Sanathan Textiles carries a relatively high debt-to-equity ratio of 1.52, emphasizing the need for IPO funds to repay borrowings.
Strengths:
Diversified Product Portfolio:
- Sanathan Textiles produces over 14,000 yarn varieties, catering to various industries like textiles, automotive, and healthcare.
- Focus on specialty yarns positions it well for technical textile growth.
Market Leadership:
- The company is among the top yarn manufacturers in India, with a strong reputation in both domestic and export markets.
Technological Edge:
- The company leverages advanced machinery and technologies, boosting operational efficiency and product quality.
Growth in Technical Textiles:
- The technical textiles segment, used in automotive, healthcare, and industrial applications, is projected to grow at a CAGR of 9.8% globally from 2023-2028.
Weaknesses:
Debt Burden:
- A significant portion of IPO proceeds is earmarked for debt repayment, indicating high leverage. This may impact profitability in the short term.
Cyclicality of Textile Industry:
- The company operates in a highly cyclical industry, susceptible to demand fluctuations and raw material price volatility.
Declining Profit Margins:
- Despite consistent revenue, net profit margins have declined from 11.14% in FY22 to 4.53% in FY24, reflecting increased costs.
Subscription Recommendation
- Retail Investors: The minimum investment of ₹14,030 (46 shares) offers an accessible entry point. Evaluate based on portfolio goals.
- Long-Term Investors: Suitable for those seeking exposure to India’s growing textiles and specialty yarn market.
- Short-Term Investors: The grey market premium (GMP) of ₹40 indicates listing gains potential, but GMP is volatile and not guaranteed.
Conclusion
Sanathan Textiles’ IPO is an attractive proposition for investors looking to tap into the growth of specialty yarns and technical textiles. However, the high debt levels and cyclical risks warrant caution. A balanced approach—considering both short-term listing gains and long-term industry potential—is recommended.
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