Go For It - Mandhana Industries

Mandhana Industries (MIL), a Mumbai-based textile and garment manufacturing company is tapping capital market with an initial public offer of 83 lakh equity shares of face value of Rs 10 each, in the price range of Rs 120-130 per equity shares. This will constitute 25.06 per cent of fully diluted post issue paid up capital of the company. Through this issue company intends to raise Rs 99.6 crore and Rs 107.9 crore at lower and upper price band respectively.

MIL is a vertically integrated textile and garment manufacturing company having presence across textile value chain, right from yarn dyeing to garment manufacturing. MIL business can be broadly divided into two divisions, i.e. textile and garments.  For FY09, garment segment posted revenue of Rs 154.6 crore and was 33 per cent of total sales; rest 67 per cent was shared by textile segment and sale for this segment in FY09 was Rs 309 crore. MIL has manufacturing facilities located at Tarapur, Bengaluru and Mumbai. The money raised through IPO will be primarily used to expand its manufacturing facilities. MIL intends to set up garment manufacturing facilities at Bengaluru and Mumbai and increase weaving capacity at Thane. This will help the company to augment its garment manufacturing capacity from 3.6 million pieces to 8.3 million pieces per annum. Similarly, weaving capacity will be doubled to 36 million meters from current 18 million meters per annum. Currently company is utilizing 95 per cent of capacity in garment division and 90 per cent in textile division.

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Financial Performance and  Valuation
MIL's sales and profit have grown at CAGR of 38 per cent and 61 per cent respectively in the last five years ending FY09. It were both textile and garment divisions that contributed equally for this growth. MIL was able to increase its EBITDA margin from 10.4 per cent to 19 per cent in the same duration. What is encouraging about the company is that it has been able to increase export by 17 per cent in FY09. The company derives 85 per cent revenues from Europe, which is still struggling with financial crisis. The reason for such performance is attributable to the well-spread customer base and top 10 clients constitute only 35 per cent of total exports.  Apart from good P&L account the balance sheet also looks very strong for MIL, with debt/equity ratio of two times. This is low compared to other peers like Alok Industries having debt/equity of 3.69 times. If we talk of valuation, MIL’s stock is discounting FY09 EPS at 10.8x and 11.7x at lower and upper price band respectively post-equity expansion. When we compare it with Alok Industries, which is trading at 8.5 times, we find MIL offering little expensive but icing on cake is the type of growth that company has exhibited in the last few years that makes it undervalued. Even if we take the other parameter of valuation like market cap to sales we find company has left something on table for investors. The lower and higher price range of offer make the market cap of the company at Rs 396 crore and Rs 429 crore respectively, therefore market cap to sales (FY09) is just 0.86 times and 0.93 times. Looking at the company’s strong financial performance and attractive valuation we advice our readers to subscribe the offer.