Subh Tex (India) Offers 75 Lakh Shares Through Its IPO

Extending the list of SME IPOs, a Mumbai-based company Subh Tex (India) (STIL) is tapping the primary markets with an initial public offering (IPO). The company is to offer 75 lakh equity shares on a fixed price issue of Rs 20 per share. The issue comprises of 30 lakh equity shares reserved for promoters and another 4 lakh will be reserved for market makers. The net issue for the public is 41 lakh equity shares. At present, the company has 75 lakh equity shares which will come to 1.50 lakh equity shares after the issue. The lead manager for this issue is Unicon Capital Services.

STIL was incorporated in the year 1987. It primarily commenced its operations in trading activities in textile. Currently, the company is engaged in the business of fabric manufacturing for suiting and shirting for domestic and international markets. It is also involved in bulk trading of high quality textile products. STIL produces fabrics for school uniform, army uniform, uniform for hospitals, airlines and other services industry. The company is one of the largest manufacturers of professional uniform fabric apparel in India and the Gulf. Currently, STIL has a manufacturing facility to produce grey fabric at Dadra & Nagar Haveli, which has an installed capacity of 2.29 lakh metre per month. The company exports its products to various countries in the Middle-East region. 

On the financial front, due to an increase in volume of sales, STIL's revenue grew by 43% to Rs 50 crore in FY12 as compared to Rs 35 crore in FY11. The revenue generated comprises of products manufactured and products traded by the company. However, it showed a decline in export sales to Rs 3 crore in FY12 from Rs 3.6 crore in FY11. The total expenses increased by 61% to Rs 50.26 crore in FY12 on a YoY basis. During the same period, the EBITDA stood at Rs 3.04 crore in FY12 by showing a growth of 2.82% against the previous year. However, due to an increase in inventory, the EBITDA margin stood at 5.7%, 293 basis points below that of FY11. Further, due to an increase in revenues, the net profit grew by 19% to Rs 41.32 lakh in the similar period. 

STIL proposes to utilise the issue proceeds for its business expansion and to fulfill its working capital requirement. The company intends to set-up a new weaving unit worth Rs 11.20 crore to increase its production capacity. While, the other Rs 3.12 crore will be used to meet its working capital requirement. 

Further, STIL's peer companies such as Damodar Industries, Gini Silk Mills and Welspun Syntex are currently trading at trailing twelve-month PEs of 3.35x, 8.89x and 1.44x respectively of their EPS. STIL has quoted a price of Rs 20 per share, trading at a PE of 57.69x of an EPS of Rs 0.35. The quoted price is at a high premium considering its competitors. 

The textile industry is a highly competitive sector, and in the current domestic scenario, customers are preferring premium and branded products. The global customers are repelled due to availability of lower cost sourcing destinations. Moreover, the global economic slowdown has impacted the textile sector drastically, but is expected to recover soon. Considering the STIL operations, it is concentrated in uniform segment. In addition, it has no brand recognition on the broader aspect domestically. 

We recommend investors not to subscribe for this issue. Although the company has a long experience in its sector, considering its limited work location and the highly competitive scenario, avoiding this offer is advisable.