Women's Next Lingeries To Raise Rs 650 Lakh Through IPO

The Indian innerwear industry is still in a very nascent stage and has significant growth potential. Women's Next Lingeries (WNL) is one of the players operating in this industry and is planning to raise Rs 650 lakh from the primary market. WNL is planning to issue 10 lakh equity shares of face value of Rs 10 each fully paid for cash at a price of Rs 65 per equity share. The company's equity shares will be listed on BSE SME platform.

Out of the total offered equity shares, 52 thousand equity shares are reserved for subscription by market maker. Hence, the net issue will comprise of 9.48 lakh equity shares of the company. The issue and the net issue will constitute 40% and 37.92% respectively of the post issue paid up capital of the company. The lead manager and underwriter to this issue is Pantomath Capital Advisors.

WNL was incorporated in 2010 as a women's lingerie manufacturer. The company specialises in women's innerwear segment and is engaged in the business of designing, manufacturing, branding, and marketing of lingerie, honeymoon attire, intimate apparel, etc. The company markets its products through brands “Valentine Pink” and “Women's Next”. The company has set up a strong retail presence through malls and A grade retail outlets across Tier-I and Tier-II cities such as Mumbai, Delhi, Ahmedabad etc. Further, the company markets its products through a chain of distributors and retail outlets. WNL's manufacturing facility is spread over 15000 square feet at Bhiwandi, Thane. The company entered into an agreement with Ashapura Intimates Fashions in 2013 to use the trademark “Valentine Pink” and machinery.

On the financial front, WNL showed a compounded annualised growth rate (CAGR) of 20.18% in its revenue over the last three years, if we annualised its financial for current financial year 2014. Interestingly, WNL's net profit showed a CAGR of 37.41% over the last three years considering FY2014 financials on annulised basis. Furthermore, the company showed EBITDA margin expansion of 244 basis points to 7.04% for H1FY14 against 4.60% in FY12. Also its net margin expanded by 82 basis points to 2.48% in H1FY14 against 1.66% for FY12. A lower net profit expansion compared to its EBITDA margins was due to the considerable interest burden on its financials from its Rs 879 lakh debt as of September 30, 2013.

Though WNL is growing at a fantastic rate, the company has very little brand recognition in the Indian market. Further, being in its initial phase of growth, the company is facing concerns over working capital requirements, which is managed by the company raising short-term debt. However, considering present high interest rate scenario, it was facing pressure on its net margins. Furthermore, WNL is no export business till date and losing on high margin export opportunities, which are capitalised by its peers such as Ashapura Intimates Fashions. However, the company has plans to raise funds from the primary markets and to reduce its debt burden by Rs 350 lakh along with allocating Rs 100 lakh for its forthcoming working capital requirements. The IPO proceeds are expected to reduce some pressure on its bottomline and post better result in the coming years. Further, the raised funds will be used to upgrade its existing manufacturing facility, worth Rs 100 lakh.

On valuation front, WNL offer price is 33.76 (PE ratio) times its annualised EPS of Rs 1.93 per equity share for FY14. The WNL offer price is slightly over valued considering its listed peers such as Ashapura Intimates Fashions, Lovable Lingerie, Page Industries and Rupa & Company which are trading at PE ratio of 47.33x, 23.38x, 48.52x and 26.48x respectively their trailing twelve months EPS. However, its immediate peer – Ashapura Intimates Fashions, which is listed on same BSE SME platform, is available at much higher valuation. But, the stock of Ashapura Intimates Fashions has given considerable returns of more than 130% since April, 2013. However, considering WNL's limited quantum of business and reach to customers in comparative terms, we recommend that only high risky investors should opt for this initial offerings and moderate risky investors should find a better alternative investment option in the listed space. Other complexities for this investment option is the minimum lot size of 2000 equity shares (i.e Rs 130000 per lot) and the fact that it is trading on the most illiquid platform, i.e the BSE SME.