RBDL To Issue 37.1 Lakh Fresh Equity Shares

R & B Denims (RBDL), a denim textile company is coming up an initial public issue through offering 37.1 lakh fresh equity shares. RBDL, a small and medium enterprise is planning to list its equity shares on the SME platform of BSE. The subscribers need to pay Rs 10 for each equity share in this issue, which will raise a fund of Rs 3.71 crore. Lead manager to this is Hem Securities. In this issue, 1.9 lakh equity shares are reserved for the market makers, who are also the lead managers to the issue. Prior to the public issue, RBDL has outstanding shares of 1.03 crore.

The fund of Rs 3.71 crore raised by RBDL, will be utilised for the debt repayment by the company. As on 28 February 2014, the company has a total outstanding balance of Rs 18.147 crore from Bank of India.

RBDL based in Gujarat is a denim textile manufacturing and selling company. The company incorporated in the year 2010, and commenced its commercial production in the financial year 2012-13. Presently, the company has a single manufacturing facility located near Surat, Gujarat with a capacity of 1.25 million meters per annum. Here it manufactures various types of denim textile which ranges from 9 to 14 Oz/sq.yd. The product list includes Spun yarns, Slub yarns, multi count, cotton and polyster spandex. RBDL is selling its products to states which include Delhi, Maharashtra, Gujarat, West Bengal and Karnataka through its 8 dealers in these states.

RBDL buys its raw material cotton and synthetic yarn from the local market and the suppliers viz. Garden Silk Mills, Aahuja Cotspin, Pratibha Syntex etc.

In its first year of commercial production, RBDL earned revenue of Rs 60.59 crore. Its other income stood at Rs 1.25 crore for the financial year 2012-13. For H1FY14, the company's revenue stands at Rs 43 crore, and the annualised FY14E revenue will be Rs 86.04 crore. On expenses front, the total operating expenses of the company was Rs 53.6 crore in FY13. EBITDA of the company is at Rs 7 crore for the same period. Net profit of RBDL is Rs 80,000 for FY13, and it stands Rs 26 lakh for H1FY14. EBITDA and net margin is at Rs 7% and 0.3% for H1FY14.

Further, RBDL is quoting a price of Rs 10 per share for this issue, with this the stock price will trade at a PE/ratio of 0.84x of annualised FY14 EPS Rs 11.91. RBDL's peer in listed space such as Aarvee Denims and Exports, Jindal Worldwide, K G Denim and Nandan Denim are trading at a TTM PE of 3.32x, 8.4x, 2.9x and 4.8x. If we look on the valuations of RBDL, it seem cheaper compared with its peer. However, if we look at the textile sector, it is a low margin business. Being in the initial stage, the company has a higher long term debt of Rs 28.28 crore as of 30 September 2013. RBDL has a very limited exposure to the market. So, taking all these factors into consideration we recommend investors not to subscribe to this issue.