Mandhana Industries Limited is tapping the capital markets with an IPO which opens on Tuesday the 27th of April and closes on Thursday the 29th of April. The price band is Rs 120-130.
| Price Band | Rs 120 – Rs 130 |
| Issue size in Rs | Rs 99.60 crs to Rs 107.90 crs |
| Offer size in shares | 83,00,000 Equity Shares |
| QIB’s | 41,50,000 Equity Shares |
| Non Institutional Investors | 12,45,000 Equity Shares |
| Retail Investors | 29,05,000 Equity Shares |
| Post Issue Shares | 3,31,23,913 Equity Shares |
| Marketcap post issue | Rs 397.49 crs to 430.61 crs |
| Book Running Lead Manager | Edelweiss Capital Limited Axis Bank Limited |
| Isssue Opening Date | Tuesday 27th April |
| Isssue Closing date | Thursday 29th April |
| IPO Grade | 3/5 by CRISIL indicating average fundamentals |
| Bidding Lot | 50 shares |
Business
Mandhana is a vertically integrated textile and garment manufacturing company having presence across operations ranging from yarn dyeing to garment manufacturing. The company has two major segments which include textiles and garments. The company is spread across the value chain and spins its yarn, does yarn dyeing, weaving of fabric, fabric dyeing, printing and processing, followed by finishing of fabric by special processes and finishes. The company has large stitching facilities for garments and is present in the shirting, ladies tops, dresses, skirts, kids wear, sportswear and jeans wear segments.
Mandhana produces a large range of fabrics such as cotton fabrics, yarn dyed fabrics, embroidered, embellished and blended cotton fabrics including cotton blends, with nylon, lycra, viscose, melange etc. Fabrics are made for captive consumption for the garmenting business as well as for sale to customers. The fabric is by and large consumed within the country while almost the entire garments production is exported.
The break up between textiles and garments has been around 2/3rd textiles and 1/3rd garments. In the current year in the first nine months the garments have reduced simply because the capacity has fallen short and the company could not grow the business for lack of execution capacity. The capacity utilisation has been a high 90% plus.
The present capacity of various facilities of Mandhana is given below.
| Item | Present Capacity | Expansion | Total |
| Yarn Dyeing | 30 lakh kgs annually | NIL | 30 lakh kgs annually |
| Weaving | 180 lakh mts annually | 180 lakh mts annually | 360 lakh mts annually |
| Fabric Processing | 516 lakh mts annually | NIL | 516 lakh mts annually |
| Garments | 36 lakh pieces annually | 47 lakh pieces annually | 83 lakh pieces annually |
It may be mentioned that additional fabric processing capacity has become operational in the current year and the capacity has increased from 204 lac mts annually to 516 lac mts annually, though the full effect of the same would be felt only in financial year 2010-2011. The company is adding substantial capacity in both weaving where it is doubling the capacity from 180 lakh mts to 360 lakh mts and in garment making more than doubling from 36 lac pieces to 83 lac pieces.
The new capacity in weaving and garmenting is expected to be ready in the fourth quarter of the financial year 2010-2011. This effectively means that in the current year (2010-11) the full benefit of the processing capacity increase from 204 to 516 lakh mts will be felt while in the next year (2011-2012) the benefit of increase in weaving capacity from 180 to 360 lakh mts and garmenting from 36 lakhs to 83 lakhs will be felt.
Mandhana has opened a liaison office in Paris which has made a difference in the sales of the company. Paris is the international fashion hub and this has helped the company add many customers. Mandhana has also created a modern sampling division which is able to create designs and prototypes of the garments as per clients needs.
Objects of the Issue
|
Setting up of garment manufacturing facility at MIDC, Tarapur Maharashtra |
Rs 6909.40 lacs |
| Expansion of yarn dyeing and weaving facility at MIDC, Tarapur Maharashtra | Rs 10279.46 lacs |
| Margin Money for Working capital | Rs 3550.00 lacs |
| General corporate Purposes | Rs X |
| Issue related expenses | Rs X |
The company has already been sanctioned a term loan under ‘TUFS’ (Textile upgradation fund scheme of Rs 10380 lakhs. This loan has been sanctioned by State Bank of Patiala and a consortium of banks led by Axis Bank.
Financials
The company has reported robust growth with the sales rising from Rs 181 crs in March 2006 to Rs 463 crs in March 2009. In the current year ending March 2010, the first nine month saw the company report a top line of Rs 439 crs. The profit after tax for the same period has grown from Rs 12 crs to Rs 36 crs and Rs 28.5 crs for the nine months ended December 2009. The company’s net margins have hovered between 6.5 and 7.8% and with the expansion in place should improve further and stabilise in the 8.25-8.75%.
Comparison
The best comparison for Mandhana is with Bombay Rayon Fashions Limited which is in a comparable business and has modern machinery and technology. The EPS for Mandhana for the year ended March 2009 is Rs 14.70 while for the nine months ended December 2009 is Rs 11.50. If one were to annualise the nine months EPS for December 2009, the same would be Rs 15.33 on pre-IPO capital.
Looking at a fully diluted EPS on a post issue basis the same would reduce to Rs 11.50 and the price earnings multiple would be between 10.43 and 11.30 times. What is extremely important to note is that the fruits of the present expansion are a good nine months or three quarters away and also what the company has expanded in the last quarter of 2009-2010 would be realised this year. It is estimated that the turnover in the year ended 2009-2010 would be Rs 585-595 crs, while in the year 2010-2011 this would rise to Rs 750 crs. The full benefit of the current proposed expansion would be felt in 2011-2012 when the turnover would be Rs 980-990 crs. The net profits for the three years are expected to be in the region of Rs 38 crs, Rs 65 crs and Rs 90 crs. This is based on the expansion of capacities for which money from the IPO is being raised. In terms of EPs we are talking of Rs 11.50, Rs 19.6 and Rs 27.17.
Risks and Key factors
The textile industry is critical for mankind. We have heard for time immemorial ‘Roti, Kapda and Makan’ and this is the second of the three. India was lacking till some years ago large capacities and modern processing facilities. This has also been taken care of in recent years and the countries facilities are comparable with the best in the world. We have now besides the world market, a growing market within our own country where the buyer is conscious of quality, affordability and latest trends. This is a growing market for Mandhana and they are set to increase their presence in India and abroad.
Conclusion
The textile industry is poised for growth and margins have improved in the recent past. Besides exports the domestic industry is poised for huge demand, rapid growth and consolidation in the industry is the key going forward. It makes sense to invest in the sector and tap the growing demand. The flavour for the industry is there but that does not mean that there will be listing gains. Investment in Mandhana is warranted for the medium term and anybody looking for a 18 months holding period or waiting period is bound to make decent returns.
I recommend investing in Mandhana for the medium to long term with a holding period of 12 to 18 months.
Sebi disclaimer: – I intend to subscribe to the above issue.
