AVOID the issue
Cantabil Retail India Limited is tapping the capital markets with an IPO to raise Rs 105 crs. The issue has opened on the 22nd of September and closes on Monday the 27th of September. The price band is Rs 127-135 and the issue has received support for 0.59 times at the end of Friday the 24th of September.
| Price Band | Rs 127 – Rs 135 |
| Issue size in Rs | Rs 105 crs |
| Offer size in shares | 82,67,717 Equity shares at Rs 127 and 77,77,778 Equity shares at Rs 135 |
| QIB’s | 41,33,858 Equity Shares at Rs 127 and 38,88,889 Equity Shares at Rs 135 |
| Non Institutional Investors | 12,40,157 Equity Shares at Rs 127 and 11,66,667 Equity Shares at Rs 135 |
| Retail Investors | 28,93,701 Equity Shares at Rs 127 and 27,22,222 Equity Shares at Rs135 |
| Marketcap post issue | Rs 213.58 crs to 220.42 crs |
| Book Running Lead Manager | SPA Merchant Bankers Limited |
| Syndicate Members | Khandwala Securities Limited SMC Global Securities Limited Sunidhi Securities & Finance Limited |
| Isssue Opening Date | Wednesday 22nd September |
| Isssue closing date for Retail and HNI’s | Monday 27th September |
| Anchor Investors | Provision for allotment but none done |
| IPO Grade | 2/5 by ICRA Limited indicating below average fundamentals |
| Bidding Lot | 50 shares |
Business
Cantabil is in the business of designing, manufacturing, branding and retailing of apparels under the brand names of "Cantabil" and ‘"La FANSO". The company has a network of 411 exclusive retail outlets as of 31st July spread across India. The company began operations in 2000 and the first store was opened in New Delhi in September 2000. The Cantabil brand has 270 exclusive retail outlets and offers complete range of formal wear, party wear, casuals and ultra casual clothing for men, women and kids in the middle to high income group. The second brand was launched under the name "La FANSO" on the 25th October 2008 and has 141 exclusive outlets. This brand focuses on casual, ultra casual and formal wear in the lower to middle income group. The company also retails various fashion accessories like ties, belts, socks, caps and handkerchief under the two brands.
The company has 3 in-house manufacturing/finishing units and 4 warehouses located in Delhi. There are three dedicated third party units manufacturing exclusively for the company. There are 73 manufacturing units from whom outsourcing of cutting and stitching is done. The company is in the process of setting up a garment washing and finishing unit at Sonipat in Haryana which should be ready by December 2010.
Geographical breakup of the stores is in favour of North and western India with 129 stores of Cantabil and 101 stores of La Fanso in the North, 82 stores of Cantabil and 31 stores of La Fanso in the West, and the balance 59 stores of Catabil in East, South and Central and 9 stores of La Fanso in the remaining part of India.
The operation of the stores is under two models with the first one being company owned or leased and franchisee managed and the second franchisee leased or owned and franchisee operated. Under the first model there are 129 stores under Cantabil and 14 under La Fanso while under the second model there are 141 stores under Cantabil and 127 stores under the La Fanso brand.
Objects of the Issue
The objects of the issue are as follows: –
| 1. Establishment of new manufacturing facility | Rs 3202.50 lacs |
| 2. Expansion of our retail network | Rs 2497.50 lacs |
| 3. Additional working capital | Rs 3000.00 lacs |
| 4. Repayment of Debt | Rs 2000.00 lacs |
| 5. General Corporate Purposes | XX |
| 6. Expenses for the issue | XX |
Financials
The company has reported revenues of Rs 87.20 crs in the year ended March 2008, Rs 154.78 crs in the year ended March 2009 and Rs 163.64 crs in the year ended March 2010. The profit before tax for the respective period was Rs 4.47 crs, Rs 9.55 crs and Rs 22.34 crs respectively. The profit after tax was Rs 2.86 crs, Rs 6.21 crs and Rs 14.68 crs respectively. Based on the pre-IPO capital of 85,49,830 shares or Rs 8.549 crs the EPS for the year ended March 2009 was Rs 7.26 and Rs 17.17 for the year ended March 2010. There is a substantial increase in stock in the year ended March 2010 compared to March 2009 where the same has gone up by Rs 60.87 crs also leading to a huge jump in income and also profits.
Comparison
The company has compared itself with Koutons, Kewal Kiran, Provogue and Zodiac Clothing. These companies have established themselves in their own segments. Koutons reported sales of Rs 1205 crs and a net profit of Rs 82 crs for March 2010 and trades at 11 times historical earnings. Zodiac reported revenue of Rs 288 crs and a PAT of Rs 15 crs and the PE is about 20 times. Similarly Kewal Kiran reported revenues of Rs 176 crs and a PAT of Rs 32 crs and the PE is 13.7 times. Provogue had revenues of Rs 480 crs and a PAT of Rs 28 crs while the PE is 23 times.
Growth Drivers
The company has in all 411 exclusive brand outlets as of 31st July and intends to leverage on the same going forward. It has its own in house design team and believes that the design, in house manufacturing and exclusive brand outlets will help in increasing penetration in the market.
Valuations
The fully diluted equity at the top end of the price band would be 1.63 cr shares and at the lower end of the price band would be 1.68 cr shares. The earnings per share based on March 2010 would be Rs 8.73 at the lower end of the band of Rs 127 and Rs 9 at the upper end of the price band of Rs 135. The price earnings multiple at this price band would be 14.54 to 15 times. The share is in no manner cheap and looking at the huge jump in profits which seem to be partly on account of a huge jump in inventories.
Conclusion
The price earnings at which the share is being offered does not offer much scope for appreciation in the medium term. The size of the issue and the presence of three syndicate members in an issue size of 105 crs give a feeling that there could be speculative activity happening on listing in the share. Overcoming this temptation I feel that with such a heavy pipeline of IPO’s it makes sense to skip this one and look at others currently on or likely to come in the future. Simply put AVOID the issue.
SEBI Disclaimer: – I do not intend to subscribe to the above issue.
