Sanathan Textiles IPO has drawn significant attention as it opens for subscription from 19 December to 23 December 2024. Operating in the diverse textile sector, the company specializes in polyester, cotton, and technical textiles. However, while the IPO presents growth opportunities, concerns about declining profitability and margins pose risks for potential investors.
IPO Details: Key Facts About Sanathan Textiles IPO
- IPO Size: INR 550 crore
- Fresh Issue: INR 400 crore (to repay INR 300 crore of net debt)
- Offer for Sale (OFS): INR 150 crore (promoter stake will reduce from 100% to 80% post-IPO)
- Price Band: INR 305-321 per share
- Market Capitalization: INR 2,709 crore (implying 20% dilution)
- IPO Dates: 19 to 23 December 2024
- Listing Date: 27 December 2024
Sanathan Textiles: Company Overview
Sanathan Textiles is an integrated textile manufacturer with a broad product portfolio. The company derives revenue from the following segments:
- Polyester Yarn: 77% of revenue
- Cotton Yarn: 19% of revenue
- Industrial and Technical Textiles: 4% of revenue
The company’s manufacturing capacity currently stands at 2.2 lakh MTPA, which is fully utilized. To drive future growth, Sanathan is:
- Undertaking a brownfield expansion of 0.11 MTPA.
- Building a greenfield plant in Punjab, targeting a total capacity of 5.8 lakh MTPA by FY27E.
Financial Performance
FY24 Highlights
- Revenue: INR 2,958 crore
- EBITDA Margin: 8%
- Net Profit (PAT): INR 134 crore (net margin of 4.5%)
Q1 FY25 Improvements
- Revenue: INR 781 crore
- EBITDA Margin: 10%
- Net Margin: 6%
- Earnings Per Share (EPS): INR 7
Sanathan Textiles IPO Analyst Views
Ms. Anubhui Mishra, Swastika Investmart
Ms. Anubhuti Mishra of Swastika Investmart offers a balanced perspective on the Sanathan Textiles IPO. While acknowledging the company’s diverse portfolio spanning polyester, cotton, and technical textiles, Mishra points out concerns regarding its recent financial performance.
The decline in revenue and profitability, along with shrinking margins, raises red flags for potential investors. Despite the IPO being reasonably priced, the company’s struggle to maintain consistent profitability makes it a high-risk investment.
Mishra advises that this IPO is suitable only for investors with a high-risk appetite who are prepared to face potential volatility and uncertainty in the company’s performance. Additionally, with several IPOs opening on the same date, investor attention may be divided, possibly impacting the stock’s initial market response.
Ms. Geetanjali Kedia, SPTulsian Investment Advisors
Echoing similar sentiments, Ms. Kedia acknowledges the mixed investment opportunity presented by Sanathan Textiles. On FY24 revenue of INR 2,958 crore, value-added products accounted for approximately 52%. The company reported an EBITDA of INR 248 crore (8% margin) and a PAT of INR 134 crore (4.5% net margin). For Q1 FY25, revenue stood at INR 781 crore, with an improved EBITDA margin of 10% and a net margin of 6%. This resulted in an EPS of INR 7 for Q1, compared to INR 19 for the entire FY24.
Attractive Valuation
On an estimated FY25 EPS of INR 28, the IPO is priced at a PE multiple of 11x, which is considered attractive for a company offering a 15% RoE and ongoing capacity expansion. By comparison, peer Nitin Spinners, with similar FY24 revenue of INR 2,900 crore and PAT of INR 132 crore, trades at a PE multiple of 17x despite a lower RoE of 12% and a 1:1 debt-equity ratio. Other comparable players like Nahar and Sutlej are currently loss-making.
Kedia emphasizes that the valuation, coupled with the company’s growth prospects and improving margins, makes Sanathan Textiles a compelling opportunity for investors.
Here’s a detailed compilation of analyst insights, showcasing the common trends in brokerage recommendations for the upcoming IPO:
- BP Wealth – Avoid
- Canara Bank Securities – Neutral
- Elite Wealth – Apply
- Jainam Broking – Subscribe for long term
- Samco Securities – Avoid
- SBI Securities – Subscribe for long-term
- SMC Global – Not rated
Pros and Cons of Investing in Sanathan Textiles IPO
Strengths:
- Diversified product portfolio across polyester, cotton, and technical textiles.
- Ongoing capacity expansions with a significant focus on future scalability.
- Attractive pricing strategy compared to industry peers.
Weaknesses:
- Declining revenue and profitability in recent years.
- Margins under pressure despite operational improvements.
- High competition in the textile sector.
Conclusion: Is Sanathan Textiles IPO Worth Investing In?
Sanathan Textiles IPO offers a blend of growth potential and inherent risks. While the company’s diversified product range and capacity expansion plans are promising, its recent financial struggles cannot be ignored. Analysts suggest this IPO is best suited for high-risk investors prepared to navigate potential market volatility. With the subscription window open, careful evaluation of the company’s fundamentals and growth prospects is essential before making an investment decision.
