Shanti Spintex coming with an IPO to raise Rs 31.25 crore

18 Dec 2023 Evaluate

Shanti Spintex 

  • Shanti Spintex is coming out with an initial public offering (IPO) of 44,64,000 equity shares of face value of Rs 10 each in a price band Rs 66-70 per equity share
  • The issue will open on December 19, 2023 and will close on December 21, 2023. 
  • The shares will be listed on BSE SME platform.
  • The share is priced 6.60 times of its face value on the lower side and 7.00 times on the higher side.
  • Book running lead manager to the issue is Hem Securities.
  • Compliance Officer for the issue is Mohini Singhal.

Profile of the company

Incorporated in 2010, the company is primarily engaged in manufacturing and selling of denim fabrics. It began its business as a fabrics trading concern in the F.Y. 2014-15. In 2016, the company established its fabric weaving unit at Dholi – Integrated Spinning Park, Dholka, Ahmedabad on plot area measuring to 8660 sq. mtrs. The company has 96 airjet looms installed at Dholi unit which has an annual installed capacity of weaving 1,92,72,000 mtrs. of denim fabrics. Weaving is the process of converting yarn into fabrics wherein two distinct sets of yarns or threads are interlaced at right angles to form a fabric. The airjet looms installed by it utilize a technique where a jet of compressed air is used to insert the weft (crosswise) yarn into the warp (lengthwise) yarn to create the raw fabrics also known grey fabrics.

The company manufactures various type of denim fabrics such as power stretch spandex denim, knit denim, light weight denim, rigid denim, over dyed denim and flat finish 3/1 denim. Its production facility has capability to produce grey fabrics in various designs such as twill weave, knit dobby weave, structure dobby weave, broken twill weave and satin weave. It offers denim fabrics in diverse spectrum of shades such as indigo blue, IBST, sulphur black, sulphur grey, halogen blue and ecru colour which has weights ranging from 4.50 Oz/sq. yd to 14.50 Oz./sq. yd. and widths spanning from 62 inch (157cm) to 78 inch (198 cm). Its operations encompass utilization of diverse type of yarns such as cotton yarn, ring yarn, viscose yarn, slub yarn, cotton spandex, polyester spandex, tencel, lyocell etc. which are procured by it from domestic market. In addition to yarn, it also directly procures grey fabrics from the market, which are subsequently sent for finishing, and is then sold to customers. It outsources the yarn dyeing and grey fabrics finishing process to third parties.

Proceed is being used for:

  • Meeting Working Capital requirements.
  • General Corporate Purpose.

Industry Overview

India’s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills sector at the other end. The fundamental strength of the textile industry in India is its strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute, silk and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic. The decentralised power looms/ hosiery and knitting sector form the largest component of the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. India’s textiles industry has a capacity to produce a wide variety of products suitable for different market segments, both within India and across the world. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach $ 190 billion by 2025-26. India has a 4% share of the global trade in textiles and apparel. India is the world’s largest producer of cotton. Estimated production stood at 362.18 lakh bales during cotton season 2021-22. 

India is the world’s second-largest producer of textiles and garments. It is also the fifth-largest exporter of textiles spanning apparel, home and technical products. The textiles and apparel industry contribute 2.3% to the country’s GDP, 13% to industrial production and 12% to exports. Around 45 million people are working in the textile business, including 3.5 million people who work on handlooms. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach $ 190 billion by 2025-26. The Indian apparel market stood at $ 40 billion in 2020 and is expected to reach $ 135 billion by 2025. India enjoys a comparative advantage in terms of skilled manpower and in cost of production relative to other major textile producers. India’s textile and apparel exports (including handicrafts) stood at $ 44.4 billion in FY22, a 41% increase YoY. Exports of readymade garments including cotton accessories stood at $ 6.19 billion in FY22. India’s ready-made garment (RMG) exports are likely to surpass $ 30 billion by 2027, growing at a CAGR of 12-13%. The textiles industry (including dyed and printed) foreign direct investment (FDI) worth $ 4.03 billion from April 2000-June 2022. 100% FDI (automatic route) is allowed in the Indian textile sector. 

Pros and strengths

Capability to manufacture diverse range of denim fabrics through in-house weaving unit: The company’s production facility at Dholi - Integrated Spinning Park, Dholka, Ahmedabad has a cumulative weaving capacity of 1,92,72,000 mtrs. of denim fabrics and has capability to produce grey fabrics in various designs such as twill weave, knit dobby weave, structure dobby weave, broken twill weave and satin weave. It manufactures various type of denim fabrics such as power stretch spandex denim, knit denim, light weight denim, rigid denim, over dyed denim and flat finish 3/1 denim.  Having a wide product portfolio enables the company to efficiently compete with larger denim fabrics players in the market who also have a wide product offering.

Stringent quality control mechanism ensuring standardized product quality: The company employs an extensive and stringent quality control mechanism during the inspection of denim fabrics such as colour fastness test, residual shrinkage test, stretchability test and skew test that are required to ensure that its finished product conforms with the standard quality. These tests are crucial in ensuring the quality and performance of fabrics and assist customer to understand how the fabrics will behave under different conditions, which aids in determining suitability, durability, and consumer satisfaction. These levels of quality tests and checks ensure maintenance of quality of products. Its focus on quality of products has enabled it to sustain and grow its business model to benefit its customers.

Synergy of young and experienced management team with committed employee base: The company benefits extensively from the leadership of its Promoter, Mr. Bharat Bhushan Agarwal, who has more than 43 years of experience in the textile industry and has sound knowledge of denim fabrics. He is involved in the day-to-day business and management of the company. In addition, its Managing Director, Mr. Rikin Agarwal has 9 years of experience in the denim fabrics industry and plays a key role in introducing new product models and maintaining client relationship. It is backed by a synergized crew of experienced and young support team which has been built up over the years and has been contributory in achieving the goals of the company. Its key business functions like sales, production, finance, HR and supply chain play key role in efficient day-to-day operations of the Company. It endeavours to maintain a balance of experienced and young professionals in the team. Its management team’s experience and their understanding of the industry will enable it to continue to take advantage of both current and future market opportunities. 

Risks and concerns

Business vulnerable to variations in demand of denim-based apparels: The company is primarily engaged in manufacturing and selling of denim fabrics, which has a primary application in the production of denim apparels, particularly jeans. Its sales of denim fabrics are dependent on a number of factors, and may decline as a result of increased competition, regulatory action, pricing pressures or fluctuations in the demand for or supply of its products and other factors outside its control. In particular, its business is vulnerable to rapidly-changing customer preferences. Its results of operations are dependent on its ability to attract customers by anticipating, gauging and responding to such changes in customer preferences, and manufacture denim fabrics in line with changes in fashion trends as well as customer demands and preferences. Any change in consumer attitudes towards denim-based apparels may lead to decrease in demand for its products. A decline in demand for its products or a mis-judgement on its part could lead to increased market acceptance of its competitors’ products or may result in the substitution of its products in the market, which could lead to it having lower sales and excess inventories. This may cause a decline in its revenues and profits, which would adversely affect its business, results of operations, financial condition and cash flows. 

Rely on outsourcing certain proportion of production processes and activities to third-parties: Currently, the company outsources certain proportion of its production process such as yarn dyeing, yarn sizing and fabrics singeing and finishing process to third party manufacturers. It relies on these third parties to provide it with an uninterrupted supply of its products. However, it cannot assure you that they may do so in a timely manner, or if at all. These third parties may decide not to accept its future orders on the same or similar terms, or at all. It may face the risk of its competitors offering them better terms, which may cause them to cater to its competitors alongside, or even instead of it. They may discontinue their work on short notice and its production process may be stalled or hindered due to this. Conversely, due to increased customer demand for its products, it may need to obtain more products from more third parties, and any inability to do so may render it unable to execute its growth strategy. Additionally, its job workers manufacturing facilities may be subject to operating risks, such as performance below expected levels of efficiency, excessive wastage of raw materials, delays in production, decrease in quality of products made, labor disputes, natural disasters, industrial accidents, interruptions in power supply and statutory and regulatory restrictions.

High working capital requirements: The company’s business requires significant amount of working capital and major portion of its working capital is utilized towards inventories and trade receivables. Its growing scale and expansion, if any, may result in increase in the quantum of current assets. Its inability to maintain sufficient cash flow, credit facility and other sources of funding, in a timely manner, or at all, to meet the requirement of working capital or pay out debts, could adversely affect its financial condition and result of its operations. Further, it has high outstanding amount due from its debtors which may result in a high risk in case of non-payment by these debtors. In case of any such defaults from its debtors, may affect its business operations and financials.  

Outlook 

Shanti Spintex manufactures and sells denim fabrics. Shanti Spintex manufactures power stretch spandex denim, knit denim, lightweight denim, rigid denim, over dyed denim and flat-finished 3/1 denim. These fabrics are available in various shades such as Indigo Blue, IBST, Sulfur Black, Sulfur Gray, Halogen Blue and Ecru with weights ranging from 4.50 Oz/sq. yd to 14.50 Oz./sq. yd. and widths from 62 inch (157 cm) to 78 inch (198 cm). The company also produces gray fabrics in a variety of weaves including twill weave, knit dobby weave, structure dobby weave, broken twill weave and satin weave. The company's manufacturing facility is located in Ahmedabad, Gujrat, and is spread over an area of 8660 square meters. The facility has 96 airjet weaving machines with a weaving capacity of 1,92,72,000 meters of denim fabric. The in-house weaving operations enable it to stream line inventory management and production process resulting into maintenance of high-quality production standards, minimizing production time and bringing cost effectiveness. On the concern side, the company carries its entire manufacturing operations from its unit located in Dholka, Ahmedabad, Gujarat. Due to the geographical concentration of its manufacturing operations primarily in Dholka, its operations are susceptible to local, regional and environmental factors, such as social and civil unrest, regional conflicts, civil disturbances, economic and weather conditions, natural disasters, demographic and population changes, and other unforeseen events and circumstances. 

The issue has been offered in a price band of Rs 66-70 per equity share. The aggregate size of the offer is Rs 29.46 crore to Rs 31.25 crore based on lower and upper price band respectively. On performance front, total income for the financial year 2022-23 stood at Rs 37,071.27 lakh whereas in Financial Year 2021-22 the same stood at Rs 25,526.51 lakh representing significant increase of 45.23%. The company reported Restated Profit after tax for the financial year 2022-23 at Rs 1,012.81 lakh in comparison to Rs 486.59 lakh in the financial year 2021-22. Meanwhile, going forward the company intends to focus on current markets to increase its customer base and to tap new market and increase its geographical reach and customer base. To augment its efforts in increase in sales of its products, it intends to deploy additional field force consisting of sales and marketing representatives who shall meet its customers/ prospective customers to market its products.


Shanti Spintex Share Price

66.69 -1.10 (-1.62%)
04-Dec-2024 16:59 View Price Chart
Peers
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