Avi Ansh Textile coming with IPO to raise Rs 25.99 crore

Avi Ansh Textile

• Avi Ansh Textile is coming out with an initial public offering (IPO) of 41,92,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 62 per equity share.
• The issue will open on September 20, 2024 and will close on September 24, 2024.
• The shares will be listed on SME Platform of NSE.
• The share is priced 6.20 times higher to its face value of Rs 10.
• Book running lead manager to the issue is 3Dimension Capital Services.
• Compliance Officer for the issue is Isha.

Profile of the company

Avi Ansh Textile has been operating in the yarn sector since 2005. By 2012, it had established a presence as a manufacturer and exporter of 100% cotton yarn, including combed and carded cotton yarn in various counts. Its production capacity at that time was approximately 4,500MT of cotton yarn per year, with 26,314 spindles. Its unwavering commitment to quality and adherence to international standards have garnered trust from both domestic and international buyers. Branded as Pooja Gold, its yarn reflects meticulous craftsmanship, offering unparalleled softness, strength, and versatility. Additionally, it has vertically integrated into the knitting division, producing superior quality fabrics in dyed and greige variants, delivered within promised timelines.

The company holds ISO 14001:2015 and ISO 9001:2015 certifications, demonstrating its commitment to environmental management and quality assurance. The company pays taxes at a rate of 25.168% in accordance with section 115BAA of the Income Tax Act of 1961, comprising tax at 22%, surcharge at 10%, and cess at 4%. With successful sales operations in multiple states such as Punjab, Haryana, Uttar Pradesh and Delhi, as well as countries like Nepal, Bangladesh, Philippines and Hong Kong, the company has expanded its presence and built strong client relationships through strategic initiatives and aggressive market penetration techniques.

Avi Ansh Group is a textile company that operates in the domestic as well as global market. The company manufactures and supplies a range of Yarns and Fabrics to meet customer needs. It utilizes technology and human resources to achieve its goals. The company has installed heavy machines of German and European technology in their manufacturing units as well as adequate labour is employed to maintain 24-hour non-stop production at the unit. The company is focused on continuous updation of machines as per the latest technology and adopts a sustainable business strategy for its organization.

Proceed is being used for:

• Meeting working capital requirements 
• Term loan repayment 
• 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 4.6% share of the global trade in textiles and apparel. Moreover, India is the world's 3rd largest exporter of Textiles and Apparel. The Indian Technical Textile market has a huge potential of a 10% growth rate, increased penetration level of 9-10% and is the 5th largest technical textiles market in the world. India’s sportech industry is estimated around $1.17 million in 2022-23. The Indian Medical Textiles market for drapes and gowns is around $9.71 million in 2022 and is expected to grow at 15% to reach $22.45 million by 2027. The Indian composites market is expected to reach an estimated value of $1.9 billion by 2026 with a CAGR of 16.3% from 2021 to 2026 and the Indian consumption of composite materials will touch 7,68,200 tonnes in 2027.

India is the world’s largest producer of cotton. Estimated production stood at 343.4 lakh bales during the cotton season 2022-23. India’s demand for domestic consumption of cotton is estimated to be 5.29 million metric tonnes in 2022-23. Domestic consumption for the 2021-22 cotton season was estimated to be 338 lakh bales. Cotton production in India is projected to reach 7.2 million tonnes (43 million bales of 170 kg each) by 2030, driven by increasing demand from consumers. In FY23, exports of readymade garments (RMG) including accessories stood at $16.2 billion. It is expected to surpass $30 billion by 2027, with an estimated 4.6-4.9% share globally. In 2022-23, the production of fibre in India stood at 2.15 million tonnes. While for yarn, the production stood at 5,185 million Kgs during the same period. Natural fibres are regarded as the backbone of the Indian textile industry, which is expected to grow from $138 billion to $195 billion by 2025.

Pros and strengths

Continue to strive for cost efficiency: The company focuses on increasing its operations and improving operational effectiveness at its production facilities. Higher operational effectiveness results in greater production volumes and higher sales which allow it to reduce its fixed cost per unit and thereby, increasing its profit margins. It wishes to constantly pass such benefit to its customers and increase its efficiency further. It also wishes to target economies of scale to gain increased negotiating power on procurement. 

Diversified product offerings underscore its commitment to quality: The unwavering focus rests on two pillars i.e. quality and variety. At present, it is manufacturing Yarns as well as Fabrics. It manufactures different variety of fabrics such as single jersey, Terry, Rib, Diagonal terry and many other fabrics. Each yarn and fabric delivered sticks to the highest expectations of the best quality.

ISO Certifications: The company is ISO Certified with ISO Standard 9001: 2015 and 14001: 2015 which certifies that its organization has been assessed and found to be in accordance with the high quality standards and also in compliance with the requirement of environmental management system respectively. 

Risks and concerns 

No long term agreement with majority of its customers: The company generally does business with its customers on purchase order basis and does not enter into long term contracts with them. Its business is dependent on its continuing relationships with its customers. The company neither has any long-term contract with any of customers nor has any marketing tie up for its products. Further, the company has not appointed any exclusive agents for handling its operations However, the company has in house sales and marketing team who bid to various clients for its product. Any change in the buying pattern of its end users or disassociation of major customers can adversely affect the business of the company. The loss of or interruption of work by, a significant customer or a number of significant customers or the inability to procure new orders on a regular basis or at all may have an adverse effect on its revenues, cash flows and operations. 

High debt-to-equity ratio: The company has a high debt-to-equity ratio, which stood at 2.82, 2.54, 2.16, and 3.14 for the financial years ended March 31, 2024, March 31, 2023, March 31, 2022 and March 31, 2021, respectively. A high debt-to-equity ratio could increase its interest costs, making difficult for it to service its debt obligations, which could adversely affect its financial condition and results of operations. Its ability to meet its debt obligations and repay its outstanding borrowings when due depends on the successful implementation of its business strategy and its ability to generate sufficient funds from internal accruals, refinancing from external sources on acceptable terms, or the proceeds from this Initial Public Offer.

Stiff competition: In the recent past many companies in the textile industry have ramped up their capacities to encash opportunities arising from various favourable regulatory changes such as incentives under the textile policies of various states in India, incentives under mega textile parks scheme, TUFS etc. Huge additional capacities coming up are expected to increase competition amongst players in the textile industry and it may face pressures on pricing, product quality, turnaround time, order size etc., which may put strain on its profit margins. 

Outlook

Avi Ansh Textile is a manufacturer and exporter of 100% cotton yarn, including combed and carded cotton yarn in various counts. It has achieved ISO 14001:2015 and ISO 9001:2015 certifications, showcasing its dedication to environmental management and quality assurance. The company operates in both domestic and global markets, manufacturing and supplying a variety of yarns and fabrics to meet customer needs. Originally established in 2012 with an initial capacity of 6000 spindles, the company underwent significant growth, doubling its capacity to 12000 spindles while concurrently modernizing its spinning unit. This expansion facilitated an increase in annual yarn production to 4500 Metric Tons, solidifying Avi Ansh Textile's position within the spinning sector. On the concern side, the company’s business depends on its production facility in Punjab and the loss of or shutdown of operations of the production facility on any grounds could adversely affect its business or results of operations. Moreover, it does not have long-term agreements with a majority of its customers. Any changes or cancellations to its orders or its inability to forecast demand for its products may adversely affect its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 41,92,000 equity shares of Rs 10 each at a fixed price of Rs 62 per share to mobilize Rs 25.99 crore. On performance front, total income for the financial year 2023-24 stood at Rs 14,214.65 lakh whereas in Financial Year 2022-23 the same stood at Rs 12,149.57 lakh representing increase of 17%. The Company reported Restated Profit after tax for the financial year 2023-24 at Rs 331.34 lakh in comparison to Rs 28.74 lakh in the financial year 2022-23, representing a significant increase of 1052.89%. The company is strategically planning to expand into the export market in the near future, with a strong commitment to pursuing this opportunity. This strategic initiative not only allows it to diversify its customer base but also strengthens its revenue streams. In fact, it has already successfully penetrated the export market in the Yarn vertical and currently conducts business in countries such as Bangladesh and Nepal. Through its continual dedication and efforts, it aims to further capitalize on these opportunities and drive greater success in the global market.