Avax Apparels and Ornaments coming with IPO to raise Rs 1.92 crore

Avax Apparels and Ornaments

• Avax Apparels and Ornaments is coming out with an initial public offering (IPO) of 2,74,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 70 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 BSE.
• The share is priced 7.00 times higher to its face value of Rs 10.
• Book running lead manager to the issue is SKI Capital Services.
• Compliance Officer for the issue is Shruti Jain.

Profile of the company

Avax Apparels and Ornaments is engaged in two distinct lines of business i.e Wholesale trading and Online retail of silver ornaments. The company operates in the wholesale trading of knitted cloth. They directly buy from manufacturers and supply wholesale to companies and readymade garment manufacturers in Punjab. The company specializes in knitted cloth, which is used for manufacturing of ladies and gents’ jackets. The company's key advantages in wholesale trading include a geographical advantage, being located in the hub of cloth manufacturing. Additionally, the growing demand for these products and the strong business relationships of the management also contribute to the company's success in this segment. The company has recently purchased machinery for manufacturing of knitted cloth. The company is going to start manufacturing very soon, a step towards backward integration. It aims to manufacture what it has been outsourcing till now. This would increase its profit margins going forward. Also it expects, this would allow it to get work which has less credit period involved thereby reducing its high working capital requirements.

Also, the company operates in the business of online retail of silver ornaments. It offers a wide range of designs and articles with a choice of weight of products, such as silver rings, silver ladies pajeb, silver gents kada, silver plate set, silver glass, silver bangles, silver bowls, silver chains, and other silver jewellery. They are capable of supplying in all major cities across the country. The company's key advantages in this business include operating in the affordable silver ornaments sector, an increase in demand for silver ornaments in Indian markets, the ability to replicate gold jewellery designs in silver, and access to exclusive Punjabi ethnic designs.

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 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. Domestic consumption for the 2021-22 cotton season is estimated to be at 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. Production of fibre in India reached 2.40 MT in FY21 (till January 2021), while for yarn, the production stood at 4,762 million kgs during the same period.

The future of the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. India is working on various major initiatives to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on the rise. The government is supporting the sector through funding and machinery sponsoring. Top players in the sector are achieving sustainability in their products by manufacturing textiles that use natural recyclable materials. The technical textiles market for automotive textiles is projected to increase to $3.7 billion by 2027, from $2.4 billion in 2020. Similarly, the industrial textiles market is likely to increase at an 8% CAGR from $2 billion in 2020 to $3.3 billion in 2027. The overall Indian textiles market is expected to be worth more than $209 billion by 2029.

India’s gems and jewellery market size was at $78.50 billion in FY21. Growth in exports is mainly due to revived import demand in the export market of the US and fulfilment of orders received by numerous Indian exhibitors during the Virtual Buyer-Seller Meets (VBSMs) conducted by GJEPC. India’s gems and jewellery exports reached $39.14 billion in 2021-22, a 54.13% rise from the previous year. In October 2022, India’s gems and jewellery exports was at $1.48 billion. The Government of India is aiming at $70 billion in jewellery export in the next five years (until 2025), up from $35 billion in 2020. Moreover, the Indian online grocery market is estimated to reach $26.93 billion in 2027 from $3.95 billion in FY21, expanding at a CAGR of 33%. India's consumer digital economy is expected to become a $1 trillion market by 2030, growing from $537.5 billion in 2020, driven by the strong adoption of online services such as e-commerce and edtech in the country. The Indian e-commerce sector is likely to expand in different markets. India’s e-retail market is expected to continue its strong growth - it registered a CAGR of over 35% to reach Rs 1.8 trillion ($25.75 billion) in FY20. Over the next five years, the Indian e-retail industry is projected to exceed 300-350 million shoppers, propelling the online Gross Merchandise Value (GMV) to $100-120 billion by 2025.

Pros and strengths

In-house design creation to meet customer preferences: The company's process includes in-house design creation to meet customer preferences, securing raw materials like silver bars with third-party manufacturers, online design selection by customers, outsourcing manufacturing to a trusted network, rigorous quality inspection by its team, and delivery of items that meet the quality standards. The company maintains an in-house designing team to create customized designs based on customer preferences.

Quality inspection: Upon receipt of the manufactured pieces, its quality assurance team conducts thorough inspections to ensure adherence to its high-quality standards.

Strong management: Harinderpal Singh Sodhi as Managing Director and Harish Kumar as Executive Director of the Company, are qualified and experienced in marketing, and together head the overall marketing of the company’s services. Its management also conducts sales promotion events, which gives it a platform to interact with clients and expand its market recognition. It develops & maintains strong relationships with its clients. The company’s business is dependent on developing & maintaining strong relationships with the various parties and the clients. It will continue to develop and maintain these relationships and alliances.

Risks and concerns  

Maximum revenue comes from top 10 customers: The company has in the past derived a significant portion of its revenue from limited number of customer and it may continue to derive a significant portion of its revenue from such customers. The company garnered 87.17%, 66.95% and 85.69% of its total revenue from top 10 customers in FY24, FY23 and FY22 respectively. As its business is currently concentrated to a select number of customers, any adverse development with such customers, including as a result of a dispute with or disqualification by such major customers, may result in its experiencing significant reduction in its cash flows and liquidity.

Does not have long term contracts with most of its suppliers and customers: The company’s business is conducted on purchase order basis, depending on the requirements of the client preferences and demand. It does not have long term contracts with most of its suppliers and customers and there can be no assurance that it will continue to receive repeat business from all or any of them, including its longstanding suppliers and customers. Further, even if it was to continue receiving business from its existing suppliers and customers, there can be no assurance that it will be on the same terms and conditions, and the new terms may be less favourable to it than those under the present terms which may adversely affect its business operations and results.

Promoters have limited experience in the current line of business: The company’s Promoters have limited experience in the current line of business of the Company, namely wholesale trading of knitted cloth and online retail of silver ornaments. While they possess considerable experience and expertise in general, they have limited experience in the textile and e-commerce sectors. The lack of experience in the industry may have an adverse impact on its business operations and financial health. Its Promoters may not be able to provide the necessary strategic guidance and leadership to sustain and grow its business, resulting in lower sales volumes and revenue. Their lack of experience in the industry may also impact their ability to accurately assess and respond to market trends and demands. As a result, there may be a material adverse effect on its business, financial condition, and results of operations. 

Outlook

Avax Apparels and Ornaments is involved in two separate lines of business i.e. Wholesale trading Online retail of silver ornaments. The company wholesales knitted fabric and sells silver ornaments online, including rings, ladies' payal, gents kada, plate sets, glass, bangles, bowls, chains, and other jewellery. It supplies in all major cities across the country. The company has several key advantages in wholesale trading. It is geographically located in the hub of cloth manufacturing, which provides a significant advantage. On the concern side, the company does not have long term contracts with most of its suppliers and customers which may adversely affect its business operations and results. Also, the company depends on a limited number of customers for a significant portion of its revenue. The loss of any of its major customer due to any adverse development or significant reduction in business from its major customer may adversely affect its business, financial condition, results of operations and future prospects.

The company is coming out with a maiden IPO of 2,74,000 equity shares of Rs 10 each at a fixed price of Rs 70 per share to mobilize Rs 1.92 crore. On performance front, the company’s revenue from operations increased by 50.05% from Rs 1,470.21 lakh in FY23 to Rs 2,205.98 lakh for FY24. The change was primarily due to an increase in sales of knitted cloth. Moreover, the company reported net profit of Rs 138.19 lakh for the period April to March 2024 compared to Rs 69.44 lakh in Fiscal Year 2023.

The company’s goal is to build long-term sustainable business relationships with its customers to generate increasing revenues. It plans to continue to expand the scope and range of products provided to its existing customers by continuing to build its expertise and extending its capabilities. Leveraging its market skills and relationships is a continuous process in its organization and the skills that it imparts in its people give importance to customers. It aims to do this by leveraging its marketing skills and relationships and further enhancing customer base. The company intends to improve efficiencies to achieve cost reductions so that it can be competitive. This can be done through domestic presence and economies of scale. Increasing its penetration in existing regions with new range of products, will enable it to penetrate into new catchment areas within these regions and optimize its infrastructure. As a result of these measures, the company will be able to increase its market share and profitability.