Davin Sons Retail coming with IPO to raise Rs 8.78 crore

Davin Sons Retail

• Davin Sons Retail is coming out with an initial public offering (IPO) of 15,96,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 55 per equity share.
• The issue will open on January 2, 2025 and will close on January 6, 2025.
• The shares will be listed on SME Platform of BSE.
• The share is priced 5.50 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Navigant Corporate Advisors.
• Compliance Officer for the issue is Kavita Wadhwa.

Profile of the company

Davin Sons Retail is engaged into the business of manufacturing and designing of readymade garments offering diverse range of high-quality jeans, denim jackets and shirts for other brands. The company’s garment manufacturing process includes cutting, stitching, sewing, finishing, inspection and packing. It outsources the entire garments manufacturing on job work basis from third party contractors from time to time and provides the technical specifications such as designs, pattern, quality, fabric etc. to them who, based on its specifications, procure the requisite raw materials and begin the manufacturing process. The products delivered to it from third party contractors are completely finished and packaged to its warehouse. However, it has not entered into Job work agreement.

The company has client base in Delhi, West Bengal, Uttar Pradesh and Bihar from where it is getting regular orders for its garments. With a vision to further expand the Garment business, it has entered into distributorship arrangement for marketing and selling its manufactured readymade garments to the small market. These distributors are situated at Delhi, Uttar Pradesh, Bihar. It also provides its sample designs in line with new styles, fits, finishes to meet the latest fashion trends to its customers. In season, the team works on over several designs, out of which few are picked up to constitute the new season collection. The company’s core competency lies in its understanding of its customer’s buying preferences and behaviour across the Indian market. It procures its fabrics directly from reliable fabric manufacturers for better quality and pricing.

The company mainly sources fabric from the local market of Mumbai, Delhi and outsources its job work to the Manufacturers at New Delhi. Under the supervision of company personnel for designs and quality control, the finished products are delivered at the company Warehouse. After Quality checking at its Warehouse, the products are further bar coded and dispatched as per orders from various buyers. The company’s proficiency lies in understanding the specific requirement of its customers and based on which it places the order of its products to manufacturer having requisite manufacturing facilities. It supervises the entire manufacturing process including selection of interlinings produced till dispatch of the goods to customers’ place, to assure product quality and customer satisfaction. 

Proceed is being used for:

• Financing the capital expenditure for purchase of warehouse
• Part finance the requirement of working capital
• Meeting general corporate purposes

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 market for Indian textiles and apparel is projected to grow at a 10% CAGR to reach $350 billion by 2030. Moreover, India is the world’s third largest exporter of Textiles and Apparel. India ranks among the top five global exporters in several textile categories, with exports expected to reach $100 billion. The textiles and apparel industry contributes 2.3% to the country’s GDP, 13% to industrial production and 12% to exports. The textile industry in India is predicted to double its contribution to the GDP, rising from 2.3% to approximately 5% by the end of this decade.

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.

Meanwhile, the FMCG sector in India expanded due to consumer-driven growth and higher product prices, especially for essential goods. FMCG sector provides employment to around 3 million people accounting for approximately 5% of the total factory employment in India. FMCG sales in the country grew 7-9% by revenues in 2022-23. Total revenue of FMCG market is expected to grow at a CAGR of 27.9% through 2021-27, reaching nearly $615.87 billion. In 2022, urban segment contributed 65% whereas rural India contributed more than 35% to the overall annual FMCG sales. Good harvest, government spending expected to aid rural demand recovery in FY24. The outlook of the FMCG sector looks on track with the pandemic easing out. Rural consumption has increased, led by a combination of increasing income and higher aspiration levels. There is an increased demand for branded products in rural India. On the other hand, with the share of the unorganised market in the FMCG sector falling, the organised sector growth is expected to rise with an increased level of brand consciousness, augmented by the growth in modern retail. The FMCG market in India is expected to increase at a CAGR of 14.9% to reach $220 billion by 2025. 

Pros and strengths

Diversified product portfolio: The company has aligned its pace in tune with market demand; it has periodically diversified its product portfolio. The company has a varied product base to cater to the requirements of its customers. Its product portfolio includes diversified variety of products including of variety of Readymade garments and FMCG products of large size FMCG Companies in India. Its range of products allows its existing customers to source their product requirements from it and also enables it to expand its business from existing customers. Its long-standing relationships with its suppliers have helped it in creating a distributor of choice image for itself for many of these companies.

Focus on quality and innovation: Quality and innovation are bed rock of successful strategy. The company stresses on and constantly strives to maintain and improve the quality of products. Its focus on quality and innovation helps it to compete against its peers in the segment it deals. The company follows strict policy of supplying quality products. It is specific about the quality of products and intensive care is taken to determine the standard of every material/ product dispatched. Additionally, the company also keeps itself abreast with the latest changes in technology.

Diversified business model catering to various segments: The company is catering to various businesses such as Readymade Garments and FMCG segment which are independent to each other. It has team of professional for each business vertical. The company has been able to cater to the customers of each vertical and any slowdown in any specific industry will not impact the overall revenue of the company.

Risks and concerns  

Maximum revenue comes from limited customers: The company’s top ten customers accounted for around 64.17% of its total revenue from operations for FY 2022-23, its top ten customers accounted for around 51.56% of its total revenue from operations for FY 2023-24 and its top ten customers accounted for around 80.51% of its total revenue from operations for the six months ended September 30, 2024. The loss of any significant customers would have a material effect on its financial results. The company cannot assure that it can maintain the historical levels of business with these customers or that it will be able to replace these customers in case it loses any of them. Furthermore, major events affecting its customers, such as bankruptcy, change of management, mergers and acquisitions could impact its business. If any of its major customers becomes bankrupt or insolvent, it may lose some or all of its business from that customers and its receivable from that customers would increase and may have to be written off, impacting its income and financial condition.

Geographical constrain: The company’s revenue from operations from the State of Delhi, Haryana, Punjab, Rajasthan and Arunachal Pradesh constitute 37.20%, 47.54%, 14.66%, 0.09% and 0.52% respectively, of the total revenue from operations for FY 2022-23. Its revenue from operations from the State of Delhi, Haryana, Punjab, Rajasthan, Bihar, Gujarat, Uttar Pradesh, Chattisgarh and Arunachal Pradesh constitute 39.94%, 44.84%, 3.98%, 0.02%, 1.51%, 0.07%, 8.09%, 0.10% and 1.46% respectively, of the total revenue from operations for the FY 2023-24. Its revenue from operations from the State of Delhi, Haryana, Punjab, Uttar Pradesh, Maharashtra and Himachal Pradesh constitute 36.93%, 9.01%, 48.74%, 0.41%, 3.34% and 1.56% respectively, of the total revenue from operations for the six months ended September 30, 2024. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations.

Limited operating history: The company was originally incorporated as a public limited Company under the Companies Act, 2013 with Registrar of Companies, Central Registration Centre through a certificate of incorporation dated 8th February, 2022. The company has acquired the running business of proprietorship firm of its Promoter i.e., Jesus Shirts for the expansion of the business of the company. It has very limited operating history as a company from which one can evaluate its business, future prospects and viability. Its future revenues and profitability are difficult to estimate and could fluctuate significantly and as a result the price of its Equity Shares may remain volatile. Although the proprietorship concern has established business in past years, and it will continue to undertake all possible steps towards its grow path, but there is no assurance that this growth will be met successfully in future. In case it is unable to meet the desired growth in revenues and profitability, its results of operations and financial condition will be adversely affected.

Outlook

Davin Sons Retail manufactures and designs a wide range of high-quality readymade garments, including jeans, denim jackets, and shirts for other brands. The company has a diversified business model safeguards the company from industry-specific slowdowns. It also has cordial relations with its customers and suppliers. On the concern side, the company’s top 10 customers contribute majority of its revenues from operations. Any loss of business from one or more of them may adversely affect its revenues and profitability. Moreover, the company generates its major portion of sales from its operations in certain geographical regions of Delhi, Haryana, Rajasthan, Chhattisgarh, Uttar Pradesh, Bihar, Gujarat and Punjab and any adverse developments affecting its operations in these regions could have an adverse impact on its revenue and results of operations.

The company is coming out with an IPO of 15,96,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 55 per equity share to mobilize Rs 8.78 crore. On performance front, the company’s revenue from operations increased by 249.52% to Rs 1,339.16 lakh for the financial year 2023-24 from Rs 383.14 lakh for the financial year 2022-23. The increase was mainly due to increase in its business operations. Moreover, the company’s profit after tax increased by 189.74% to Rs 164.05 lakh for the financial year 2023-24 from Rs 56.62 lakh for the financial year 2022-23.

The company intends to improve efficiencies to achieve cost reductions so that they can be competitive. This can be done through domestic presence and economies of scale. Increasing its penetration in existing regions will enable it to penetrate into new catchment areas within these regions. As a result of these measures, the company will be able to increase its market share and profitability. Currently, it has presence in the state of Delhi, Haryana, Punjab, Bihar, Uttar Pradesh, Rajasthan, Chhattisgarh and Arunachal Pradesh. It intends to expand its geographical reach and enter the large domestic market for growth opportunities of its business by setting a warehouse in large populated states where it can reach to large no of customers.