AB Cotspin India Limited

AB Cotspin Limited was primarily engaged in manufacturing of cotton yarn, knitted fabric, cottonseed oil and oil-cakes. Company commenced its business in 1997 with a cotton ginning plant with cotton bales and cotton seeds being the initial products. Thereafter in the year 2000, they installed a crushing unit to extract oil from cotton and mustard seeds and expanded the product basket with the addition of cotton seed oil, mustard oil and oil cake. In the year 2011, they ventured in manufacturing cotton yarn by setting up a spinning plant. In the year 2014 , they installed a knitting machine and thus forayed into manufacturing of knitted fabric. The Company have one manufacturing facility which is located at, Jaitu (Dist Faridkot), Punjab. As on date of the RHP, They have an installed 18,000 spindles for manufacturing cotton yarn, 441 mt p.a. for knitted fabric and 6,750 mt p.a. for seed oil / oil-cake. Majority of the company's customers are form Punjab and Haryana. As per financial performance, AB Cotspin Limited  has posted total income/net profits of Rs 121.06 Cr / Rs 1.33 Cr (FY19), Rs 94.28 Cr / Rs 0.75 Cr (FY20), Rs 115.56 Cr / Rs 3.87 Cr (FY21) and Rs 30.53 Cr / Rs 3.32 Cr (Q1 FY22). So company has shown average results and sudden rise in next profit in last 15 months. Company has posted an average EPS of Rs 3.26 and average RoNW of 11.58% for last three fiscals. Issue is priced at a P/B of 1.03 as per NAV of Rs 34.05 post issue. As Per FY21 earnings on fully diluted equity post issue, asking price is at P/E of around 10.84 and as per annualised FY22 earnings P/E is 2.32. As per RHP, Comparison between listed peers are shown in above table, but they can't be compared on apple to apple basis. On BRLM's front, Pantomath Capital Advisors Private Limited is associated with this SME IPO and has handled 6 SME IPOs in last 3 years. From last 10 IPOs, one opened below issue price and remaining are opened at par or above issue on the day of listing. As of now, six are trading below issue price and remaining are trading above issue price. ( As on 29.12.21) As per financials, AB Cotspin Limited has shown average financials, RoNW is 17.76% and P/E is respectively 11 and 2.32 as per FY21 and annualised FY22 earnings, which looks very reasonably priced, but its due to super earnings of last 15 months and its very unlikely that same margins will remain in future. Also this sector is highly competitive and some peers are available at cheaper valuations. Performance of BRLM is average. So, we are giving AVOID rating to this SME IPO.

• 1 Deepak Garg
• 2 Pooja Garg