Swaraj Suiting Ltd (SSL) was initially engaged in the manufacture of cotton/synthetic fabrics but later shifted to trading in synthetic fabrics in 2009 by selling off its Sulzer weaving looms to an associate concern, Swaraj Sulz Private Limited. It re-entered into manufacturing of Cotton and Synthetic fabrics in 2011 and commenced commercial operations in January 2013. The company is presently, primarily engaged in the Manufacturing of Grey Fabric involving Cotton and Synthetic, trading of Yarn, grey fabric and finished fabric and Weaving on Job work basis. Its existing manufacturing unit is located at F-483 to F-487, G1-475 to 476, RIICO Growth Centre, Hamirgarh, Bhilwara, Rajasthan - 311025. In this unit, SSL has installed 123 Airjet looms which translates into 1.50 million meters of cotton & synthetic fabric per month translating into 225 Lakh Meters Per Annum (LMPA). The Company has strategically planned the vertical integration of its operations to the next level of the supply chain, aiming to lower production costs and increase the efficiency of the company.. In view of this, the Company is in the advanced stages of setting up a project in the district of Neemuch, Madhya Pradesh (MP), which is both the backward and forward integration of its existing activity. The commencement of commercial production shall be between March - April 2022. This unit will manufacture premium quality denim fabric and tap new markets. The new manufacturing unit in MP is a denim processing plant with an annual capacity of converting approximately 21.75 million metric meters of denim fabric. The total cost of the project is Rs. 71.37 Crores, which is funded by Banks in the form of term loans to the extent of Rs. 43 Crores, Rs.18.82 crores will be sourced through promoter's contribution including internal accruals and unsecured loans and balance Rs. 9.55 crores will be for Working Capital which will be funded by the issue proceeds. Currently, the company has 255 employees on its payroll. As per financial performance, SSL has posted total income/net profits of Rs 76.42 Cr / Rs 2.19 Cr (FY19), Rs 80.65 Cr / Rs 3.54 Cr (FY20), Rs 60.21 Cr / Rs 2.67 Cr (FY21) and Rs 81.71 Cr / Rs 1.91 Cr ( H1 FY22 ). So company has shown average results, but sudden rise in H1 FY22 sales surprising. Company has posted an average EPS of Rs 6.98 and average RoNW of 8.73% for last three fiscals. Also debt is very high. Issue is priced at a P/B of 0.69 as per NAV of Rs 80.83 post issue. As per FY21 earnings on fully diluted equity post issue, asking price is at P/E of around 15.07 and as per annualised FY22 earnings P/E is 10.56. As per RHP there are no listed peers. On BRLM's front, Finshore Management Services Limited associated with this SME IPO and handled 13 IPOs in last 3 years. From last 10 IPOs, Two opened below issue price and remaining above issue price or at par. As of now from last 10 IPOs, five are trading below and remaining are trading above issue price or at par. ( As on 22.03.22 ) As per financials, SSL has shown average results, RoNW is 6.99% and P/E is respectively 15.07 and 10.56 as per FY21 and annualised FY22 earnings, which looks fairly priced, but sudden rise in profit in H1 FY22 very surprising and creates doubts. Performance of BRLM is poor post listing. So we are giving NEUTRAL rating to this IPO.
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