Bang Overseas,Overseas Synthetics

Bang Overseas is entering the capital market on 28^th January 08, with a public issue of 35 lakh equity shares of Rs.10 each in the band of Rs.200 to Rs.207 per share.

The company is a new player in the ready-to-wear men's segment and marketing under the brand name of Thomas Scott, with 12 retail outlets, of which, three are franchisee. Financial performance of the company upto FY 05 was nothing to talk about. For FY 06, total income was at Rs.45 crore with PAT of Rs.2.12 crore. FY 07 had total income of Rs.74 crore with PAT of Rs.6.84 crore. First six months of the current year had topline of Rs.53 crore with PAT of Rs.5.72 crore. On pre-issue equity of Rs.10 crore, FY 08 EPS may be placed at around Rs.12. This gives a PE multiple of about 18 times, at the upper band of Rs.207 per share.

The company is now planning to set up a total of 100 retail outlets across India, of which, 50 would be company operated and 50 would be franchisee based for which cost is estimated at Rs.10.63 crore. The company is also setting up new apparel manufacturing unit at a cost of Rs.36.71 crore and also warehousing and logistic facilities for Rs.10.23 crore. The entire requirement is being met from proposed IPO which would mobilize Rs.72 crore at the upper band of Rs.207 per share.

The plans of the company appear to be quite ambitious and no provision for increased working capital requirements has been made in cost of project. With 12 stores in operations, the inventory of the company as at 30-09-07 was at Rs.20.65 crore with debtors of Rs.41 crore. This results in debtor cycle of close to 120 days while holding inventory for about 55 days. If 100 retail outlets are planned, it would increase 8 fold from the present levels. Even present requirement of working capital has been met from unsecured loan, availed from promoters, of about Rs.17 crore. So, non-availability of such finance for increased level of activity would pose a problem.

We have various companies listed on the bourses with similar business model. Celebrity Fashion, having topline of over Rs.300 crore with Kunal Kapoor as brand ambassador is a loss making concern and ruling at Rs.55. Donear Industries with Yuvraj Singh as brand ambassador and an expected EPS of Rs.5 for FY 08 is now ruling at Rs.120.

The company has pan India retail network with strong brand equity and also huge manufacturing facilities with new facilities coming up at Surat. Kewal Kiran Clothing, having a topline of Rs.200 crore with similar trend of profits has been ruling all along at Rs.180 levels, which now rules at around Rs.450. Thanks to momentum play on the counter! This company is likely to have an EPS of around Rs.18 for FY 08. Koutons is a big player in the segment and cannot actually be compared with Bang.

The market perception for the sector and the companies operating in this field is very low and most have a multiple of around 10 - 12 times. Infact if the multiples have gone up, it has been possible only because of the brand equity enjoyed by some.

In case of this IPO, share is being issued at a multiple of 17 times at the upper band, which makes the issue fully priced, leaving no scope for any capital appreciation. Plus, the present state of the market, adds uncertainty to the prospects of the company and issue.

Better to skip this issue.