First Winner Inds
First Winner Industries is entering the capital market on 9th June, 08, with a public issue of 55 lakh equity shares of Rs.10 each, in the band of Rs.120 to Rs.130 per share.
We must praise the courage (misadventure) of the promoters, firstly to come out with this issue and secondly at such a stiff valuation. The company has been trading in textile fabrics till FY 07 and on 19-03-07 commenced its weaving activities by installing 100 Rapier Looms with a capacity to produce 108 lakh meter of grey fabrics annually.
The present state of similar companies are not satisfactory and they are not well received and discounted on the bourses. It may be seen that established players with total value chain from spinning to fabrics are not even liked and sector has been discounted at a PE multiple of 5 to 7 times.
Mudra Lifestyle is just one company to narrate, which went public in February 07 and issued shares at Rs.90 per share is now ruling at Rs.42. This company is a complete textile and garment unit with its own facility for yarn dyeing, weaving, processing, garment manufacturing, product development and design studio with sampling infrastructure. Even financial performance of the company is quite good with total income of about Rs.175 crores for 9 months ending 31-12-07 with PAT of Rs.24 crores, giving an EPS of Rs.6.50 for the period. This implies a PE multiple of less than 5 for the company.
This company had posted its best ever results for 10 months ending 31-01-08 wherein, on consolidated basis, total income was at Rs.150 crores which is largely from trading, while PAT was at Rs.12.66 crores. This works out to an EPS of Rs.10 on pre-issue equity of Rs.12.23 crores. Though the company commenced its weaving activities with 100 looms but same is operating just at 51%. Inspite of this, the company is going in for expansion of its weaving division.
The other object of the company is to set up production capacity of 5,000 pieces of men's wear shirts, per day without having back up support of processing and dyeing and hence margins of this division would remain under pressure. The company had estimated fund requirement of Rs.51 crores, including repayment of term loan of Rs.18 crores. As against this proposed IPO would mobilize Rs.66 crores at the lower end of price band. Also Rs.18 crores, having availed as term loan for its weaving project is now being repaid from proposed IPO. Even the existing weaving project is carrying out job work, which is giving low returns. However, doing own job would need huge working capital and strangely no working capital provision has been made by the company in its cost of project for new projects.
Even as at 31-01-08, the debtors of the company are at Rs.40 crores. As on that date, total debt of the company was Rs.56 crores, which results into a debt equity ratio of 1.25 : 1.
Considering all these, structuring of the new projects by the company is very risky and would continue to face working capital pressure. Considering the peers available in the secondary market, share is not even worth at Rs.40.