Mandhana Inds

Mandhana Industries is entering the capital market on 27^th April 2010, with a public issue of 83 lakh equity shares of Rs.10 each, in the price band of Rs.120 to Rs.130 per share.

The mood is just right and hence the timing of the issue perfect! The investor perception is currently positive for textile companies and an IPO from this sector is sure to evince some interest. But that positive vibe is only if the pricing is right.

The company is a vertically integrated textile and garment manufacturing company starting from yarn dyeing to making garments. The company has capacity to make 180 lakh meters per annum of greige fabrics and during 9 months ending Dec.09, production was 115 lakh meters. The company has 1,150 sewing machines, with an overall production capacity of 36 lakh pieces per annum.

Now, the company is setting up a new garment manufacturing facilities at Tarapur, as also, expanding the yarn dyeing and weaving facility at Tarapur. This is estimated to cost close to Rs.240 crores, which is partly financed by term loan of Rs.104 crores, being availed under TUFS and balance by the IPO, with shortfall coming in from internal accruals. It is good to see Axis Bank infuring Rs.25 crores for this expansion, by subscribing to equity shares, at Rs.115 per share, on 15^th September 09.

For 9 months ending Dec.09, the company has posted a total income of Rs.439 crores with PAT of Rs.28.50 crores, which has been achieved after incurring a forex loss of Rs.18.60 crores, which has been booked by the company, in this period. This has resulted in an EPS of Rs.11.50 for the period. The company should be able to post an EPS of close to Rs.18 for FY10, on pre-IPO equity of Rs.24.82 crores.Paid up equity will rise to Rs.33.12 crores, post IPO.

The company has been a consistent performer and having good global clients, spread in Europe, where margin is better than U.S. markets. Also, the strength of the company lies in its design, for which the company  has a studio cum garment sampling house at Sewree in Mumbai. Presently, textile sector is doing quite well and those having vertically integrated structure are doing well. Due to strength of providing designer clothes for ladies segment, the company has an edge over its competitors.

For FY11, the company is likely to have a topline of Rs.675 crores with expected bottomline of Rs.66 crores, which would translate into an EPS of Rs.20, on expanded equity base of Rs.33.12 crores. Even the present book value, per share, is at Rs.74, as at Dec.09, which is quite comfortable. However, debt equity ratio of 2:1 is bit on the higher side for this growing company; which will fall to 1.65 times, post IPO. So, share at Rs.120, being its lower band, is issued at a PE multiple of 6 times, based on estimated earnings for FY11, at Rs. 20 per share. Also, company having issued shares to Axis Bank at Rs.115 per share, about 7 months back, gives confidence.

So, share at Rs.120, looks reasonably priced, thus leaving a margin of about 15% on table for the prospective investors, while at Rs.130 being the upper band, looks little expensive.