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The Indian textile yarn market grew by ~1.5% CAGR between FY19 and FY24 to reach ₹1,72,600 crore. With the Indian textile industry poised for significant growth, the Initial Public Offering (IPO) of Sanathan Textiles Ltd. has captured the attention of investors.
Let’s dive deeper into Sanathan Textiles IPO, its fundamentals, financial performance, and competitive position.
Sanathan Textiles IPO is open for subscription from (19th Dec 2024) today onwards!
Sanathan Textiles IPO Details:
- IPO Open Date 19th December 2024, Thursday
- IPO Close Date 23rd December 2024, Monday
- Price Band ₹305 to ₹321 per share
- Lot Size 46 shares
- Face Value ₹10 per share
- Issue Size at upper price band ₹550 crore (Fresh Issue ₹400 crore and Offer for Sale ₹150 crore)
- Listing exchanges NSE, BSE
- Cut-off time for UPI mandate confirmation by 5 PM on December 23, 2024
The tentative timeline for the IPO is as follows:
- Basis of Allotment 24th December 2024, Tuesday
- Initiation of Refunds (if not allotted) 26th December 2024, Thursday
- Credit of Shares to Demat (if gets allotments of shares) 26th December 2024, Thursday
- Listing Date 27th December 2024, Friday
About the Company
Sanathan Textiles Limited, founded in 2005, has a presence across polyester, cotton, and technical textiles. As of 30th September 2024, they had more than 3,200 active varieties of yarn products and more than 45,000 stock-keeping units (SKUs), with the capability to manufacture a diversified product portfolio of over 14,000 varieties of yarn products and more than 190,000 SKUs used in various forms for varied end uses. They also have a presence in value-added products such as dope dyed, superfine/micro, functional, industrial and technical yarn, cationic dyeable, and speciality yarn, which are produced after extensive in-house research. The products are manufactured at the facility in Silvassa, which had a total installed capacity of 2,23,750 MTPA (million tonnes per annum) across the three yarn verticals as of 30th June 2024. They had more than 925 distributors in seven countries, including India, Argentina, Singapore, Germany, Greece, Canada, and Israel. Sanathan Textiles’ client list includes prominent names like Welspun India, Valson Industries, D’Décor Home Fabrics, Page Industries, and Wildcraft India.
They have acquired 80 acres of land in Punjab, where they are in the advanced stage of commissioning a greenfield manufacturing facility. The Punjab Manufacturing Facility is solely for manufacturing polyester yarn products. It is expected to increase the manufacturing capacity from 550 to 1,500 tonnes per day. The construction of the Punjab Manufacturing Facility commenced in August 2023 and is expected to be commissioned in phases, with the 1st phase expected to be operational in FY25. After that, it is likely to increase by 2,55,500 MTPA, and the balance of 91,250 MTPA will be commissioned after the completion of Phase 2 by FY27.
Let’s look at the revenue breakup.
Sector Outlook in India
In FY24, the cotton yarn market was valued at ₹96,000 crore, showing a CAGR of 1.5% from FY19 to FY24. It is projected to grow at approximately 6% CAGR during FY24-FY28. However, the industry experienced a year-on-year decline of about 7% in FY24, primarily due to a 25% drop in cotton yarn prices compared to FY23. The manmade fibres (MMF) market encompasses polyester and viscose. The polyester yarn sector grew at a 1% CAGR, reaching ₹56,100 crore by FY24, while viscose expanded at an 8% CAGR, hitting ₹14,700 crore. From FY19 to FY24, total production of Polyester Staple Fiber (PSF) increased from about 1.3 million tonnes (MT) to approximately 1.5 MT, reflecting a CAGR of 2.4%. This growth is mainly driven by the rising demand for polyester yarn during that period.
Read our blog to know more about the Top 5 Textile Stocks in India: From Cotton to Cash!
Financial Performance of the Sanathan Textiles IPO
Over the past three years, Sanathan Textiles Limited has demonstrated steady financial growth. In FY22, the company reported a revenue of ₹2,350 crore, which grew to ₹3,152 crore in FY23 and further to ₹4,077 crore in FY24. EBITDA also showed significant improvement, rising from ₹206 crore in FY22 to ₹293 crore in FY23 and ultimately reaching ₹475 crore in FY24. This upward trend reflects the company’s operational efficiency and its ability to manage costs effectively. The company’s net profit saw a substantial increase from ₹65 crore in FY22 to ₹107 crore in FY23, followed by an impressive ₹233 crore in FY24. This growth in profitability indicates strong demand for Transrail’s services and effective financial management. Moreover, the company’s EBITDA margins improved from 8.8% in FY22 to 9.3% in FY23 and further to 11.7% in FY24, highlighting its ability to generate higher operating profits relative to revenue.
Sanathan Textiles faces competition from major industry players such as Vardhman Textiles Ltd, Alok Industries Ltd and Filatex India Ltd. Vardhman Textiles reported revenue of ₹9,505 crore in FY24 with an EBITDA margin of 10.2% and PAT margin of 6.3%. Filatex India’s revenue stood at ₹4,286 crore with an EBITDA margin of 5.6% and PAT margin of 2.6%. Sanathan Textiles, with revenue of ₹2,958 crore, had an EBITDA margin of 7.7% and PAT margin of 4.5%, placing it competitively within the sector. Alok Industries, on the other hand, reported a revenue of ₹5,510 crore but suffered a negative PAT margin of -15.4%, reflecting weaker performance.
Objectives of the Issue
The Sanathan Textiles IPO aims to generate ₹550 crores, with ₹400 crores coming from a fresh issue and the remainder from an offer for sale.
- Repayment/Prepayment of Borrowings: ₹160 crore will be used to reduce debt.
- Investment in Subsidiary (Sanathan Polycot Pvt. Ltd.): ₹140 crore will be used to reduce the debt of this subsidiary.
- General Corporate Purposes: To strengthen the company’s financial position, a portion of the proceeds will be allocated to general corporate needs.
Let’s now look at the risk factors of Sanathan Textiles IPO.
Risk Factors
While the Sanathan Textiles IPO appears promising, investors should consider the following risks:
- Raw Material Dependency: Reliance on imported raw materials, especially from China, exposes the company to global supply chain risks.
- Crude Oil Price Fluctuations: As a key raw material for polyester yarn, any price fluctuations can impact production costs and profitability.
- Working Capital Intensive: The textile industry requires substantial working capital, especially given the lengthy production and payment cycles.
Despite these risks, Transrail’s strong order book and diversified revenue streams offer resilience.
Should you subscribe to Sanathan Textiles IPO?
Sanathan Textiles’ IPO offers a unique opportunity to invest in a diversified textile manufacturer with strong growth potential. The company’s expansion plans and capacity enhancements are likely to improve profitability in the future. However, investors should be mindful of risks such as dependency on raw material imports and volatility in crude oil prices. If you believe in the growth story of the Indian textile industry and seek to capitalize on sectoral growth, subscribing to this IPO could be a promising move.
However, investors should be aware of some concerns, such as reliance on government contracts and customer concentration. Given the company’s development potential, competitive positioning, and good sector outlook, subscribing to this IPO may be a suitable alternative for long-term growth investors.
Before investing in the Sanathan Textiles IPO, consider the potential risks and rewards. This blog provides a full overview of the primary advantages and possible drawbacks of investing in this IPO.
StockEdge’s expert panel has rated the Sanathan Textiles IPO as “Average”, reflecting a cautious but balanced outlook. To provide more clarity, we’ve prepared a Sanathan Textiles IPO Note, which offers a detailed analysis of the company’s financial position and a SWOT assessment, giving you a deeper understanding of its growth prospects.
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