SKS Textiles Limited (NSE SME) IPO Fact Sheet SKS Textiles Ltd. Opening Date January 9 th, 2018 Closing Date January 11 th, 2018 BRLMs Aryaman Financial Services Issue Size Rs. 13.32 Crores Shares 8.88 lakh shares Lot Size 1000 shares Issue price Rs. 150 per share Preissue shares 28,21,437 Postissue shares 32,59,437 Fund Deployment (Rs. Crores) Working Capital 5.29 General Corporate Purposes 0.94 OFS 6.75 Other 0.34 Total 13.32 SKS Carving Niche in High End Fabrics High end fabrics SKS Textiles Ltd is engaged in manufacturing and marketing of finished fabrics under own brands as well as major players in the space including Raymond, Siyarams, Arvind. The company has garnered topline of Rs.159 crores in FY2017, with an implied CAGR of 9% over the past four years. It is targeting to leverage branded space and high-end offerings in the textile space. SKS is currently operating with three brands including Pierricarrlo, Cotbelly s and Earthen Belly. SKS Textiles has an installed capacity of 39 lakh meters per annum made out of manmade and natural fibres with specialization in Giza, Supima, Cotton, Polyester Viscose and Polyester Cotton. The company s manufacturing facility is located at Sonale, Bhiwandi, Maharashtra as well as a packing unit at Kalher, Bhiwandi, Maharashtra. (All figures in INR Crores unless stated otherwise) FY13 FY14 FY15 FY16 FY17 Revenue from operations 112.88 120.42 131.76 147.82 158.75 EBITDA 7.80 9.67 8.43 9.60 10.00 EBIT 6.21 7.21 6.64 8.14 8.44 PBT 1.49 1.61 1.57 2.63 2.66 PAT 0.82 1.09 1.09 1.45 1.61 RoNW 3.5% 4.2% 4.1% 5.2% 5.5% Buy-side: High end fabrics to see strong penetration in the upcoming years. Strong diversified clientele Strong track record, brand premium Building up of B2C brands Sell-side: Valuations marginally stretched Relatively smaller size We recommend Subscribe on Valuations, Track Record and Long-Term Investment Opportunity SKS promoter and founder Mr. Sukanraj Shah has almost five decades of experience in the textile sector. The company is going to utilize the funds for working capital requirements in order to improve its penetration with major players in the sector. It has At the IPO price of Rs. 150 and FY17 EPS of Rs.5.71, the implied PE ratio stands at 26.3x. The company can see expected growth of 25%-30% in bottomline given new fund availability as well as improving macro scenario. FY18 based price to earnings is expected to be in the range of 16.5x-17.5x. In the longer run, it can target forward integration, branded presence and leverage on its supply chain capabilities to bigger brands. Branded space in India is at nascent stage compared to their proportion in developed countries. SKS product line is apt for foraying into this space in the medium to long run, allowing it to leverage on operating expertise, research and development, strong supply chain, access to dealer network across the country.
Government policies, Technology, Growing Middleclass to Help Textiles Sector outlook Government incentives, low cotton prices and awareness towards branded consumption will drive the sectorial growth More focus on exports and tie ups with global giants Indian textile and apparel industry is expected to garner growth of 7.5% over the next six years to ~$226 billion, compared to $137 billion in 2016 helped by government incentives for integrated parks, technical textile, technology upgradation, interest rate subvention. The sector is allowed to garner up to 100% foreign direct investment or FDI via automatic route. Brand perspective India continues to be major player from the perspective of production of cotton, fabrics, yarns. However, is yet to see such share in branded products when compared with European and American giants in the space. SKS Textiles experience in high end fabrics can allow it to expand aggressively in consumer segment over the period of time. The company can engage in forward integration considering rich experience in operations. SKS Textiles research and development spending helps it come up with new products and lines continually. Changes in the delivery process Management of the company is effectively re-aligning its delivery process in accordance with the dynamic changes that are taking place in the country on the digitization of database. SKS is in process of building mobile enable technology platform to eradicate any barriers related to physical location. Cotton prices Cotton prices acting as a major cost input for manufacturers have seen steep decline in prices over the past couple of years due to reduction in imports of raw cotton from China. The halved prices have been difficult for farmers and policy makers, however, the companies in the sector have benefited from the abundant supply and lower prices helping in operating margins.
Targeting high end products, geographical expansion, forward integration High end fabrics Strong clientele, wide range of product line and focus on geographical expansion to help next leg of growth SKS textiles is manufacturing high end fabrics with and without blends allowing for entire product range to any given customer. The company can utilize the expertise of being trusted supplier to giants in the industry and apply the learnings curve for launching its own products in the B2C segment alongside its B2B business. This can help it garner higher operating margins and better positioning for the future growth. SKS has targeted more verticals in order to expand the product line as well as topline. The trend is expected to continue as the company seeks to strengthen its B2B business further. This can help it garner joint venture with international brands over the period of time and can also act as a global supplier for these companies. The company is currently acting as a preferred supplier for the following major companies: Arvind DIGJAM Raymond VHM JKUMAR Siyaram s TRESCA Geographical reach Brands like Tresca, Raymond, Arvind s select top brands can allow SKS Textiles to pitch for geographical expansion within and outside of India, considering relatively lower competition in the space. The company s current supply chain, network of dealers would be crucial and would act as an impetus for future expansion in retail space as well as target e-commerce backed penetration. Technology upgrade Textile sector on the whole is due for major technological upgrade in the upcoming years. The companies out of Europe, Turkey, China have already adopted to latest technology in the sector. Indians giants in the sector have also upgraded their production machinery over the years. SKS textiles went for state of the art facility in 2012 which has allowed it to market its niche and premium products to its existing and new clients.
Reduced Leverage, Strong Operating Cash Flows, Stable Cycle Decline in debt SKS is having total assets of Rs.102 crores with net fixed assets of Rs.19 crores SKS Textiles adopted state of the art technology in 2012 and expanded its production capacity from 21 lakh meters per annum to 39 lakh meters per annum. The company s long-term debt reduced from Rs.11.18 crores as on March 31, 2013 to Rs.4.51 crores as on March 31, 2017. However, its working capital borrowing increased to Rs.39.79 crores in FY17, compared to Rs.25.01 crores in FY13, largely in line with its expansion of operations. SKS Textiles total debt to equity ratio stood at 1.50x in FY17, compared to 1.51x in FY16, reflecting rise in working capital requirements offset by debt repayments in long term liability. The company s leverage is expected to decline post IPO due to infusion of working capital via equity route. This should help it garner lower interest rates due to higher credit ratings. The company is having total assets of Rs.102 crores including net fixed assets of Rs.19 crores. Cost of capital SKS effective rate of interest for total outstanding loan stood at 13% in FY17 and FY16. However, the cost of borrowing can go down on improvement in ratings, lower credit requirement. A 100 basis points lower rate can improve before tax profits by 17% on an annualized basis. As operating cash flows and margins improve, ratings would get further impetus allowing for lower cost of debt and hence higher net profit margins. We are expecting net profit margins to rise to 3% from the current 1% excluding the impact of any B2C foray. However, this can rise further on SKS positioning into branded framework for retail business.
Strong Product Line Driving Growth
Valuations SKS Textiles will see post IPO valuations of Rs.49 crores with shares outstanding at 32.6 lakhs and price of Rs.150. The management is estimating growth of 40% post the infusion of offering proceeds in FY18 and almost doubling of profits in FY19, implying a price to earnings on a one year forward basis of 21x. On FY19 earnings, price to earnings is expected to be around 11x. The escalation in performance is expected on account of higher penetration in branded apparel industry facilitated through working capital requirements. On the pre-money basis, SKS is garnering a valuation of Rs.42 crores, with an implied price to revenue ratio of 0.26x and price to earnings ratio of 26x. We are recommending buy from a long-term investment perspective given the scope of expansion in branded and niche offerings, possibility of forward integration in retail space, improving operating margins and rich experience of the management.
SKS Textiles Financials Income Statement (All figures in INR Crores unless stated otherwise) FY13 FY14 FY15 FY16 FY17 Revenue from operations 112.33 119.40 130.69 146.86 156.88 Other Income 0.54 1.03 1.07 0.96 1.87 Total Revenues 112.88 120.42 131.76 147.82 158.75 Operating Expenses Material costs 107.87 115.90 126.82 136.05 148.85 Change in inventories -4.94-7.84-6.44-0.73-2.88 Employee benefit expenses 1.11 1.35 1.48 1.29 1.43 Operating and Administrative Expenses 1.04 1.34 1.46 1.61 1.35 [-] Total Operating Expenses 105.39 111.02 123.32 140.84 148.75 EBITDA 7.80 9.67 8.43 9.60 10.00 [-] Depreciation 1.59 2.46 1.79 1.46 1.56 EBIT 6.21 7.21 6.64 8.14 8.44 [-] Interest 4.72 5.61 5.08 5.51 5.79 PBT and exceptional, prior period items 1.49 1.61 1.57 2.63 2.66 Prior period item - - - - - PBT 1.49 1.61 1.57 2.63 2.66 [-] Taxes 0.40 0.30 0.32 0.69 0.95 [-] Deferred Tax 0.27 0.22 0.10 0.43 0.10 PAT 0.82 1.09 1.09 1.45 1.61 Weighted Shares in issue (Crores) 0.19 0.22 0.28 0.28 0.28
SKS Textile s Balance Sheet (All figures in INR Crores unless stated otherwise) FY13 FY14 FY15 FY16 FY17 Liabilities & Equity Current Liabilities & Provisions Cash Credit / Overdraft Utilization 25.01 28.09 28.31 34.76 39.79 [+] Trades payable 15.34 16.15 17.35 27.27 19.76 [+] Other Current Liabilities 0.70 2.42 3.01 3.30 3.23 [+] Short Term Provisions 0.94 0.34 0.66 1.36 2.32 Total Current Liab. & Prov. 41.99 46.99 49.32 66.69 65.10 Non-Current Liabilities Long term borrowings 11.18 9.95 7.05 7.49 4.51 Deferred tax liabilities 1.39 1.61 1.71 2.14 2.24 Other liabilities - - - 0.11 0.12 Long-term provisions 0.07 0.09 0.11 0.13 0.15 [+] Total Non Current Liabilities 12.64 11.65 8.87 9.88 7.03 Networth Share Capital 0.71 1.03 1.03 1.03 1.03 Reserves and surplus 17.92 24.76 25.59 26.94 28.45 Pending allotment 4.98 [+] Total Networth 23.61 25.79 26.61 27.97 29.48 Total Liabilities & Equity 0.81 0.88 0.95 0.77 8.40 Assets Current Assets Inventories [+] Trade Receivables [+] Cash and equivalents [+] Loans & Advances [+] Other Current Assets Total Current Assets 24.28 32.13 38.56 39.29 42.17 22.95 23.50 20.87 37.68 33.81 0.88 1.37 1.21 2.47 1.78 3.40 3.16 4.38 4.92 5.13-0.02 0.02 0.06 0.11 51.51 60.17 65.04 84.42 83.01 [+] Net Fixed Assets 0.02 0.02 0.01-4.84 [+] Intangible assets 25.83 23.58 19.09 19.40 18.15 [+] Non-current investments 0.29 0.25 0.25 0.25 - [+] Long term loans and advances 0.61 0.44 0.43 0.46 0.45 Total Assets 26.73 24.27 19.77 20.11 18.60
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