Borana Weaves IPO - Price Band, Listing Date, Strengths, Financials, Risks And More: Read DRChoksey's Analysis

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DRChoksey Report

Borana Weaves Ltd. will launch its initial public offering on May 20 and the offer will remain open for subscription till May 22. The Gujarat-based synthetic grey fabric supplier has fixed the price band in the range of Rs 205 and Rs 216 per share.

The Rs 144.89 crore IPO comprises only of fresh issue with no component of offer-for-sale.

The allotment for Borana Weaves IPO is expected to be finalized on May 23.

The shares will be listed on both the National Stock Exchange and the BSE on May 27.

Objects of the Offer

• Proposing to finance the cost of establishing a new manufacturing Unit to expand its production capabilities to produce grey fabric at Surat, Gujarat, India.

• Funding incremental working capital requirements.

• General corporate purposes.

Valuation

Borana Weaves Ltd., a synthetic grey fabric supplier, has delivered strong financial performance in recent years. The company has rapidly scaled its operations, as the revenue has increased by 117% between FY22 and FY24, while net profit has surged by 262%, primarily driven by significant margin expansion.

Further, the proposed capital expenditure plan will result in a 37% increase in cumulative installed capacity by FY26. As of 9M FY25, the company is operating at an Ebitda margin of 22%, led by cheaper raw material imports and tighter control on operating expenses. The public issue is priced at 14.7x P/E based on annualized 9M FY25 EPS, which is attractive, given its strong financial performance and industry leading margins (as margins are unusually high for a business focused primarily on grey fabric manufacturing - a segment generally considered to be low in value addition).

Led by management’s strong control over the industry, impressive financial performance and valuation below the industry average, we assign an 'Subscribe' rating for the listing gains. We would recommend to re-evaluate after listing for long-term holding.

Risks:

• High Customer Concentration Risk: A significant portion of Borana Weaves' revenue is derived from a limited number of customers. Any loss of a key customer could materially impact business operations and revenue

• Geographical Concentration Risk: As of December 31, 2024, more than 98% of the company's revenue from customers was derived from those based in Gujarat, and the company does not have long-term agreements with them. Any changes or cancellations of purchase orders from these customers or the inability to forecast demand may adversely affect the business, results of operations, and financial condition. This concentration also exposes the company to risks from adverse market conditions, economic environment, or regional events in Gujarat or neighboring areas. .

• Contingent liabilities: The company has contingent liabilities amounting to Rs 982.36 lakhs as of December 31, 2024, which have not been provided for in the financial statements. If these liabilities materialize, they may adversely affect the financial condition. There is no assurance that the company will not incur similar or increased levels of contingent liabilities in the future.

• RPT: The company enter into related party transactions in the ordinary course of its business and such transactions will not have an adverse effect on its results of operation and financial conditions.

• Outstanding Legal Proceeding: There is an outstanding legal proceeding involving one of its Independent Director. Any adverse outcome in such proceeding may have an adverse impact on its reputation, business, results of operations, cash flows and financial condition.

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