Sanathan Textiles IPO: Should You Subscribe? Read Reliance Securities' Analysis

Reliance Securities Report

Sanathan Textiles Ltd. will launch its initial public offering on December 19 and the offer closes for subscription on Dec. 23. The manufacturer of textile yarn has set the price band between Rs 305 and Rs 321 at the face value of Rs 10 per share. The minimum order lot for bidding is 46.

The Rs 550 crore IPO comprises of a fresh issue of 1.25 crore shares worth Rs 400 crore and an offer-for-sale component of 47 lakh shares, amounting to Rs 150 crore. 

Sanathan Textiles shares are set to be listed on the NSE and BSE on Dec. 27.

Object of the Issue

• Investments in subsidiary of the new facility.

• Repayment of certain borrowings availed by company.

• General Corporate purposes.

Strengths

• Fully integrated yarn manufacturing plant set up at a strategic location with equipment supplied by domestic and globally renowned players.

• Long standing association with leading consumer brands with a low customer concentration.

• Experienced management team with a proven track record of multi decades.

• Deep knowledge and understanding of optimal product assortment and strong supplier network.

Our View

Sanathan Textiles is expanding the manufacturing capacity in Punjab which would double its existing capacities as India’s underpenetrated market provides headroom for high domestic growth, global demand moving to Indian players from China and Bangladesh, key government initiatives providing impetus for growth like PLI schemes, curbing low quality yarn imports, 100% FDI allowed in textile sector and creation of national technical textiles mission focusing on improving exports.

The new facility will help to improve margins going forward as close to key domestic markets in North India, reduction in logistics costs and higher capacity utilization will aid strong growth in the coming years. Hence, we recommend a Subscribe to the issue for the long term.

Key Risks

• Delay in commissioning of new capacities and slower growth in value added products.

• Sharp increase in input prices which could hurt margins.

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