Scott Garments IPO – Should we buy? (Revised)

Latest Initial Public Offerings (IPO)Scott Garments IPO – Should we buy?

Scott Garments has revised its price band due to poor response. The price band is Rs 118 to Rs 120 and the revised subscription dates are between 29-Apr-13 to 3-May-13. Our view remains same that the issue is still price is still high

Bangalore based, Scott Garments is coming up for public issue for Rs 136.60 to Rs 138.70 Crores at a price band of Rs 130 to Rs 132 per share. Should we subscribe to Scott Garments IPO?

About Scott Garments IPO

Bangalore based Scott Garments is incorporated in 1992. Scotts Garments Ltd is engaged in the business of garment manufacturing. In addition to manufacture quality garments, company also provides additional facilities such as embroidery, printing, dyeing and washing. Scotts Garments export their readymade knitted and Woven apparel to international clients including Denmark, USA, Frankfurt, Germany etc. Mr. Naseer Ahmed is the promoter of the company

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Issue details:

  • IPO opens: 25-Apr-2013
  • IPO closes: 29-Apr-2013
  • Price band: Rs 130 to Rs 132 per share
  • Face value: Rs 10
  • Minimum bid: 100 shares and in multiples of 100 shares thereon with maximum shares of 1,500
  • Minimum investment: Rs 13,000
  • Lead managers: Canara Bank and Keynote corp services Ltd
  • Registrar: Link Intime India Pvt Ltd
  • Listing: BSE / NSE
  • Prospectus:

Purpose of the IPO: The funds would be used for the following purposes.

  • Setting up of unit for Trouser manufacturing and Knitting and Fabric Processing at Doddaballapur, Karnataka;
  • Margin Money for working capital of new unit;
  • General corporate purpose; and
  •  Meet the issue expenses

Care has assigned this IPO grading as 3/5 which indicates average fundamentals

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Company financials

1) Company has posted 13% to 18% annualized growth in terms of revenue in the last 5 years. The revenues have increased from Rs 503 Crores (FY2010-11) to Rs 566 Crores (FY2011-12).

2) Company has been operating around 7% margins up to FY 2010-11. For FY2011-12, the margins showed a steep jump to 14.84% due to increase in “Other income”. For 7 months ended Oct-12, the margins are at 6.09%. The margins are stabilized around 6% to 7% in the last 5 years.

Scott Garments IPO-Financials

Source of EPS data: Prospectus of the IPO

3) Comparison of its performance with its peers

Scott Garments IPO-Comparison with its peers

Source of comparison data: IPO Prospectus

4) Minimum investment is Rs 13,000 which any investor can afford to invest which is a positive sign.

Recommendation / Investment strategy: The garment industry is doing well and would expect to grow in coming years. For the first seven months ended Oct-2012, Scott garments reported a turnover of Rs. 335.33 Crores with a net profit of Rs. 20.41 Crores. If we attribute the annualized earnings on the post IPO equity base of Rs. 38.98 Crores then the issue price is at a P/E of 14.5x. Its peers are trading between 10x to 16x which indicates that the issue price is aggressively priced. Though company has been doing well in terms of revenues and margins, due to its high issue price, one can look at purchasing the IPO at discounted price post listing on stock exchanges.

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Scott Garments IPO

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