Subh Tex (India) IPO – Avoid

Subh Tex (India) IPO - AvoidSubh Tex (India) IPO – Avoid

Mumbai based Subh Tex (India) Ltd is coming out of public issue for 35 Lakh shares of issue price of Rs 10 each aggregating to Rs 3.5 Crores. Subh Tex (India) IPO would hit the market on 30-Sep-13. Should you subscribe to Subh Tex (India) IPO?

About Subh Tex (India)

Subh Tex was incorporated in the year 1987. It primarily commenced its operations in trading activities in textile. Currently, the company is engaged in the business of fabric manufacturing for suiting and shirting for domestic and international markets. It is also involved in bulk trading of high quality textile products. Subh Tex produces fabrics for school uniform, army uniform, uniform for hospitals, airlines and other services industry. The company is one of the largest manufacturers of professional uniform fabric apparel in India and the Gulf. Currently, SUBH TEX has a manufacturing facility to produce grey fabric at Dadra & Nagar Haveli, which has an installed capacity of 2.29 lakh meter per month. The company exports its products to various countries in the Middle-East region.

Subh Tex (India) IPO would be listed in BSE SME platform.

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Issue details of Subh Tex (India) IPO

  • IPO opens: 30-Sep-2013
  • IPO closes: 4-Oct-2013
  • Face value: Rs 10
  • Issue price: Rs 10
  • Minimum bid: 10,000 shares and in multiples of 10,000 shares thereon
  • Minimum investment: Rs 100,000
  • Lead managers: Basan Financial Services Ltd
  • Listing: BSE SME
  • Download Prospectus of Subh Tex (India) IPO

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

  • Fund additional requirements for working capital requirements.

Company financials

  • Company has posted revenue of Rs 1,796.19 Lakhs for the year ended Mar-2009 Vs Rs 4,324.04 Lakhs for 10 months ended Jan-2013.
  • Company has posted a profit of Rs 44.14 Lakhs for the year ended Mar-2009 Vs Rs 18.03 Lakhs for the 10 months ended Jan-2013.

Subh Tex (India) -Financials

Reasons to invest Subh Tex (India) IPO

  • Good revenue growth story in last 5 years.

Reasons not to invest in Subh Tex (India) IPO

  • Margins are in declining trend. It posted 2.46% margin in year ended Mar-2009 Vs 0.42% for the 10 months ended Jan-2013. Here it is immaterial whether we are reviewing 10 months or complete year as we are talking about percentage, hence this comparison.
  • It shows continuous declining in margins year on year. It posted Rs 44.14 Lakhs of profit on the revenue of Rs 17.96 Crores 5 years back. Currently after revenue growth in last 5 years, it still does not generate profit of what it generated 5 years back.
  • The textile industry is a highly competitive sector, and in the current domestic scenario, customers prefer premium and branded products.
  • The SME IPO’s listed are trading with very low volume and the liquidity has been a problem.
  • The minimum investment required is Rs 1.00 lakhs.

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Recommendation / Investment strategy:

  • Company shows good revenue growth story, however company margins are in decreasing trend which is alarming.
  • NAV of this company as on 31-Mar-2012 is Rs 21.62. Post this issue, the NAV would be Rs 18.12.
  • The average EPS for the last 3 years is Rs 0.49. EPS for the year ended Mar-2012 is Rs 0.55. This translates to 20.41 P/E ratio (Share price to earnings ratio = Rs 10 / Rs 0.49). Its competitors like Bombay Dyeing,  Alok Industries and Avg textile processing are at P/E ratio of 33.3, 1.6 and 4.7 respectively as against Subh Tex (India) P/E ratio of 20. Hence the issue price is high compared to its comparable competitors.
  • Considering high competition in this sector, high issue price and declining margins for this company, my suggestion to investors is to stay away from such IPO.

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Subh Tex (India) IPO

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