Should you invest in Women Next Lingeries SME IPO?
Women Next Lingeries IPO (SME) is opening for subscription on 28th March, 2014. This company is started just 3 years back and seen good growth in the revenues and profits. Women Next is specialized in Women Inner Wear segment. How does the financials indicate about Women Next Lingeries/Loungeries IPO? Can we bet and invest in Women Next IPO or not?
About Women Next Lingeries
Thane (Maharastra) based Women Next Lingeries specialized in women inner wear segment. This company is engaged in the business of designing, manufacturing, branding and marketing lingerie wear, honeymoon suite, intimate wear, etc. It does the marketing of these products through its brands “Valentine Pink” and “Women Next”.
Issue details of Women Next Loungeries IPO
- IPO opens: 28-Mar-2014
- IPO closes: 7-April-2014
- Face value: Rs 10 per share
- Issue price: Rs 65 per share (Includes premium of RS 55 per share)
- Minimum bid: 2,000 shares
- Minimum investment: Rs 130,000
- Listing: BSE SME
- Download Women Next Lingeries Prospectus from this SEBI link
Purpose of the IPO: The funds would be used for the following purposes.
- Upgradation of the unit
- Repayment of the loan
- Working capital requirement
- Meet issue expenses
- For General corporate purpose
- The company has posted revenue of Rs 2,236.11 Lakhs for the year ended Mar-2012 and Rs 3,223.29 Lakhs for the year ended Mar-2013. First 6 months of this financial (FY 2013-14) year, it made a revenue of Rs 1,940.52 Lakhs.
- The company has posted a profit of Rs 42.10 Lakhs for the year ended Mar-12 Vs profit of Rs 67.90 Lakhs for the year ended Mar-2013. First 6 months of this financial year (FY 2013-14) it made a profit of Rs 48.23 Lakhs.
Reasons to invest Women Next Lingeries IPO
- Good revenue growth in last three years. Revenues increased from Rs 2,236 Lakhs from FY 2011-12 to Rs 1,940 Lakhs for 6 months of this financial year (FY 2013-14). If we assume a similar growth, we can predict that it can make Rs 3,880 Lakhs revenue for FY 2013-14.
- Consistent profitability of around 2%. All SME IPO’s which came earlier has similar profitability. However, having 2% profitability consistently would give confidence about the company.
Reasons not to invest in Women Next Lingeries IPO
- Limiting operating history of 3 years only.
- It earns revenue of 95% from top 5 customers, which poses risks to the business
- There are negative cash flows in the last 3 years, which could increase the cost of operations in the future.
- CARE rates this company credit rating as BB-(minus) for long term bank facilities. This indicates that it may incur high costs to borrow money from banks.
- SME IPO’s are trading in low volumes. Liquidity could be an issue.
Recommendation / Investment strategy:
- Average EPS for the last 3 years is Rs 2.97 and last financial year ended Mar-2013 is Rs 4.50. Based on last 3 years average EPS of Rs 2.97 and issue price of Rs 65, the P/E ratio works out to be 21.90. Similarly, based on last financial year EPS of Rs 4.50, P/E ratio works out to be 14.45. Its competitors like Page Industries P/E ratio is 55.95 (Highest) and Lovable Iingerie is at 27.28 (Lowest) and average at the industry level is 36.92. Hence, the issue price of Rs 65 is reasonable.
- Though company is showing good revenues in last 3 years, due to short operating history and other negative factors indicated above, my recommendation is that only High Risk Investors can invest in this IPO. Other investors can look for better IPO's that suits their risk appetite.
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Women Next Lingeries IPO