Momai Apparels Limited (SME) is coming up with a public issue IPO of 33 L Shares and raising Rs 27-30 Crores (planned fund mobilization of Rs 40 Crores, but already mobilized Rs 13 Crores). Momai Apparels IPO issue is priced at Rs 78-90 per share. There are several positive points about this SME IPO. What should be your call on this Momai Apparels IPO? Should you invest in a Momai Apparels SME IPO? What are the risk involved in this SME IPO?
About Momai Apparels Limited
Momai Apparels Limited is incorporated in 2010 and a subsidiary of Ashapura Intimates Fashion Limited. It is one of the leading companies in loungewear. This company is engaged in the business of manufacturing of non-branded intimated garments such a lounge wear, bridal night wear, honeymoon set, night wear, sports wear, leggings etc.
Issue details of Momai Apparels IPO
- IPO opens: 25-Sep-2014
- IPO closes: 30-Sep-2014
- Face value: Rs 10 per share
- Issue price: Rs 78 to Rs 90 per share
- Minimum investment: Would be indicated after final prospectus is published by SEBI
- Minimum shares to be invested: Would be indicated after final prospectus is published by SEBI
- No of shares: 33 Lakh shares
- Issue size: Rs 30 Crores
- Lead Managers: Pantomath Capital Advisors Private Limited
- Listing: NSE SME platform
- Download Momai Apparels IPO Prospectus from NSE website here
Purpose of the IPO: The funds would be used for the following purposes.
- Acquisition of land for setting up a new manufacturing facility
- To meet long term capital requirements
- Meet issue expenses
- General corporate purpose
- Company generated revenue of Rs 3,153 Lakhs for the year ended Mar-12 and Rs 11,745 Lakhs for the year ended Mar-14 indicating a strong revenue growth of 90% simple yearly growth in just 3 years (not CAGR).
- Company posted a profit of Rs Rs 58.21 Lakhs for the year ended Mar-12 and a profit of Rs 326.8 Lakhs for the year ended Mar-2014.
Reasons to invest Momai Apparels IPO
- Strong revenue growth in last 3 years.
- Good profit improvement in last 3 years
- Company proposes to expand 5 fold to meet the rising demand of its products and planning to set-up facility in Gujarat. This would boost company revenues in coming years.
- This IPO has been rated by CARE as “SME Fundamental Grade 4/5” indicating “Very Good Fundamentals”.
Reasons not to invest in an Momai Apparels IPO
- Company has a limited operating history of 3 years. It may be difficult for investors to assess performance in the long run.
- Majority of revenues are from holding company Ashapura Intimates Fashion Limited. Any future loss of such company would have a material impact for Momai Apparels Limited.
- This company does not own any brand. It acts a contract manufactures for others who owns brand and network.
- Approvals for setting up new facility are yet to be completed. Any delay in receiving, such approvals could delay the expansion plan and it would have an impact on revenues and margins.
- Such companies would require a large amount of working capital. In case of inability to meet the working capital requirement would adversely impact company performance.
- It has negative cash flows in the last 3 years. This indicates that it need to borrow loans for high rate of interest and has difficulty in managing working capital requirements. This would affect the profits of the company.
- Company profits are still thin like any other SME
- SME IPO’s are trading on low volume. Liquidity of such shares could be an issue. Stock brokers can easily manipulate the price of the stock.
Recommendation / Investment strategy
- On an issue price of Rs 78 to Rs 90, based on FY 2014 EPS of Rs 5.96, P/E Ratio works out to be in between 13 to 15 times. Last 3 years average EPS is not comparable as FY11-12 EPS is very high. Its competitors P/E Ratio is 55 (Highest) and 29 (Lowest). Considering 13 to 15 P/E ratio of Momai Apparels IPO for the issue price of Rs 78 to Rs 90 is considered to be reasonable.
- Momai Apparels IPO has several positive factors. Good revenue growth in last 3 years. Profits are also increasing. Considering 5 fold expansion plan, it would boost revenues in coming years. This is definitely a good bet for long term investors.
- I would advise investors to invest in this IPO for a 2 to 3 years time frame considering negative factors indicated here.
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Momai Apparels SME IPO-Can we invest
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