S P Apparels IPO – Should you Invest or not?
Tirruppur based, the S P Apparels IPO would open for subscription on 2nd August, 2016. S P Apparels Limited is a leading manufacturer and exporter of knitted garments for infants and children in India. The company revenues grew at 7.6% CAGR in the last 5 years. Its profits are at 6.5% for the year ended Mar-16. If you are getting tempted to invest in this IPO, you should read all risk factors in this IPO. What are the hidden factors of the S P Apparels IPO? Should you invest in this S P Apparels IPO or not?
About S P Apparels Limited
They are a leading manufacturer and exporter of knitted garments for infants and children in India. These are manufactured at its integrated facilities that allow to provide end-to-end garment manufacturing services from greige fabric to finished products. They also manufacture and retail mens garments in India under the brand ‘Crocodile’. They believe core competency lies in its clear understanding of the specifications of knitted garments in the infants and children's category, the buying preferences of its customers and its ability to deliver products of a consistent high quality that meet the product specifications and stringent compliance requirements of its international customers. Its long-standing relationship with its major customers has been one of the most significant factors contributing to its growth.
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Issue details of S P Apparels IPO
- IPO opens: 2-Aug-2016
- IPO closes: 4-Aug-2016
- Face Value: Rs 10 per share
- Issue price band: Rs 258 to 268 per share
- Issue size: Rs 215 Crores.
- Market lot: minimum of 55 shares
- Minimum investment: Rs 14,740 on lower price band
- Lead Managers: Motilal Oswal Investments and Centrum Capital
- Listing: BSE / NSE
- Download S P Apparels IPO Prospectus at this link.
Objects of the S P Apparels Ltd IPO issue
The Offer comprises of the Fresh Issue and the Offer for Sale by the Selling Shareholder.
a) Offer for Sale
The company will not receive any proceeds from the Offer for Sale and the proceeds from the Offer for Sale will not form part of the Net Proceeds. The Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting their proportionate share of the Offer related expenses.
b) Fresh Issue
The company proposes to utilize the Net Proceeds raised through the Fresh Issue for the following objects
1. Repayment or prepayment of debt incurred by the Company;
2. Expansion and modernization of our manufacturing facility at Valapady, Salem, Tamil Nadu;
3. Addition of balancing machineries for existing dyeing unit at SIPCOT, Perundurai;
4. Opening of new stores for the sale of ‘Crocodile’ products; and
5. General corporate purposes.
In addition, our Company expects to realize the benefits of listing of the Equity Shares on the Stock Exchanges, including the enhancement of its brand name and provision of liquidity to the Shareholders.
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Company Financials (reinstated-Consolidated)
- The company generated revenue of Rs 401.61 Crores for the year ended Mar-12 and Rs 537.75 Crores for the year ended Mar-16.
- The company posted a profit of Rs 9.7 Crores for the year ended Mar-12 and profit of Rs 34.71 Crores for the year ended Mar-16.
- Its restated-consolidated EPS for FY 2016 is Rs 17.15 and last 3 years average EPS Rs 11.08
Reasons to invest S P Apparels IPO
- Revenues grew at 7.6% CAGR in last 5 years.
- They have a key customer base with reputed international brands.
- They are one of the leading manufacturers for export of knitted garments for infants and children in India.
- The company's ability to set-up units that integrate with its operations allows them to scale-up the operations.
Reasons not to invest in an S P Apparels Ltd IPO
- It generated low profits of 1% to 2% in the last few years. For last year FY16 it could generate 6.5%. We need to wait and see consistent performance on higher profits.
- They may be unable to obtain, renew or maintain statutory and regulatory permits, licenses and approvals required to operate its business.
- They do not hold any copyright or other forms of intellectual property protection in relation to the designs of its products and the ‘Crocodile’ brand which could materially affect our business.
- Its inability to meet the obligations, including financial and other covenants under its credit facilities could adversely affect its business and financial results.
- They have experienced negative cash flow from investing and financing activities in prior periods and cannot assure you that they will not experience negative cash flows in future periods.
- Any negative cash flows in operating activities in the future could have a material adverse effect on financial condition, cash flows and results of operations.
- They have certain contingent liabilities that, if materialized, may adversely affect its business and financial results.
- Export of knitted garments for infants and children constitutes a significant portion of its business for which they do not have long-term sales contracts.
- They derive a significant portion of its revenue in British Pound Sterling and U.S. Dollar and hence are exposed to the risks associated with fluctuations in foreign exchange rates which could negatively impact profitability and financial condition.
- Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 14 onwards.
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Recommendation / Investment strategy – S P Apparels IPO
- On the upper price band of Rs 268 and on FY16 EPS of Rs 17.15 P/E ratio works out to 15.6x. Similarly, on last 3 years EPS of Rs 11.08, P/E Ratio works out to 24.1x. Means company is asking the upper band of issue price of Rs 268 for a P/E ratio between 15.6x to 24.1x. Its peers Kitex Garments are trading at a price of a P/E ratio of 20.04. Hence the company issue price is on higher side.
- Company revenues grew at just 7.6% CAGR in last 5 years. It generated profits of 1% to 2%, except for last year FY16 where it could generate 6.5%. Its issue price is also on the higher side. Its’ two Book Running Lead Managers (BRLM’s) have handled 4 IPO’s earlier, where 3 of them have listed below issue price on listing day. Considering all these factors, I would advise investors to stay away from such IPO’s as of now.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.
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S P Apparels IPO – Should you Invest or not
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