Lagnam Spintex NSE SME IPO review (May apply)

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Review By Dilip Davda on August 22, 2018

• Mangal group is well known in the textile market.
• Creamy client base -giving repeated orders.
• Tied up bank finance at around 4% interest for next five years
• Capacity expansion with latest technology and plants.
• LSL gearing to explore global presence.

 ABOUT COMPANY:
Lagnam Spintex Ltd. (LSL) is an ISO 9001:2015 certified Company engaged in the business of manufacture of high-quality yarn for domestic and export market ranging from count Ne 4 to Ne 20 which is used in Denim, Terry Towels, Bottom Wears, Home Textiles and Industrial Fabrics etc. Its regular client list includes big brands like Arvind, Welspun, RSWM, Sangam, Jindal, Nandan, Vinod Denim etc. The company is also recognized as 'One Star Export House' by DGFT. LSL is one of the few cotton yarn manufacturers globally who have received certification from USTER Technologies AG.

The company is presently exporting cotton yarns to countries like Portugal, Italy, Germany, Belgium, South Africa, Slovenia, Columbia, China, Pakistan, Bangladesh, and others. LSL is exploring new markets to increase its presence globally.

Promoter Mangal family is a well-known player in the yarn market. 'Lagnam' is derived by reversing Mangal. Founder/Chairman Shri D P Mangal has industrial experience of over 35 years. He has also served in top managerial positions in large textile corporate like RSWM, JCT.
 
CAPITAL HISTORY/ISSUE DETAILS:
To part finance setting up of the additional cotton yarn manufacturing facility and issue expenses, LSL is coming out with a maiden IPO of 6000000 equity shares of Rs. 10 each at a fixed price of Rs. 41 per share to mobilize Rs. 24.60 crore. Issue opens for subscription on 04.09.18 and will close on 07.09.18. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 33.96% of the post issue paid up capital of the company. Issue is jointly lead managed by Holani Consultants Pvt. Ltd. and BOI Merchant Bankers Ltd. Bigshare Services Pvt. Ltd. is the registrar to the issue. Out of issue proceeds, LSL will spend Rs. 22 crore for a new unit (that has total CapEx outlay of Rs. 125.40 cr.) and is getting Rs. 94 crore bank's funding that will have 3.5% to 4% interest outgo considering 6% interest subsidy available to it under RIPS 2014 scheme for a period of 5 years. Rest of funding will be from internal accruals. It has already started construction of the project and hopes to start trial runs by February 2019 and commercial production from March 2019. LSL is installing advanced machinery with the latest technology for high-quality products.

Having issued initial equity at par, it raised further equity in the price range of Rs. 22 to Rs. 50 per share between July 2011 and January 2018. It has also issued bonus shares in the ratio of 4.5 shares for every 1 share held in December 2017. The average cost of acquisition of shares by the promoters is Rs.9.15, Rs. 9.73 and Rs. 10.42 per share. Post issue, its current paid up equity capital of Rs. 11.67 cr. will stand enhanced to Rs. 17.67 cr.

FINANCIAL PERFORMANCE:
On the performance front, for last four fiscals, LSL has posted turnover/net profits of Rs. 49.83 cr. / Rs. 1.58 cr. (FY15), Rs. 56.56 cr. / Rs. 2.09 cr. (FY16), Rs. 75.38 cr. / Rs. 3.67 cr. (FY17) and Rs. 84.54 cr. / Rs. 4.68 cr. (FY18). Thus it has posted gradual growth in top and bottom lines. Issue is priced at a P/BV of 1.75 on the basis of its NAV of Rs. 23.42 as on 31.03.18 and at a P/BV of 1.50 based on post issue NAV of Rs.27.42. For last three fiscals, it has posted an average EPS of Rs. 3.48 and an average RoNW of 16.79%. If we take into account latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 15 against industry composite of 20. This issue appears fully priced.


LISTED PEERS COMPARISION:
As per offer documents, it has shown PBM Poly, KPR Mills, Sambandam Spg., Vippy Spinpro and Shiva Texyarn as its listed peers (though they are not strictly comparable). They are currently trading at a P/Es of around 18, 17, 37, 7 and 53. In fact two recent SME IPOs i.e. Angel Fibers, Akshar Spintex are in the similar business and are trading at a P/Es of around 17 and 7. (as on 21.08.18).


MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 2nd mandate from Holani Consultants and the last listing of E2E opened with a premium of 49.12% on the day of listing. For BOI Merchant this is the first mandate.

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