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Swaraj Suiting NSE SME IPO review (May apply)

Review By Dilip Davda on Mar 11, 2022

•    SSL which was in cotton/synthetics fabrics now going for denim processing.
•    Based on its financial data, the issue is reasonably priced. 
•    Off late, the textile segment is witnessing investors' fancy. 
•    Investors may consider investment for the medium to long term. 

ABOUT COMPANY:
Swaraj Suiting Ltd. (SSL) was initially engaged in the manufacture of cotton/synthetic fabrics but later shifted to trading in synthetic fabrics in 2009 by selling off its Sulzer weaving looms to an associate concern, Swaraj Sulz Private Limited. It re-entered into manufacturing of Cotton and Synthetic fabrics in 2011 and commenced commercial operations in January 2013.

The company is presently, primarily engaged in the Manufacturing of Grey Fabric involving Cotton and Synthetic, Trading of Yarn, Grey fabric and Finished fabric and Weaving on Job work basis. Its existing manufacturing unit is located at F-483 to F-487, G1-475 to 476, RIICO Growth Centre, Hamirgarh, Bhilwara, Rajasthan - 311025. In this unit, SSL has installed 123 Airjet looms which translates into 1.50 million meters of cotton & synthetic fabric per month translating into 225 Lakh Meters Per Annum (LMPA). The Company has strategically planned the vertical integration of its operations to the next level of the supply chain, aiming to lower production costs and increase the efficiency of the company.

In view of this, the Company is in the advanced stages of setting up a project in the district of Neemuch, Madhya Pradesh (MP), which is both the backward and forward integration of its existing activity. The commencement of commercial production shall be between March - April 2022. This unit will manufacture premium quality denim fabric and tap new markets. The new manufacturing unit in MP is a denim processing plant with an annual capacity of converting approximately 21.75 million metric meters of denim fabric. The Total Cost of the project is Rs. 71.37 Crores, which is funded by Banks in the form of Term Loans to the extent of Rs. 43.00 Crores, Rs.18.82 crores will be sourced through Promoter's contribution including internal accruals and unsecured loans and balance Rs. 9.55 crores will be for Working Capital which will be funded by the issue proceeds. Currently, the company has 255 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 9.55 cr.), general corporate purpose (Rs. 0.63 cr.), SSL is coming out with a maiden IPO of 1908000 equity shares of Rs. 10 each at a fixed price of Rs. 56 per share to mobilize Rs. 10.69 cr. The issue opens for subscription on March 15, 2022, and will close on March 17, 2022. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post issue paid-up capital of the company. SSL will be spending Rs. 0.50 cr. for this IPO process. 

The issue is solely lead managed by Finshore Management Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is acting as a market maker for this company. 

Having issued initial equity shares at par, the company issued further equity in the price range of Rs. 20 to Rs. 200 per share between October 2003 and November 2021. It has also issued bonus shares in the ratio of 1 for 1 in December 2021. The average cost of acquisition of shares by the promoters is Rs. 24.57 and Rs. 31.21 per share. 

Post-IPO, SSL's current paid-up equity capital of Rs. 5.29 cr. will stand enhanced to Rs. 7.20 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 40.32 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, on a consolidated basis, for the last three fiscals, SSL has posted turnover/net profits of Rs. 76.42 cr. / Rs. 2.19 cr. (FY19), Rs. 80.65 cr. / Rs. 3.54 cr. (FY20) and Rs. 60.22 cr. / Rs. 2.68 cr. (FY21). Thus is marked a minor setback for FY21 following the pandemic. Its bottom line has shown inconsistency. For the first six months of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 1.91 cr. on a turnover of Rs. 81.72 cr. This boosting data for the IPO year raises concerns. 

For the last three fiscals, on a consolidated basis, SSL has posted an average EPS of Rs. 6.98 and an average RoNW of 8.73%. The issue is priced at a P/BV of 0.62 based on its NAV of Rs. 89.87 as of September 30, 2021, and at a P/BV of 0.69 based on its post-IPO NAV of Rs. 80.83. 

If we annualize FY22 earnings and attribute it to the fully diluted post-IPO paid-up equity capital, then the asking price is at a P/E of around 10.55. Thus the issue appears reasonably priced based on its earnings and BV data. 

COMPARISON WITH LISTED PEERS:
Surprisingly, SSL has not shown any listed peers in the offer documents. 

DIVIDEND POLICY:
The company has not declared any dividend for the covered period in the offer documents. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 14th mandate from Finshore Management in the last three fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount and the rest with premiums ranging from 3% to 65.5% on the day of listings. 


Conclusion / Investment Strategy

The issue is lucratively priced based on its financial and BV parameters. The textile segment has off late witnessed fancy from investors. This reasonably priced company from the textile segment may be considered for medium to long term rewards.

Review By Dilip Davda on Mar 11, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Swaraj Suiting IPO FAQs

  1. 1. Why Swaraj Suiting IPO?

    The initial public offer (IPO) of Swaraj Suiting Limited offers an early investment opportunity in Swaraj Suiting Limited. A stock market investor can buy Swaraj Suiting IPO shares by applying in IPO before Swaraj Suiting Limited shares get listed at the stock exchanges. An investor could invest in Swaraj Suiting IPO for short term listing gain or a long term.

  2. 2. How is Swaraj Suiting IPO?

    Read the Swaraj Suiting IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Swaraj Suiting IPO what should investors do?

    Swaraj Suiting IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Swaraj Suiting IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Swaraj Suiting IPO good?

    Our recommendation for Swaraj Suiting IPO is to subscribe for long term.

  5. 5. Is Swaraj Suiting IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Swaraj Suiting IPO.

  6. 6. When will Swaraj Suiting IPO allotment status?

    The Swaraj Suiting IPO allotment status will be available on or around Mar 23, 2022. The allotted shares will be credited in demat account by Mar 25, 2022. Visit Swaraj Suiting IPO allotment status to check.

  7. 7. When will Swaraj Suiting IPO list?

    The Swaraj Suiting IPO will list on Monday, March 28, 2022, at NSE SME.