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Vaxtex Cotfab NSE SME IPO review (Avoid)

Review By Dilip Davda on December 23, 2019

•    VCL was in trading of cotton fabrics and has recently added job work processing.
•    Plans to process own fabrics based on growth in demand.
•    A sudden spurt in the bottom line for Q1 raises concern.  
•    LM has a poor track record.

Vaxtex Cotfab Ltd. (VCL) that started a cotton fabrics trading business at Kolkata has shifted its operations to Gujarat and is now also engaged in processing of fabrics at the rented plant. It currently does job work for third party products. It plans to gradually shift to own fabrics processing going forward based on growth in demand. Revenue from job work has the lion share in its top line.

To part finance its needs for acquiring machinery (Rs. 0.59 cr.), working capital (Rs. 2.50 cr.) and general corpus fund (Rs. 0.44 cr.) VCL is coming out with a maiden IPO of 1596000 equity shares of Rs. 10 each at a fixed price of Rs. 24 per share to mobilize Rs. 3.83 cr. The issue opens for subscription on 27.12.19 and will close on 03.01.20. The minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.5% of the post issue paid-up capital of the company. VCL is spending Rs. 0.30 cr. for the entire proceeds of this IPO.

The issue is solely lead managed by Capitalsquare Advisors Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. NNM Securities Pvt. Ltd. is the market maker for this issue.

Having issued initial equity at par value, VCL raised further equity for Rs. 100 per share in March 2006 and had issued bonus shares in the ratio of 10 shares for every 1 share held in April 2019. The average cost of acquisition of shares by the promoters is Rs. 0.09 and Rs. 0.91 per share. Post issue, VCL's paid-up capital will stand enhanced from Rs. 4.43 cr. to Rs. 6.02 cr. Thus the company mulls market capitalization of Rs. 14.46 cr.

For the last three fiscals, VCL has posted turnover/net profits of Rs. 4.46 cr. / Rs. 0.02 cr. (FY17), Rs. 18.47 cr. / Rs. 0.17 cr. (FY18) and Rs. 22.02 cr. / Rs. 0.60 cr. (FY19). For Q1 of FY20, it has clocked in the net profit of Rs. 0.34 cr. on a turnover of Rs. 4.54 cr. A sudden spurt in the bottom line for Q1 raises concern. For the last three fiscals, VCL has posted an average EPS of Rs. 0.78 and an average RoNW of 7.82%. The issue is priced at a P/BV of 2.10 based on its NAV of Rs. 11.44 as on 30.06.19 (as per restated financial data) and at a P/BV of 1.63 based on post-IPO NAV of Rs. 14.76. VCL has not paid any dividends so far.

If we annualize FY20 Q1 super earnings and attribute it to post issue paid-up equity capital then asking price is at a P/E of 10.6.

VCL's holding periods for inventors is expected to rise from the current 36 days to 54 days and trade receivables from 61 days to 98 days. This is set to impact its working going forward.  Company's current debt/equity ratio of 1.78 will decline to 1.01 post this issue.

As per offer documents, VCL has shown Kavita Fabrics, SKS Textiles and Jakharia Fabrics as its listed peers. They are currently trading at a P/E of 391, 5.64 and 21.15 (as on 23.12.19). However, they are not strictly comparable.

On merchant banker's front, this is the 2nd mandate from its stable in the current fiscal. The only listing that took place so far was opened at a discount (-1.16%) to offer price on the day of listing.  Currently, it trades at a discount of around 30%.

Conclusion / Investment Strategy

For the last three fiscals, it has given average performance. A sudden spurt in Q1 bottom line raises concern. Based on this super earnings issue is fully priced. Considering all there, there is no harm in giving this issue a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on December 23, 2019

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. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. 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 their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.

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.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

Vaxtex Cotfab IPO FAQs

  1. 1. Why Vaxtex Cotfab IPO?

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

  2. 2. How is Vaxtex Cotfab IPO?

    Read the Vaxtex Cotfab IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Vaxtex Cotfab IPO what should investors do?

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

  4. 4. Is Vaxtex Cotfab IPO good?

    Our recommendation for Vaxtex Cotfab IPO is to avoid.

  5. 5. Is Vaxtex Cotfab IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Vaxtex Cotfab IPO.

  6. 6. When will Vaxtex Cotfab IPO allotment status?

    The Vaxtex Cotfab IPO allotment status will be available on or around January 8, 2020. The allotted shares will be credited in demat account by January 10, 2020. Visit Vaxtex Cotfab IPO allotment status to check.

  7. 7. When will Vaxtex Cotfab IPO list?

    The Vaxtex Cotfab IPO will list on Monday, January 13, 2020, at NSE SME.


1. IPO ExpertIPO Expert     Link|December 25, 2019 2:24:21 PM
For the last three fiscals, it has given average performance. A sudden spurt in Q1 bottom line raises concern. Based on this super earnings issue is fully priced. Considering all there, there is no harm in giving this issue a miss.

The company has started its manufacturing business in the year 2017, and accordingly increase in revenue can be seen in the books. Considering the company's overall financials company has performed good in context of the business and issue price.

Company's revenue in the FY 17-18 stood at 1900 lacs which is more than 300% growth, than in FY 19-20 also there is growth of 19%, in context to this and set up expenses company has shown good net profit on 3% in the FY 18-19 and as in stated Future projections by the company this margin shall increase to 7-8% by next year.

As after setup of the manufacturing facility company has already procured many resources which might not need further small investments. Further, from 1st April 2019 company has increased its own fabric sale which has higher profitability.

The issue is priced fairly considering the book value of shares.

This IPO can be subscribed for long term holding only.