Mandhana Industries IPO Information & Analysis

The IPO of Mandhana Industries opens today. The issue, which closes April 29, is price between Rs120 and Rs 130 per share.

Incorporated in 1984, Mandhana Industries Limited is vertically integrated textile and garment manufacturing company in India having presence across operations ranging from yarn dyeing to garment manufacturing.

Issue Open: April 27, 2010
Issue close: April 29, 2010
Price Band: Rs. 120 - Rs. 130 Per Equity Share
Minimum Bid Size: 50 Equity Shares
Face Value: Rs. 10 Per Equity Share
Issue Type: 100% Book Built Issue IPO
Maximum Subscription Amount for Retail Investor: Rs. 1,00,000

The company plans to raise Rs 96.6-107.9 crore via the issue which will be used for setting up of a new garment manufacturing facility, and expansion of its yarn dyeing and weaving facility.

Mandhana is focussing on its garment business in overseas markets and strengthening apparel design. It is also expanding its geographic reach but has no plans of moving into the retail sector.

Mandhana makes readymade garments and fabric. The former is slated for exports while the latter is sold in the domestic market. The mix between the two in total revenues is rather fluid, but domestic sales make up the chunk. Mandhana has an integrated manufacturing process, with capacities for dyeing and weaving of fabrics, and garments.

Sales recorded a 37 per cent compounded annual growth while net profits grew 44 per cent over a three-year period. Operating margins are on the healthy side at 19 per cent in FY-09, up from the 10 per cent three years earlier due to controls in manufacturing and administration costs.

Manufacturing expenses dropped from eating 14 per cent into revenues to 8 per cent in FY-09, primarily a result of its garment manufacturing plant kicking off production. Administration costs dropped to 3.5 per cent of sales in FY09 from the 7.3 per cent three years earlier. On the same grounds, margins further improved to 21 per cent for the nine months ended December 09. The company has no plans of moving into the retail sector, unlike a good many of its textile peers, which could help sustain margins at higher levels.

However, the company has a high dependence on few customers. Top 10 customers account for 55% of total revenues. It is yet to place orders for machinery. On the finances front, it had negative cash flows in FY08 and nine-months of FY10. It has also seen a sharp increase in debtors and advances paid.

Clients include those in the retail and apparel segment such as Tommy Hilfiger, Pepe Jeans, Valentino, and so on in the international market and Pantaloon, Aditya Birla Nuvo, Raymonds and so on in the domestic space. Repeat orders from such clients and their established presence provide a stable base.

Mandhana plans to use most of the funds raised to increase garment manufacturing capacity to 83 lakh pieces a year from its existing 47 lakh pieces and to double weaving production capacity to 360 lakh meters a year. The plants will be functional towards end-FY11, and revenues from the same will flow in from FY-12 onwards. Land for both has already been acquired.

Besides capacity expansion, funds raised will be used for working capital. Turnover of working capital stands at 2.8 times for FY-09, down from the 3 times a year earlier but still above industry peers.

Debt-equity ratio, post-issue, stands at 1.7 times, but most debt is under the Technology Upgradation Fund Scheme, which carry lower interest rates and longer repayment periods. Interest cover is at a good five times.

Crisil has given the issue a rating of three out of five, citing average fundamentals. Looking at recent IPO listings and they trading at below IPO pricing, investors should be cautious while buying IPO this time around.