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Mediocre fabric

IPO REVIEW

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Priya Kansara Mumbai
Last Updated : Feb 26 2013 | 12:24 AM IST
Though Mudra Lifestyle's valuations look reasonable, the short-term upside is limited.
 
Fabric and garment player, Mudra Lifestyle is tapping the primary market for expanding its existing capacities and also integrating backwards.
 
However the valuation appears to be slightly lower compared with its peers, who raised money from the primary market in the past year and have already stabilised their operations.
 
Unlike its competitors who have a history of more than a decade, Mudra Lifestyle commenced operations only in 2002.
 
Mudra plans to raise around Rs 68-82 crore by offering 9.1 million shares to the public in the price band of Rs 75-90. It has already raised Rs 14 crore by way of a preferential allotment of 1.92 million shares at Rs75 in the pre-IPO placement.
 
Focused garment player
The company manufactures woven fabrics and garments (men's shirts, ladies' tops and skirts and kids' wear) for domestic and export markets. While it sells its fabric under the "Mudra" brand, it is a major supplier of garments for leading Indian brands like Allen Solly, Peter England and Raymond.
 
The company plans to focus on garments with the introduction of more varieties like men's trousers, other bottom-wear, outerwear, jackets and women's wear.
 
For this, it is more than doubling its garment making capacity to around 10 million pieces. It is also increasing its weaving and processing requirement by over 20 per cent and 30 per cent respectively.
 
Mudra is also integrating backward with a yarn dyeing capacity of 2000 kg per day. The total cost of the project is Rs 177.5 crore, out of which around 57 per cent is financed through low cost term loans and the rest through IPO proceeds and internal accruals. Commercial production will start by June 2007 for garments and weaving and October 2007 for processing.
 
Thus the share of garments will shoot up to 58 per cent in FY09 from the current 24 per cent due to the full benefits of the expansion, which augurs well for margins.
 
The domestic and export mix will be 50:50 by March 2008. The company claims to have shorter turnaround time (time taken from weaving to garments) of 45 days as compared to the industry average of 75-90 days.
 
Robust growth but on a lower base
The company's growth has been robust in the last three years as its sales have more than doubled and its operating and net profit have grown two-fold and three-fold respectively between FY03-06, but on a lower base. 
 
SPINNING GROWTH
Rs croreFY06FY07*% chg
Sales103.11132.8028.79
Operating profit14.1722.5859.35
OPM (%)13.7417.00-
Net profit9.0813.0744.03
NPM (%)8.809.84-
* annualised half yearly results
 
Based on annualised half yearly results, its net sales is expected to grow 29 per cent y-o-y in FY07 while its operating and net profit will rise 59 per cent and 44 per cent respectively. Thus margins have consistently improved.
 
On FY08 basis, the IPO appears reasonably valued at 7-8 times, while its competitor Bombay Rayon trades at 9.7 times FY08 estimates. However, the market has little enthusiasm for textile stocks at the present, so short-term gains are likely to be difficult.

Issue Opens: February 8, 2007
Issue Closes: February 14, 2007

 

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