Winning deal?

Given the stiff competition, lack of prior experience and commodity nature of business, First Winner Industries' offer is better avoided.

First Winner Industries (FWI), a Mumbai-based company, is currently engaged in the business of trading of textile fabrics and manufacturing of grey fabrics, which are supplied to various wholesalers and apparel manufacturers. In 2003, it started trading in textile fabrics, but with a view to have its own manufacturing facilities, the company set up a weaving unit during 2006-07 by installing 100 looms (in Thane, Maharashtra) with a total installed capacity of 108 lakh meter grey fabrics per annum (pa).

The company also undertakes manufacturing of grey fabric on a job work basis. Ramshyam Textile Industries and First Winner Lifestyle (formerly Realgold Exports), engaged in the same business (96 looms with total capacity of 104 lakh meter pa), became FWI's subsidiaries on April 1, 2007.

The company now plans to raise Rs 66 "� Rs 71.50 crore by offering 55 lakh equity shares in the price band of Rs 120-130 to fund its expansion and forward integration plans, as well as repay debt worth Rs 18 crore.

FWI is setting up an apparel manufacturing facility with a production capacity of 5,000 pieces of men's wear shirts per day (estimated cost Rs 12.04 crore) and a new weaving unit to increase its total capacity from 108 meter pa to 170 lakh meter pa (estimated cost Rs 21.63 crore). Post-issue, the promoters holding will reduce to 42.28 percent from about 70 percent currently.

FWI's unconsolidated earnings have jumped sharply in the last two years. Its operating profit margin has shot up from 1.7 per cent in FY06 to 16.8 per cent in FY08 (latter is based on annualised earnings). 
 

STIFF VALUATION
Rs crore	FY08*	FY09E	FY10E
Net sales	180	270	380
Net profit	15.6	20	26.5
NPM (%)	8.6	7.4	7
EPS (Rs)	8.8	11.3	15
P/E @ Rs 120	13.7	10.6	8
P/E @ Rs 130	14.8	11.5	8.7
* Annualised earnings, E: Estimates

The company claims that this improvement is on account of income from job work it has undertaken at the new manufacturing unit and also, a shift in its strategy. Earlier, to penetrate the market, the company settled for lower margins, which is not the case currently.

Whether the company will be able to maintain such high margins in future needs to be watched, given that its peers enjoy relatively lower margins. The other concern for investors stems from the promoters' majority holding in other companies, which are in the same line of business as are the First Winner group of companies.

This could lead to conflict of interest and is hence, undesirable.

With global cotton consumption expected to outstrip production, CRISIL Research expects cotton prices to remain firm going forward, which would exert pressure on the margins of textile manufacturers. The company does not have any long-term agreement with suppliers of raw material and is thus exposed to price risk.

Rating agency CARE, too, has given an IPO grade of one on a scale of five, indicating below average fundamentals. At the lower band of Rs 120, the stock trades at 10.6 and 8 times its estimated consolidated earnings for FY09 and FY10, respectively, which is much higher than what established players like Alok Industries and Vardhman Textiles are trading at (P/E band of 5-7 one-year forward earnings). The asking price thus, appears unjustified.

Issue opens on: June 9, 2008
Issue closes on: June 12, 2008