SP Apparels IPO Subscribed 66% on Day 2
SPAL IPO
The initial public offering of garments maker SP Apparels witnessed 66 percent subscription on the second day of the issue. The company is seeking to raise Rs 239 crore through the offer, at the upper end of the price band. The price band for the IPO has been fixed at Rs 258 – 268 per share.
The IPO received bids for over 43.1 lakh shares as against more than 65.56 lakh on offer till 5 pm today, as per the information available with the National Stock Exchange.
The limit reserved for retail investors was subscribed 0.54 times while non-institutional quota witnessed a subscription of 0.45 times, data showed. The portion reserved for qualified institution buyers, which saw no bidders on the first day, was fully subscribed at the end of the second day.
The issue closes on August 4.
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The offer consists of fresh issue of equity shares aggregating up to Rs 215 crore and an offer for sale of up to 9 lakh equity shares by New York Life Investment Management India Fund, one of the shareholders of SPAL, according to the Draft Red Herring Prospectus filed with market regulator Securities and Exchange Board of India.
The offer is being made through the book building orocess, has reserved 50 percent of the share issue for qualified institutional buyers, 15 percent for high networth individuals and 35 percent for retail investors. The shares will be listed on National Stock Exchange and Bombay Stock Exchange.
Anchor Allotment
The company allotted 26,76,685 equity shares to anchor investors for Rs 268 per share on Monday.
Utilisation of Funds
SP Apparels will utilise 29 percent of the funds raised through the issue of fresh shares for debt re-payment, 33 percent will be utilised for expansion plans, and 13 percent will be dedicated to opening new stores for its Crocodile brand, according to its regulatory filing with the market regulator.
Business
The company’s main business is manufacturing and exporting knitted garments. It specialises in children’s wear through its Crocodile brand, and also manufactures retail menswear garments.
The company has 21 manufacturing facilities, 40 brand outlets, 4,874 sewing machines, eight cutting machines, 79 embroidery machines, 17 printing machines, 16,896 spindles and 22 dyeing machines, according to data from its website.
Revenue Sources
The company generates more than 80 percent of its revenues from exports and 79 percent of revenue earned was denominated in foreign currency. The company has a limited number of customers; in fact, the top five customers generate 76 percent of its total revenue.
The company’s major source of revenue is from exports but cancellation orders would cause significant losses to the company, according to an ICICI Securities report. Its customers are predominantly based in the U.K., which is currently facing an adverse scenario relating to Brexit, the report adds.
Peer Comparison
Kitex Garments Ltd. (KGL) & Kewal Kiran Clothing Ltd. (KKCL) are comparable companies with SP Apparels in terms of revenue, according to data compiled by BloombergQuint.
The company has experienced a subdued revenue growth of 7.4 percent in the past five years. The revenue growth for KGL and KKCL stood around 14 percent each for the same time period.
Financial Highlights
- The company has a net worth of Rs 132.7 crore.
- At the upper end of price band, that is Rs 268, the earning per share (EPS) and price to earnings ratio (P/E) for FY16 are Rs 17.2 and 15.6 times, respectively. At the lower end of price band, that is Rs 258, the P/E multiple stands at 15 times.
- FY16 revenue stands at Rs 532.8 crore, and has grown at a compounded annual growth rate of 7.4 percent from FY12 to in FY16.
- FY16 net profit stands at Rs 29.4 crore, and has grown at a CAGR of 32 percent from FY12 to in FY16.
- Considering the growth rate of 7.4 percent, P/E for FY17 is expected to stay at same level.
- Earnings before interest, depreciation and amortisation (EBITDA) margin for FY16 stood at 17 percent. EBITDA margin expanded by 170 basis points from FY12 to FY16.
- Total liabilities for FY16 stood at Rs 382.8 crore, which is almost three times of its networth.
ICICI Securities has an ‘Avoid’ rating on the offer as the company is richly valued compared to its peers. Future revenue growth will remain sluggish due to subdued global trade scenario, the brokerage adds.