Search Now

Recommendations

Friday, June 06, 2008

First Winner Industries IPO Analysis


Promoted by Rinku Patodia and Anita Patodia, First Winner Industries was incorporated on 22 January 2003 as a garment trading firm supplying textile fabrics to wholesalers and apparel and garment manufacturers. It mainly trades in various textile fabrics such as cotton fabric, blended fabric, nylon fabric, polyester fabric, furnishing fabric, woolen fabric, and non-cotton fabric to the wholesale customers to facilitate the manufacturing of garments. The company set up its own weaving unit in MIDC, Tarapur, District Thane, in Maharashtra by installing 100 looms in 2006-07.

To backward integrate, First Winner Industries started manufacturing grey fabric in 2006-2007. The manufacturing unit was set up with a capacity of 108 lakh meters per annum. The unit consists of 100 looms with the latest Rapier machine technology that facilitates fast mode of weaving. Each loom can manufacture grey fabric of 300 meters per day. Besides trading and manufacturing of fabrics, the company executes job works for manufacturing grey fabric for specific customers who supply the raw material. Thus, income from job work has started contributing significantly to the total income of the company.

First Winner Industries’ two operating subsidiaries, Ramshyam Textile Industries Ltd and Realgold Exports Pvt Ltd, are in the same business.

Ramshyam Textile Industries commenced its operations of weaving from 1 February 2006 and became the company’s subsidiary on 1 April 2007. It has 48 looms with an installed capacity of 42.24 lakh meter fabrics per annum.

Realgold Exports was incorporated on 12 December 2002 and became a subsidiary on 1 April 2007. It has a weaving unit with 48 looms and an installed capacity of 62 lakh meters per annum.

First Winner Industries plans to expand its grey fabric manufacturing capacity to around 170 lakh meters per annum from the current capacity of 108 lakh meters of grey fabric per annum. For this purpose, the company intends to buy 48 more looms with a production capacity of 62 lakh meters per annum.

To forward integrate operation, First Winner Industries is setting up a garment-manufacturing unit with production capacity of 5,000 pieces of men’s shirts per day. The company also plans to manufacture the entire men’s-wear range from this facility. It will explore the export market after setting up the garment manufacturing facility. To offer apparel products in the men’s-wear category, First Winner Industries will launch its own brands through its own retail outlets.

Strengths

  • Integrating backward to manufacture grey fabrics will help the trading division to source fabric at a reasonable prices. The proposed apparel manufacturing facility could also source the fabrics from the manufacturing facility, thus, giving an integrated structure to the operation.
  • Has design capability through in-house designing team as well as established relationship with various wholesale customers, which can be efficiently leveraged for apparel manufacturing and retail venture in the future.
  • Foray into apparel retailing through own brands and outlets is a related diversification, which could serve well going forward.

Weaknesses

  • Despite weaving capabilities, manufacturing has not started in a big way and income still continues to be mainly from trading, which is plagued by margin pressure.
  • The textile industry is highly competitive with competition from both the organized and the unorganized sectors. Is in direct competition with leading Indian and international fabric manufacturers. The limited scale as well as reach will act as a major obstacle to fight competition.
  • No long-term agreement with both suppliers of raw material as well as customers. Thus, vulnerable to price risk. Also, no firm commitment from customers.

Valuation

First Winner Industries has set a price band of Rs. 120 to Rs 130 per equity share of Rs 10 each, translating into a P/E of 34.6x at the lower price band and 37.5x at the higher price band, based on the unconsolidated annualised earning per share of Rs 3.5 for the 10-month period ended January 2008 on post-IPO equity.

However, consolidated annualised earning per share works out to Rs 8.6 for the 10-month period. Thus, P/E on the consolidated earning per share works out to 14.0x at the lower band and 15.2x at the lower band. Considering the nature of business, the asking price is high.