Sanathan Textiles IPO analysis

Sanathan Textiles Limited IPO (initial public offering) will open for subscription on December 19, 2024, and close on December 23, 2024. Here, we provide a breakdown of the textile manufacturer's strengths, weaknesses and growth prospects to help investors make an informed decision. Sanathan Textiles IPO in a nutshell Quality: Between FY22 and FY24, Sanathan Textiles reported an average three-year ROE and ROCE of around 23.1 and 21 per cent, respectively. Growth: During FY22-24, its revenue and net profit declined annually by 3.6 and 38.6 per cent, respectively. Valuation: At the upper price band of Rs 321, the stock is valued at a P/E and P/B ratio of 20.2 and 1.6 times, respectively. Overview: The company can benefit from the ongoing geopolitical tensions in Bangladesh (one of the major exporting nations to the US and EU) and the decline in China's export of apparel to the US, providing Indian exporters with an alternate choice of exporter to the US, which had 22 per cent share in global apparel imports as of CY23. However, the competitive nature of the textile industry poses a threat. About Sanathan Textiles Sanathan Textiles manufactures and supplies polyester (77 per cent of revenue) and cotton (18 per cent of revenue) yarn. It also produces technical textiles that find applications in multiple sectors, including automotive, healthcare, construction, sports and protective clothing. As of September 30, 2024, it has more than 3,200 active varieties of yarn products and the capability to manufacture a diversified product portfolio of more than 14,000 varieties of yarn products. The company supplied yarns to over 1,500 customers in FY24. Some of its prominent clientele include Welspun, Premco Global, Page, etc. Strengths of Sanathan Textiles Long-standing clientele: The company has long-standing relationships with reputed consumer brands such as Welspun India, Techno Sportswear, Page Industries, D'Décor Home Fabrics, Siyaram Silk Mills, etc. It has also been associated with its top 10 customers for over a decade. Weaknesses of Sanathan Textiles Geographical concentration: As of FY24, the company derived 65 per cent of its revenue from just three states - Gujarat, Maharashtra and Punjab. Any uncertainty (social, political, economic) can affect Sanathan Textile's profitability. Dependence on distributors: Sanathan Textiles relies heavily on its distributors to sell its products. In FY24, almost 94 per cent of the revenue was generated by the company's distributors. Thus, the loss of key distributors can adversely affect the company's profitability. Sanathan Textiles IPO details Total IPO size (Rs cr) 550 Offer for sale (Rs cr) 150 Fresh issue (Rs cr) 400 Price band (Rs) 305 - 321 Subscription dates December 19-20 and December 23, 2024 Purpose of issue Repayment of debt and investment in subsidiary Post-IPO M-cap (Rs cr) 2,709 Net worth (Rs cr) 1,724 Promoter holding (%) 79.7 Price-to-earnings ratio (P/E) 20.2 Price-to-book ratio (P/B) 1.6 Financial history Key financials (Rs cr) 2Y annual growth (%) FY24 FY23 FY22