Borana Weaves IPO Analysis

Borana Weaves IPO (initial public offering) will open for subscription on May 20, 2025, and close on May 22, 2025. We break down the textile manufacturer's strengths, weaknesses and growth prospects to help investors make an informed decision. Borana Weaves IPO in a nutshell Quality : Between FY22 and FY24, the company reported a three-year average ROE and ROCE of nearly 97 and 31 per cent, respectively. Growth : Between FY22 and FY24, its revenue and profit after tax grew by 117 and around 262 per cent per annum, respectively. Valuation : At the upper end of the price band, the stock is valued at a P/E and a P/B ratio of nearly 24.4 and 2.6 times, respectively. Overview: India's growing demand for synthetic textiles, led by rising apparel consumption, urbanisation and export-driven garment production, provides a strong growth runway for the company. The company's pluses also include its cost-efficient operations, steady industrial fabric demand that benefit its B2B operations and favourable government policies. However, the commoditised nature of grey fabric, its primary revenue generator, and intense pricing competition could put pressure on the company. About Borana Weaves Surat-based Borana Weaves specialises in manufacturing unbleached synthetic grey fabric. This fabric serves as a critical input for fashion, home décor, technical textiles, and traditional wear. Grey fabric contributed 72 per cent to Borana's operating income in FY24. It operates three manufacturing units in Surat with an average capacity utilisation rate of around 80 per cent as of FY24. The company earns nearly all its revenue from Gujarat alone. It is setting up a new unit in Surat with an installed production capacity of 11.3 crore meters per annum. Strengths of Borana Weaves Strategic location and supplier proximity: Borana's units are strategically located in Surat, close to 90 per cent of its raw material suppliers, which enables cost savings, faster deliveries and efficient supply chain management. Favourable peer comparison: Borana outperforms larger textile peers in terms of profitability. Its three-year average EBIT margin of around 14 per cent was higher than that of peers Vardhman Textiles and Arvind Mills and only second to K.P.R. Mill's 19 per cent. Weaknesses of Borana Weaves Commoditised product: Borana operates in the highly commoditised synthetic grey fabric segment, where products are largely undifferentiated and pricing is driven by market demand rather than brand value. This limits pricing power, makes margins vulnerable to competition and increases reliance on cost efficiency to maintain profitability. Heavy reliance on subsidy: Borana Weaves relies heavily on electricity and interest subsidies from the Gujarat government. In FY24 alone, the company received Rs 7.5 crore in electricity subsidy, nearly 4 per cent of revenue. A withdrawal of the subsidy support could significantly impact the company's financials. IPO details Total IPO size (Rs cr) 145 Offer for sale (Rs cr) - Fresh issue (Rs cr) 145 Price band (Rs) 205-216 Subscription dates May 20 to 22, 2025 Purpose of issue To fund working capital and capex requirements for capacity expansion Post-IPO M-cap (Rs cr) 576 Net worth (Rs cr) 221 Promoter holding (%) 65.2 Price/earn