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.

Risk report

Company and business

• Are earnings before tax of Borana Weaves more than Rs 50 crore in the last 12 months?
  No. The company reported a profit before tax of Rs 28 crore for FY24.
• Will Borana Weaves be able to scale up its business?
  Yes. Rising demand for fast fashion and synthetic blend fabrics will help them grow their business.
• Does Borana Weaves have recognisable brands with client stickiness?
  No. The company has a commoditised product with no long-term contracts with its clients.
• Does the company have a credible moat?
  No. Its key product, grey fabric, is indifferentiated and the industry is crowded with several organised players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. After the IPO, its promoter will hold a 65 per cent stake in the company.
• Do the top three managers have more than 15 years of combined leadership at Borana Weaves?
  Yes. Mangilal Ambalal Borana, Chairman and Managing Director, has been with the company for over 21 years.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  No. The company once delayed filing the required documents related to the bonus issue of shares.
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
• Is Borana Weaves free of promoter pledging of its shares?
  Yes. No shares have been pledged as of Q3 FY25.

Financials

• Did the company generate a current and three-year average return on equity of over 15 per cent and a return on capital employed of over 18 per cent?
  Yes. Its three-year average ROE and ROCE were nearly 97 and 31 per cent, respectively. In FY24, its ROE and ROCE were 66 and 35 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  No. The company had reported negative cash flow in FY22. Although, it has managed to be cash flow positive since then.
• Is the company's net debt-to-equity ratio less than one?
  Yes. The company's net debt-to-equity was 0.72 times as of Q3 FY25.
• Is Borana Weaves free from reliance on huge working capital for day-to-day affairs?
  No. The company's average working capital days in the last three years were 64 days, reflecting higher capital needs. Although the company has managed to reduce it to about 39 days in FY24, whether they can reduce it further has to be watched out.
• Can the company run its business without relying on external funding in the next three years?
  Yes. The company is going to utilise almost 50 per cent of its IPO proceeds to finance capex. If it can maintain its positive cash flow from operation and use the remaining funds, it can run its business without relying on external funding for at least the next three years.
• Is Borana Weaves free from meaningful contingent liabilities?
  No. As of Q3 FY25, contingent liabilities were 13.4 per cent as percentage of total equity.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. The stock offers an operating earnings yield of 5 per cent on its enterprise value.
• Is the stock's price-to-earnings (P/E) less than its peers' median level?
  Yes. The stock is valued at a P/E ratio of 24.4 times compared to its peers' median level of 41.1 times.
• Is the stock's price-to-book (P/B) value less than its peers' average level?
  Yes. The stock is valued at a P/B ratio of over 2.6 times compared to its peers' average level of 4 times.

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Disclaimer: This story is not a stock recommendation. Investors should do their due diligence before investing.

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