Sanathan Textiles Limited IPO is a promising offering from one of the leading manufacturers of polyester yarns, cotton yarns, and technical textile yarns. With over four decades of expertise in the textile industry, Sanathan Textiles caters to global markets, offering a diverse range of yarn products used in various sectors. The company is now looking to raise ₹550.00 Crores through a combination of a Fresh Issue and an Offer for Sale.

IPO Details

• Offer Size: ₹550.00 Crores, consisting of a Fresh Issue of ₹400.00 Crores and an Offer for Sale of ₹150.00 Crores.
• Price Band: ₹305 to ₹321 per equity share.
• Market Capitalization: At the upper price band of ₹321 per share, the market cap will be ₹2,709.37 Crores.
• Lot Size: 46 shares.
• Minimum Investment: ₹14,766 for retail investors, and ₹2,06,724 for High Net Worth Individuals (HNIs), based on the lot size.
• IPO Subscription: The IPO was 35.12 times oversubscribed on the final day, indicating strong investor interest.

Financials and Valuation

For the fiscal year ending June 30, 2024, Sanathan Textiles reported revenues of ₹7,877.6 Million. The company's EBITDA stood at ₹830.71 Million for the same period, while its Profit after Tax (PAT) was ₹500.73 Million. Over the past few years, the company has seen fluctuations in profitability, with PAT of ₹1,527.41 Million in FY 2023 and ₹3,554.52 Million in FY 2022.

The IPO offers a pre-issue P/E ratio of 17.26x and a post-issue P/E of 20.24x, which is relatively attractive compared to the industry P/E of 30x, suggesting the IPO is fairly priced within the context of the textile industry.

Grey Market Premium (GMP)

The GMP for the Sanathan Textiles IPO is currently ₹28, implying a 8.72% potential listing gain. However, GMP should be treated with caution as it is based on unorganized market trends and does not guarantee the actual listing price on the stock exchanges.

Objectives of the IPO

The company plans to use the net proceeds from the IPO for the following purposes:

• Repayment of Borrowings: ₹1,600 Million will be used to repay or prepay outstanding borrowings.
• Investment in Subsidiary: ₹1,400 Million will go toward repaying borrowings of its subsidiary Sanathan Polycot Private Limited.
• General Corporate Purposes: The remaining funds will be allocated to various business and corporate activities.

Investment Outlook

While Sanathan Textiles has demonstrated strong global presence and a diverse range of yarn products, the company's financial performance in recent years has shown some volatility. Given the decent valuation, GMP trend, and the overall market demand, short-term investors may find some opportunities in the potential listing gain.

However, for long-term investors, the relatively high debt and fluctuating profits raise some concerns. The fair pricing of the IPO makes it suitable for those interested in short-term market movements, but a more cautious approach might be beneficial for those looking to invest long-term.

Conclusion

While Sanathan Textiles is priced fairly within the textile industry and the GMP suggests a modest potential for listing gains, declining profitability in recent years and increased debt levels warrant caution. Investors interested in short-term gains from the IPO listing may find opportunities, but those looking for long-term stability might want to consider other options.

The Upcoming IPOs in this week and coming weeks are Citichem India, Indo Farm, Technichem Organics, Leo Dry Fruits, Solar91 Cleantech, Rosmerta Digital and Avanse Financial.

The Current active IPO is Anya Polytech and Unimech Aerospace.

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