Highlights
| Issue Size –: 1,71,33,958 shares | Issue Open/Close – 19 Dec / 23 Dec, 2024 |
| Price Band (Rs.) 305 – 321 | Issue Size (Rs.) – 5,500 mn |
| Face Value (Rs) 10 | Lot Size (shares) 46 |
Sanathan Textiles Limited (STL) incorporated on 2005, is one of the few companies in India with presence across the polyester, cotton and technical textile (which find application in multiple end-use segments including automotive, healthcare, construction, sports and outdoor, and protective clothing) sectors and with market share of 1.7 pct in the overall Indian textile yarn industry.
STL business is divided into three separate yarn business verticals, consisting of (a) Polyester yarn products (b) Cotton yarn products and (c) Yarns for technical textiles and industrial uses. As of H1FY25 they have 3,200+ active varieties of yarn products and 45,000+ SKUs, and capability to manufacture a diversified product portfolio of 14,000+ varieties of yarn products and 190,000+ SKUs that are used in various forms and for varied end uses.
They also have a high share of value-added products such as dope dyed, superfine / micro, functional, industrial and technical yarn, cationic dyeable and specialty yarn which are produced after extensive in-house research. These value-added products are tailor-made to customer requirements and have properties and characteristics which are distinctive from other products.
Out of the total proceeds of Rs. 5,500 mn, Rs. 1600 mn would go towards repayment or pre-payment, in full or in part, of certain of their outstanding borrowings availed by the Company, Rs. 1,400 mn would go towards investment in their subsidiary viz. Sanathan Polycot Private Limited, for repayment and/ or pre-payment, in full or part, of certain borrowings availed by their subsidiary, Rs. 1000 mn would go towards general corporate purpose and Rs. 1,500 mn go to existing selling shareholders of the company.
Key Highlights
- The global textile industry has grown consistently between CY18 to CY23, barring CY20, which saw a decline due to Covid-19. Going ahead, the industry is expected to grow at a CAGR of 2.5 – 3.5 pct between CY23 to CY27 to reach ~USD 1,780-1,830 bn in CY27. Indian textile and apparel industry which is estimated to be Rs. 9,450 – 9,550 bn as of FY24, is projected to reach a value of Rs. 12,500-12,700 bn in FY28.
- Their yarn production for Q1FY25 was 57,061 MTPA with a capacity utilization of 102.01 pct respectively. The high-capacity utilization has been possible because their products have end-use applications across a broad spectrum of industries such as apparels, home textiles, travel and leisure, medical usages, automobiles, etc, and, therefore, there has been consistent demand for their products.
- They have fully integrated polyester facilities with a continuous polymerization plant design with three luster and single esterification capable of spinning, texturizing, twisting, air-texturizing, etc. which offers them product flexibility. The plant is designed for handling high number of SKUs to service made to order products and high value-added products.
- STL have acquired 80 acres of land in Wazirabad, Punjab, where they are in the advanced stage of commissioning a greenfield manufacturing facility, through their subsidiary. The Punjab Manufacturing Facility will be set up solely for manufacturing polyester yarn products. The Punjab Manufacturing Facility, once completed and fully operational, is expected to increase from manufacturing capacity from 550 TPA to 1,500 TPA.
- STL growth strategies includes (i) Expanding their manufacturing capacity (ii) Enhance value addition in existing products and development of new products (iii) Harnessing digitization and technology in production processes with a focus on energy efficiency and sustainable practices.
- Sales of the company has fell by 11.14 in FY24 and it stood at Rs. 4,969 mn. EBITDA stood at Rs. 2266 mn, slipped 12.7 pct also EBITDA margin shrank by 14 bps YoY. During FY24 profit of the company tumbled 12.37 pct YoY to Rs. 1,338 mn. In Q1FY25 the company reported Sales/EBITDA/profit of Rs. 7811 mn/ Rs. 764 mn/ Rs. 501 mn.
Key Risk
- Majority of their raw materials are sourced from few key suppliers. Discontinuation of operations of such suppliers may adversely affect STL ability to source raw materials at a competitive price.
- STL’s topline and bottom line is unstable, if they are unable to maintain or increase sales and profit, then it may have an adverse effect on their business operations and growth strategies.
Financial Performance
| Particulars | FY22 | FY23 | FY24 | Q1FY25 |
| Sales (Rs. mn) | 31853 | 33292 | 29575 | 7811 |
| EBITDA (Rs. mn) | 5376 | 2595 | 2266 | 764 |
| EBITDA margin % | 16.88% | 7.80% | 7.66% | 9.79% |
| Profit (Rs. mn) | 3554 | 1527 | 1338 | 501 |
| Profit Margin % | 11.16% | 4.59% | 4.53% | 6.41% |
| ROE % | 43.95% | 14.36% | 11.09% | 15.41% |
| ROCE % | 35.83% | 15.54% | 11.80% | 14.04% |
| Net debt / EBITDA (x) | 0.69 | 1.05 | 1.54 | 2.05 |
Peer Comparison based on FY24 Financials
| Particulars | Sanathan Textiles Ltd | KPR Mill Ltd | Vardhman Textiles Ltd | Indo Count Industries Ltd | Filatex India Ltd | Garware Technical Fibres Ltd |
| Sales (Rs. mn) | 29575 | 60597 | 95047 | 35571 | 42859 | 13256 |
| EBITDA (Rs. mn) | 2266 | 12367 | 10159 | 5590 | 2379 | 2716 |
| EBITDA margin % | 7.66% | 20.41% | 10.69% | 15.72% | 5.55% | 20.49% |
| Profit (Rs. mn) | 1338 | 8054 | 6367 | 3379 | 1107 | 2082 |
| Profit Margin % | 4.53% | 13.29% | 6.70% | 9.50% | 2.58% | 15.70% |
| ROE % | 11.09% | 19.97% | 7.14% | 17.41% | 9.61% | 18.50% |
| ROCE % | 11.80% | 19.78% | 8.32% | 16.84% | 11.31% | 20.83% |
| Net debt / EBITDA | 1.54 | 0.88 | 1.73 | 1.47 | 0.96 | -0.11 |
Valuation
Sanathan Textiles, a polyester yarn manufacturer and a global supplier of Cotton Yarns, Polyester Yarns and Yarns for Technical Textiles. Having 3 yarn business verticals gives them the unique opportunity to offer a wide variety of yarns that are used by various sectors and industries, across applications and end-uses. At the upper end of the price of Rs. 321, the issue quotes at PE of ~14x based on FY25E annualized earnings. The issue looks fully priced. One can Avoid this issue.
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