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Industry : Textile

Sanathan Textiles Limited View all IPOs

Price Band

Rs 305 – Rs 321

Sanathan Textiles Limited is going public with a fresh issue and an offer for sale. The issue opens on 19th December 2024.

MOJO CALL

Why

Avoid

MOJO CALL

Avoid

Neutral

Declining revenue from exports

The company has experienced a sharp 69% decline in export revenues between FY2022 and FY2024. During this period, the contribution of exports to total revenues dropped from 13% to 4.4%. The company attributes this decline to rising competition from Asian countries like Bangladesh and Vietnam, which have become preferred destinations for textiles due to favorable trade agreements with textile-importing nations.

High dependence on a few suppliers

The company procures raw materials like purified terephthalic acid (PTA) and mono ethylene glycol (MEG) for producing polyester yarns, and Industrial Yarn (IDY) chips for manufacturing industrial and technical yarns. In Q1 FY2025, the top supplier accounted for 22.6% of the total raw material purchases, while the top-5 and top-10 suppliers contributed 52% and 62%, respectively. This high reliance on a limited number of suppliers reduces the company’s bargaining power.

Maximized usage of facility

The company operates a manufacturing facility in Silvassa with an installed capacity of 223,750 MTPA, which has been running at over 100% capacity utilization for the past three years. Additionally, the company is in the advanced stages of commissioning a new facility in Punjab, expected to boost production by 172%, increasing output from 550 tonnes per day to 1,500 tonnes per day.

Valuations

Based on the FY2024 financials, the company is asking for a P/E ratio of 20x and a market cap-to-sales ratio of 0.92x. However, declining revenues driven by rising competition from neighboring countries and limited product differentiation raise concerns about its growth potential. As a result, we recommend avoiding this issue.

Issue Details

Issue Opens	19th December 2024
Issue Closes	23rd December 2024
Price Band	Rs 305 – Rs 321
Issue size (Upper Band)	Rs. 550 Cr
Issue Type	FRESH ISSUE & OFFER FOR SALE
Market cap (based on upper band)	Rs. 2709.37 Cr
Sales- March 2024 (Rs./Crs)	2957.5 Cr
Net Profit - March 2024 (Rs./Crs)	133.85 Cr
Industry	Textile
Promoters	PARESH VRAJLAL DATTANI, AJAY VALLABHDAS DATTANI, ANILKUMAR VRAJDAS DATTANI, DINESH VRAJDAS DATTANI, NIMBUS TRUST, D&G FAMILY TRUST, A&J FAMILY TRUST AND P&B FAMILY TRUST
Lead Manager	DAM Capital and ICICI Securities

Objective of the Issue

Details

Objectives of the Issue Offer for sale – Rs 150 cr & Fresh Issue – Rs 400 cr

The Objectives of the Offer are for:
1. Repayment or pre-payment, in full or in part, of certain outstanding borrowings availed by the company – Rs 160 crore
2. Investment in a subsidiary - Sanathan Polycot Private Limited, for repayment and/ or pre-payment, in full or part, of certain borrowings availed – Rs 140 crore
3. General corporate purposes – Rs 100 crore

List of Shareholders Selling Their Stake

Name	Type	Value of Shares (in Rs)	% of OFS
Paresh Vrajlal Dattani	Promoter	30,93,70,000	21%
Ajay Vallabhdas Dattani	Promoter	34,67,50,000	24%
Anilkumar Vrajdas Dattani	Promoter	34,67,50,000	24%
Dinesh Vrajdas Dattani	Promoter	37,18,80,000	25%
Vajubhai Investments	Promoter Group	25,00,000	0%
Vallabhdas Dattani HUF	Promoter Group	25,00,000	0%
Sonali Ajaykumar Dattani	Promoter Group	2,25,00,000	2%
Dattani Dineshkumar Vrajdas HUF	Promoter Group	25,00,000	0%
Beena Paresh Dattani	Promoter Group	3,50,00,000	2%
Anilkumar Vrajdas Dattani HUF	Promoter Group	1,75,00,000	1%

Business Operations

About Company

Sanathan Textiles is involved in the production of polyester yarns, cotton yarns, and industrial & technical fibers, which are used across various sectors, including automotive, healthcare, construction, sports and outdoor, and protective clothing.

The company manufactures over 3,200 types of yarns and offers more than 45,000 SKUs. It also provides a wide range of value-added products, such as dope-dyed, superfine/micro, functional, industrial and technical yarns, cationic dyeable yarns, and specialty yarns customized to meet specific customer requirements.

The company operates a manufacturing facility located at Silvassa with a total installed capacity of 223,750 MTPA across the three verticals of yarn.

The company serves established players in textiles including Welspun India, Page Industries, Premco Global, D’Décor Home Fabrics, and Wildcraft India, among others.

Segment Revenue Breakup

Revenue Breakdown by Segment:
Segment	Q1 FY2025	FY2024	FY2023	FY2022
Polyester Yarn products	77%	77%	78%	77%
Cotton Yarn products	19%	19%	19%	20%
Industrial and Technical Textiles Yarns	4%	4%	3%	3%

Financials

Financial Overview

The company’s revenue de-grew by 7% between FY2022 and FY2024 and stood at Rs 2,958 crore for FY2024. For Q1FY2025, the revenues stood at Rs 781 crore.

In FY2024, the company’s Return on Net Worth stood at 11.09%, down from 14.36% and 43.95% recorded in FY2023 and FY2022, respectively.

For Q1 FY2025, operating margins for the company stood at 9.79%, up from 7.66% and 7.80% recorded in FY2024 and FY2023, respectively.

Consequently, profit margins for Q1 FY2025 stood at 6.41%, up from 4.53% and 4.59% recorded in FY2024 and FY2023, respectively.

The company has been able to generate positive cash flow from operations for the past 3 years. The company reported a CFO of Rs 192 crore in FY2024. For Q1 FY2025, company generated a CFO of Rs 30 crore.

As of 30th June 2024, the company had debt (incl. lease liabilities) of Rs 645 crore.

Financial Performance (Rs/crore)

Rs./Crs	Q1 FY25	FY 24	FY 23	FY 22
Revenue	781.13	2957.50	3329.21	3185.32
Net Profit	50.07	133.85	152.74	355.44