Mumbai-based Sanathan Textiles, a key player in the Indian textile landscape specializing in polyester, cotton, and technical yarns, is set to launch a ₹550 crore IPO. This significant step involves a fresh issue of ₹400 crore and an offer for sale of ₹150 crore, marking a strategic move by the promoters to reduce their stake from 100% to 79.7%. The company intends to utilize ₹300 crore of the proceeds to strengthen its financial position by repaying existing borrowings.
Polyester reigns supreme in Sanathan’s product portfolio, contributing a substantial 77% of its overall revenue. Cotton yarn accounts for 18%, while the emerging segment of technical textiles contributes 5%. With a commanding 5% market share in India’s dynamic polyester yarn industry, the company operates a state-of-the-art manufacturing facility in Silvassa, boasting an impressive annual installed capacity of 2.23 lakh tonnes.
Sanathan’s product range is extensive, encompassing over 3,200 active yarn varieties across more than 45,000 SKUs. Notably, value-added products, such as dope-dyed yarn, superfine yarn, functional yarn, and technical yarns, drive more than half of its revenue, highlighting the company’s focus on innovation and catering to evolving market demands.
Navigating the Weave of Growth and Challenges
Sanathan Textiles has demonstrated a history of revenue growth, although it has experienced some volatility. FY23 witnessed exceptional growth fueled by pent-up demand following the pandemic, however, a decline in yarn prices led to an 11% revenue dip and a 12% reduction in net profit in FY24. The company’s EBITDA margin for FY24 stood at 7.6%, slightly below its historical average of 10%, while its ROCE was recorded at 11.8%.
To meet the surging demand for textiles in the Indian market, Sanathan has ambitious expansion plans. With greenfield projects and additional facilities planned in Punjab and Silvassa, the company aims to significantly enhance its production capacity by doubling it by FY26. Currently, the company operates at a high capacity utilization rate of 95%, positioning it well to capitalize on the projected 6-7% CAGR growth within India’s vibrant textiles and apparel industry.
Valuation and the Road Ahead
At an implied market capitalization of ₹2,709 crore, the IPO values the company at 0.86 times annualized revenue and 13.5 times annualized FY25 earnings. While these valuations appear compelling, investors must carefully consider potential risks. Fluctuations in crude oil prices directly impact yarn prices, geopolitical uncertainties can significantly influence textile demand, and intense competition from other established yarn manufacturers poses a challenge.
Long-term investors with a keen interest in the Indian textile sector and a focus on family-run, integrated businesses may find the Sanathan Textiles IPO an intriguing investment opportunity. However, thorough due diligence and a comprehensive understanding of the inherent risks are crucial before making any investment decisions.
