Rangoli Tradecomm coming with an IPO to raise upto Rs 45 crore

Rangoli Tradecomm

• Rangoli Tradecomm has come out with an initial public offering (IPO) of 21,81,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 207 per equity share.
• The issue will open on March 9, 2021 and will close on March 12, 2021.
• The shares will be listed on SME Platform of BSE.
• The share is priced 20.7 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Fedex Securities.
• Compliance Officer for the issue is Bharat Gangani.

Profile of the company

The company is currently engaged in the business of trading of Polymers and Textile products. Polymer trading business includes commodity polymer, engineering polymer & chemicals and additives while Textile trading business includes trading of yarns, threads and fabrics. Its Registered Office is situated at Kolkata in the state of West Bengal and has 2 (two) corporate offices situated at Mumbai and Gurgaon. The company has its presence in North India, Delhi, Haryana, Himachal Pradesh, Rajasthan and Punjab & also covering western regions of Gujarat and Maharashtra.

The company functions on two business models for supplying Polymers and Textile products;

• Business 2 Business model (B2B).
• Business to Customer model (B2C).

The company supplies raw material to yarn and fabric manufacturer(s) on credit basis depending on the vendor creditability and procure the same on advance or cash on delivery basis due to which it gets cash discount as well as volume benefit. In some cases, the company purchases final product of the same factory and sell it to traders, semi-wholesellers and garment manufacturer. 

Proceed is being used for:

• Meeting working capital requirements.
• General corporate purposes.

Industry overview

India’s textiles sector is one of the oldest industries in the Indian economy, dating back to several centuries. The Industry is extremely varied, with hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital-intensive sophisticated mills sector on the other end. The decentralized power looms/ hosiery and knitting sector forms the largest component in the textiles sector. The close linkage of textiles industry to agriculture (for raw materials such as cotton) and the ancient culture and traditions of the country in terms of textiles makes it unique in comparison to other industries in the country. India’s textiles industry has a capacity to produce wide variety of products suitable for different market segments, both within India and across the world.

Textiles contributed 18.0 percent of manufacturing and 2.0 percent of GDP in 2017-18. The share of textiles and clothing in India’s total exports was 12 percent in 2018-2019. The sector is the biggest employer after agriculture and it employs 4.5 crore people directly and 6 crore people in allied sectors. Estimated man-made fibre and filament yarn production increased by 4 percent and 8 percent, respectively, during April-August 2019. Estimated cloth production by mill sector declined by about 4 percent during April-August 2019. Exports of textile and clothing products including handicrafts from India have increased to $40.4 billion in 2018-19 from $ 39.2 billion in 2017-18 registering a growth of 3 percent.

India’s textiles industry contributed 7% of the industry output (in value terms) in FY19. It contributed 2% to the GDP of India and employed more than 45 million people in FY19. The sector contributed 15% to India’s export earnings in FY19. Textiles industry has around 4.5 crore employed workers including 35.22 lakh handloom workers across the country. The domestic textiles and apparel market stood at an estimated $100 billion in FY19. The production of raw cotton in India is estimated to have reached 36.04 million bales in FY20. During FY19, production of fibre in India stood at 1.44 million tonnes (MT) and reached 1.60 MT in FY20 (till January 2020), while that for yarn, the production stood at 4,762 million kgs during same period.

Pros and strengths

Brand image: The company’s brand name is what differentiates it in the market place. It gives a competitive edge to the company with other brands in the market. Its brand image has helped company to form customer base. Its Brand image has helped it to reach the company’s strategic vision and mission.

Collaborative and experienced work force: The workforce is the backbone and value-addition into the productivity and creativity of the company. The employees are enthusiastic to accept new challenges which help the Organization to grow. The management with years of experience in the industry and understanding of nature of work allows others to learn from them. Hence, it enhances the efficiency and renders quality and quantity output.

Widespread Geographical reach: The company has sales representatives located at different regions in the country to channelize the strategic marketing plan. Its distribution network enables the company to enhance customers base and establish new relationships with prospective customers so that the customer base can be expanded and new territory can be explored. 

Risks and concerns

High volume and low margin business: The business in which the company is engaged is a high volume and low margin business. Its inability to regularly grow its turnover and effectively execute its business plans and process could lead to lower profitability and may adversely affect its business results and financial conditions. Due to the nature of the products which it sells, it may not be able to charge higher margin but on few products it may charge high margins. Its business is heavily reliant on its ability to increase the turnover and manage its key processes including the procurement of traded goods, timely sales, order execution etc. As part of its growth strategy, it aims to improve its functional efficiency and enhance its business operations. Its growth strategy is subject to and involves risks and difficulties, many of which are beyond its control and accordingly there can be no assurance that it will be able to implement its strategies or growth plans or complete them within the timelines.

Significantly dependent on top ten customers: The company’s top ten customers contribute approximately 90% of its revenue for the period March 31, 2020 respectively. Any decline in its quality standards, growing competition and any change in the demand for its services by these customers may adversely affect its ability to retain them. The company cannot assure that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability. However, the composition and revenue generated from these clients might change as it continues to add new clients in normal course of business.

Dependent on certain brands for promotion of product: The company is engaged in the business of trading of fabrics, yarns and fibres and PVC. It is dependent on the brands for promotion of products sold by it. The owner of the brands is primarily responsible for consumer marketing and brand promotion. A decrease in marketing efforts and expenditure by brand owners, in contribution to their marketing plan or in their commitment to the development and introduction of products may adversely affect its business prospects, results of operations and financial condition.

Outlook

Incorporated in 2009, Rangoli Tradecomm is primarily engaged in the buying and selling trading activities of Polymers and Textile products. Its Polymer business segment includes commodity polymer, engineering polymer & chemicals and additives whereas the Textile segment comprises products such as yarns, threads, and fabrics. The company’s logistics capabilities have aided towards competitive advantage and have been modified over the period of time to align with dynamic market conditions such as faster distribution services. Development in its logistics capabilities have made possible to reach out its customers along with rapid growth and geographical expansion.  On the concern side, the company faces a tough competition from the wholesalers and direct retailers in the business which it operates, who have longer operating histories, strong customer base, established relationships with the suppliers and better brand recognition. The company requires certain approvals, licenses, registrations and permissions for operating its business. Such approvals, licenses, registrations and permissions must be maintained / renewed from time to time and it may have to comply with certain conditions in relation to these approvals.

The company is coming out with an IPO of 2181000 equity shares of Rs 10 each at a fixed price of Rs 207 per equity share to mobilize Rs 45.15 crore. On the performance front, the company is in business of trading of Polymers and Textile products. However, no revenue was generated in FY 2019 and FY 2020. The other Income comprises of fluctuation of foreign exchange, commission and profit of sale of investment. In the FY 2018 it was Rs 0.12 lakh which was increased to Rs 352.2 lakh for the FY 2019. PAT decreased from Rs 0.01 lakh for the FY 2018 to Rs. 292.55 lakh in FY 2019. The profit after tax was increased as compared to FY 2018 on account of increase in total revenue. The company aims to provide comprehensive solutions under one roof to its various customers including manufacturers ranging from supplying all kinds of raw materials, fabrics, yarns and polymers for the productions of their goods. This helps it to provide convenience to its customers. Besides, the company, sights to focus on providing fair price to its customers by excluding the margins of the middlemen resulting into price advantage for its customers. This would help it company to built-up a customer relationship.