Swaraj Suiting coming with an IPO to raise around Rs 10.68 crore

Swaraj Suiting

• Swaraj Suiting is coming out with an initial public offering (IPO) of 19,08,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 56 per equity share.
• The issue will open on March 15, 2022 and will close on March 17, 2022.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 5.60 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Finshore Management Services.
• Compliance Officer for the issue is Rahul Kumar Verma.

Profile of the company

Swaraj Suiting was set up in the year 2003 and was initially engaged in the manufacture of cotton/synthetic fabrics but later shifted to trading in synthetic fabrics in 2009 by selling off its Sulzer weaving looms to an associate concern, Swaraj Sulz Private Limited. The company re-entered into manufacturing of Cotton and Synthetic fabrics in 2011 and commenced commercial operations in January 2013. The company’s Promoters Mohammed Sabir Khan, Samar Khan and Nasir Khan have a combined experience of more than 25 years in Textile Industry and have sound knowledge of production process, marketing, finance and all kind of other commercial activities related to the textile industry. The company is presently, primarily engaged in the Manufacturing of Grey Fabric involving Cotton and Synthetic, Trading of Yarn, Grey fabric and Finished fabric and Weaving on Job work basis.

The company’s existing manufacturing unit is located at F-483 to F-487, G1-475 to 476, RIICO Growth Centre, Hamirgarh, Bhilwara, Rajasthan - 311025 which is also its Registered Office. In this unit, it has installed 123 Airjet looms which translates into 1.50 million meters of cotton & synthetic fabric per month translating into 225 Lakh Meters Per Annum (LMPA). The company has strategically planned the vertical integration of its operations to the next level of supply chain, aiming to lower production costs and increase the efficiency of the company.

In view of this, the company is in advanced stages of setting up a project in the district of Neemuch, Madhya Pradesh (MP), which is both the backward and forward integration of its existing activity. The commencement of commercial production shall be between March - April, 2022. This unit will manufacture premium quality denim fabric and tap new markets. The new manufacturing unit in MP is a denim processing plant with annual capacity of converting approximately 21.75 million metric meters of denim fabric.

Proceed is being used for:

• Meeting the working capital requirements for its new expansion of production capacity at Neemuch, Madhya Pradesh.
• Meeting the issue expenses.
• 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 decentralised 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.

India’s Textiles industry has around 4.5 crore employed workers including 35.22 lakh handloom workers across the country. The industry contributed 7% to the industry output (by value) in 2018-19. The Indian textiles and apparel industry contributed 2% to the GDP, 12% to export earnings and held 5% of the global trade in textiles and apparel in 2018-19. Exports of textiles (RMG of all textiles, cotton yarns/ fabs./ made-ups/ handloom products, man-made yarns/ fabs./ made-ups, handicrafts excl. handmade carpets, carpets and jute mfg. including floor coverings) stood at $22.89 billion between April 2021 and October 2021. The Indian textiles market is expected to be worth more than $209 billion by 2029. Cotton production is expected to reach 37.10 million bales and consumption is expected to reach 114 million bales in FY21, 13% growth over the previous year. The production of raw cotton in India is estimated to have reached 35.4 million bales in FY20.

India is working on major initiatives, to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on rise. Government is supporting the sector through funding and machinery sponsoring. Top players in the sector are attaining sustainability in their products by manufacturing textiles that use natural recyclable materials. The future for the Indian textiles industry looks promising, buoyed by strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced a rapid growth in the past decade with the entry of several international players like Marks & Spencer, Guess and Next into the Indian market. High economic growth has resulted in higher disposable income. This has led to rise in demand for products creating a huge domestic market. 

Pros and strengths

Locational advantage: The company’s Registered Office and factory is situated at well-developed industrial area, with all the infrastructure facilities and both skilled and unskilled manpower are available at competitive cost. Moreover, its factory location is well connected to Bus Station, State and National Highways. All infrastructure facilities like availability of skilled labour, raw material, technology; Communication, electricity, transportation etc. are easily available due to extensive industrialization in the area. The production facility of the company is located in the close vicinity of the textile hub i.e., the Industrial town of Bhilwara, which is a famous hub for textiles in India. Hence, the company is having easy access to National and state highway, resulting in easy transportation of goods, so production and procurement, becomes hassle free.

Strong supplier base for sourcing of raw materials: The company has developed a robust supply chain for the sourcing of a wide variety of products that it offers to its customers. While, it does not have any long-term contracts with any of its raw material suppliers / products, however, it has maintained good relationships with its major suppliers. The company’s good relationships with its suppliers enable it to obtain good quality products within the prescribed timelines. It continually strive to maintain strong relationships with its suppliers in order to derive better insight into the markets for its raw materials, which helps it to manage its raw material supply chain, resulting in greater predictability of supply and, consequently, a greater ability to meet production schedules and achieve on-time delivery for its customers. The company has successfully leveraged the past experience of its management in maintaining effective supplier relationship ensuring uninterrupted supply chain management.

Customer centric business model: The company focus on attaining highest level of customer satisfaction. Understanding the consumer is one of the most important skills required to be successful in this business. The progress to be achieved by the company will be largely due to its ability to address and exceed customer satisfaction.

Risks and concerns 

Significant portion of revenue depends on limited customers: While the company is constantly striving to increase its customer base and reduce dependence on any particular customer, there is no assurance that it will be able to broaden its customer base in any future periods or that its business or results of operations will not be adversely affected by a reduction in demand or cessation of its relationship with any of its major customers. In 2021, top 5 customers contributed around 50% of the total revenue, while it was around 45% and 44% in 2020 and 2021 respectively. The loss of any significant customer may have a material adverse effect on the company’s business and results of operations.

Highly dependent on Top 10 suppliers: The company is highly dependent on Cotton Yarn and Synthetic Yarn, which are the prime raw material for Grey/Denim Textile. It procures its supply of raw materials from various suppliers depending upon the price and quality of raw materials. However, its Top 10 supplier contributes significantly to supply of raw materials. Any disruption of supply of raw materials from these suppliers will adversely affect its operations.

High working capital requirements: The company’s business requires a significant amount of working capital which depends upon timely realization of its debtors and availability of cash. Any delays and/or defaults in customer payments could result in increase of working capital requirement for which it may have to make additional funding at high cost resulting into reduction of company’s profit. The company’s inability to meet its working capital requirements can adversely impact its business.

Outlook

Swaraj Suiting Limited manufactures, produces, and supplies textile products. The firm mainly operates in three key business verticals; Manufacturing of Grey Fabric, Weaving on Job Work basis, and Trading of Finished Fabric, Grey Fabric, and Yarn. Initially, the company was engaged in the manufacturing of cotton/synthetic fabrics but later shifted to trading in the synthetic fabric in 2009 by selling off its Sulzer weaving looms to an associate concern, Swaraj Sulz Private Limited. The business re-entered into manufacturing Cotton and Synthetic fabric in 2011 and started commercial operations in January 2013. On the concern side, the company’s business is substantially dependent on certain key customers from whom it derives a significant portion of its revenues. The loss of any significant customer may have a material adverse effect on its business and results of operations. Moreover, the company is highly dependent on its Top 10 suppliers for uninterrupted supply of Raw-Materials. Any disruption in supply of raw materials from these suppliers will adversely affect its operations.

The company is coming out with a maiden IPO of 19,08,000 equity shares of Rs 10 each at a fixed price of Rs 56 per share to mobilize around Rs 10.68 crore. On performance front, during the FY 2020-21 the revenue from operation and other income of the company decreased to Rs 6021.56 lakh as against Rs 8065.53 lakh in the FY 2019-20. The said decrease in turnover is due to the fact that the turnover of FY 2019-20 is based on consolidated financials with its subsidiary Modway Suiting Private Limited (formerly Cyan Textile Private Limited). Meanwhile, the restated Profit after Tax for FY 2020-21 has decreased to Rs 267.47 lakh (4.44% of total revenue) as against Rs 354.32 lakh (4.39% of total revenue) in the FY 2019-20. Currently, the company is manufacturing various types of Fabric ranging from 9 to 14 Oz/sqyd. with Open End/ Ring Spun Yarns, Slub Yarns, Multi Count, Cottons and Polyester Spandex, moving forward, the company intends to manufacture high value Denim textile which are below 9 Oz/sqyd. which will enable the company to have higher margins. Moreover, the company is operating in 4 states viz. Rajasthan, Gujarat, Madhya Pradesh & Maharashtra through its Dealer Network. In future, the company intends to enter and capture new market in Bangalore, Chennai, Ludhiana & Exports Markets which will increase its geographical presence thereby increasing its customer base.