LE Merite Exports
LE Merite Exports is coming out with a 100% book building; initial public offering (IPO) of 64,00,000 shares at a fixed price of Rs 75 per equity share.
The issue will open on April 25, 2022 and will close on April 28, 2022.
The shares will be listed on NSE Emerge Platform.
The share is priced 7.50 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 Sarita Mishra.
Profile of the company
LE Merite Exports is an ISO 9001:2015 certified and engaged in manufacturing and trading of textile products namely cotton yarn, greige fabric and finished fabric for domestic and export sales. It deals in diversified product portfolio with capability to supply compact cotton yarn varying from counts NE 16/1 to NE 32/1 & NE 16/2 to NE 32/2 combed carded & double yarn that are used in various forms and for varied end uses. It also export sustainable - ecofriendly organic yarn and fabric to international textile and garment manufacturers. The company has been recognized as Three Star Export House by the Director General of Foreign Trade with a certificate valid from September 30, 2015 to September 29, 2020. Further, the company had made an application on September 29, 2021 for renewal of certificate.
The company is presently operating Unit 3 which is Located at MIDC (Plot No. B1), Jalgaon Arvi, Post Kamanapur (Ghusali), Taluka Dhamangaon Rly, Dist Amravati - 444709, Maharashtra, India. The company had entered into formal agreement for the use of the said premise. Unit 3 comprises of factory building, Godowns and other ancillary construction. Unit 3 is well equipped with Raw Material - Cotton Bales, Process - Blowroom, Carding, Draw frame, Speed frame, Ring frame, Link coner, YCP Finished Goods - Yarn and Spinning Plant Machineries. Unit 3 is engaged in manufacturing of Cotton Yarn with an installed capacity of 6000 MTPA.
The company is certified by some of the most reputed global certification agencies for its quality, environment consciousness, its processes and customer services such as ISO 9001:2015, OEKO-TEX Standard 100, Global Organic Textile Standard (GOTS) for 100% Organic cotton yarn and greige fabric. The company is also a registered member of Better Cotton Initiative (BCI) etc. The company is also contributing towards CSR activities as per the requirements of Companies Act, 2013.
Proceed is being used for:
Industry Overview
Global apparel consumption was $1.6 trillion in 2019-20 in which EU, China and Japan were the largest consumer countries. However, in 2020-21 global apparel consumption declined by 22% from 2019-20 to become $1.2 trillion, due to the pandemic. EU-27 was the largest apparel consumer market worth $219 billion, followed by USA, China, and Japan, together constituting approximately 50% of the global apparel market consumption. The other major apparel markets include India, Brazil and Canada, accounting for an additional 9% share.
Indian domestic textile and apparel market is estimated to be $99 billion in 2021-22 which has recovered 30% from 2020-21. Before the pandemic, India’s domestic textile and apparel market was growing at a CAGR of about 9% measured since2010, nevertheless, the market is expected to recover and continue with 10% growth post pandemic and reach $190 billion by 2025. Textile and apparel sector are a major contributor to India’s total export earnings. Currently, it contributes to 11% of total export earnings of $276 billion. India’s T&A exports were $31 billion. In 2020-21 and are estimated to be $40 billion. in 2021-22, a growth of approx. 28%. The exports are expected to reach $60 billion. In 2025-26, growing at a CAGR of 10% from 2021-22.
Apparel market has shown promising recovery in the post COVID months. After the drastic drop of exports in April 2020 due to COVID induced nation-wide lockdown, the apparel market has been showing constant recovery and is expected to grow further in the future. In the first quarter of the financial year, Q1 FY22 the India’s exports has registered a good recovery across all the textile & apparel sector where fiber and yarn performed the best. Overall T&A exports have shown a growth CAGR of 6% in Q1 FY22 compared to Q1 FY20, recovering from the extreme low exports seen in Q1 FY21. Fiber and Yarn witnessed the highest CAGR of 69% and 26% respectively in Q1 FY22 compared to Q1 FY20, this is largely driven by the recent increase in cotton fiber demand and due the impact of the recent ban by USA on Xinjiang, China cotton.
Pros and strengths
Low capex operational model: The company has adopted capital asset light model by taking operational control over cotton yarn spinning mills through long term lease, operational and management arrangement and sole selling agents. The company has taken Unit 2 on lease, cotton yarn spinning mill from Maharashtra State Co-operative Bank Limited. The company has undertaken Operation and Management of Unit 1 facility having TFO Doubling process activities. The company has entered into a formal arrangement for Unit 3.
Long standing association with low customer concentration: The company has established long-standing relationships with few of the leading customers who are manufacturers of / suppliers to the global consumer brands which has been possible due to decades of association, delivery of quality products, made to order products, meeting the committed delivery schedules and by maintaining high quality standards. As on December 31, 2021, it had more than 155 customers and the share of the top 10 customers and the top 5 customers in the total revenue was 35.46% and 21.68%, respectively. The company’s long-term association with key customers also offers significant competitive advantages such as revenue visibility, industry goodwill and also allows it to up-sell and cross-sell its diverse range of products. For the nine months period ended on December 31, 2021, the company supplied to customers spanning 21 countries which has offered it insulation from business risk since the customers are from diverse geographies. Its diversified customer base also aids in reducing its dependence on a single group of geographies and helps in mitigating the effect of economic and industry-specific cycles.
Diversification into organic and sustainable eco-friendly textiles: The company has been granted authorization according to Standard 100 by OEKO-TEX to use the Standard 100 by OEKO-TEX for Raw Yarns made of 100% Cotton, Combed, Carded, Open Ended and Compact and for Greige Woven Fabric made of 100% Cotton exclusively produced from material certified according to Standard 100 by OEKO-TEX. Additionally, the company has got certified the facilities of Jawahar Sahakari Soot Girni and Charuta Textiles, suppliers to the company under Global Organic Textile Standard (GOTS) version 6 for 100% Organic cotton yarn and greige fabric. Similarly, the company has got certified the facilities of Jawahar Sahakari Soot Girni and Charuta Textiles, suppliers to the company under Global Recycled Standard (GRS) version 4. The focus of the company on organic and sustainable products will help in expanding its business globally as the demand of organic textile products is increasing globally.
Risks and concerns
Maximum revenue comes from few customers: The company is dependent on a limited number of customers for a significant portion of its revenues. The revenue contribution by top 10 customers for the Financial year March 31 of 2019, 2020 and 2021 and for the nine months period ended December 31, 2021 remained Rs 7,998.72 lakh, Rs 10,289.56 lakh, Rs 8709.75 lakh and Rs 9362.94 lakh, respectively. The loss of any of the customers, the deterioration of their financial condition or prospects, or a reduction in their demand for its products could adversely affect business, results of operations and financial condition.
No long-term agreement for supply of cotton: The company is, to a major extent, dependent on external suppliers for its raw materials requirements and it does not have any long-term supply agreements or commitments in relation to the same or for any other raw materials used in its manufacturing process. Consequently, it is exposed to price and supply fluctuations in cotton and other raw materials, and these fluctuations may adversely affect its ability to obtain orders and/or to execute them in a timely manner, which would have a material adverse effect on its business, results of operations and financial condition.
Stiff competition from organized and unorganized players: The State of Maharashtra and especially Bhiwandi is a hub for the Textile Industry and this has resulted in huge competitive pressures. It may have to confront pressures in respect of pricing; product quality etc. from the clients and such pressures may put strain on its profit margins which may consequently affect the financial position of the company. Competition emerges not only from the organized sector but also from the unorganized sector and from both small and big players. It is also in direct competition with the leading processing house in India as well as the local units. Its Competitiveness is also measured by the technology it adopts as the textile industry is rapidly growing in India and in International Markets. Some of its clients might export their final products which in turn compel it to meet international standards also. The company’s inability to compete with this intense competition; local, national and international will have material adverse impact on the company's financial position.
Outlook
Le Merite Exports Private Limited is engaged in the manufacturing and trading of textile products such as cotton yarn, greige fabric and finished fabric. The company conducts business through three verticals, consisting of manufacturing of yarn, trading of yarn, and trading of greige and finished fabrics. On the concern side, the company derives a significant portion of its revenue from a few customers and the loss of one or more such customers, the deterioration of their financial condition or prospects, or a reduction in their demand for its products could adversely affect its business, results of operations and financial condition.
The company is coming out with a maiden IPO of 64,00,000 equity shares at a fixed price of Rs 75 per share to mobilize Rs 48 crore. On performance front, in fiscal 2021, the company’s revenue from operations for the period ended December 31, 2021 was Rs 37004.08 lakh which is about 99.78% of the total revenue out of which Rs 35867.84 lakh comes from sale of its products and Rs 1136.24 lakh from other operating revenue. Moreover, profit after tax for the period ended December 31, 2021 is Rs 1586.91 lakh which is about 4.28% of the total revenue. Going forward, the company intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing the distribution reach of its products in different parts of the country and also around the world. It proposes to increase its marketing and sales team which can focus on different geographies and also maintain and establish relationship with customers.
