From fabric to garment
Business Standard, India
PENNY WISE
Jitendra Kumar Gupta / Mumbai February 12, 2014
Indus Fila is expanding its garment capacity to meet the rising demand in the international market through an IPO.
The manufacturer and exporter of fabric and apparel, Indus Fila (IFL), is entering the capital market with an issue of Rs 89.6 crore at a price band of Rs 170-185. The company is aggressively increasing its existing capacities with an investment of about Rs 163.6 crore.
Indus Fila, which drives about 90 per cent of its revenue from the export market is looking at a turnover of Rs 240 crore in FY07 and Rs 350 crore in FY08.
The company is aiming to increase its export significantly and tap the huge demand coming in from its existing clients in the US and the UK markets.
The company
Indus Fila is a vertically integrated player, with greater emphasis on design excellence. Its final garment products mainly men’s shirts and ladies tops is outsourced by some of the well-know international clients such as Van Heusen, Nike, Izod, Arrow and Chaps.
The company is optimistic as demand is rising from global players. To ensure execution of new orders and prepare it for the growing long-term demand in the industry, the company is expanding capacity in two phases, which will be completed by FY08.
After the expansion, the company will have a capacity to make 42,000 garments per day compared to its current capacity of 9,000 per day. Its processed fabric capacity will increase to 100,000 metre per day from 60,000 metre per day.
It will also invest in establishing a set up and a team for product development and design. This will help the company to keep its high-end clients satisfied in a changing fashion scenario and stay ahead in competition.
With this expansion in action, the company expects to improve the current revenue mix. Apparel business, which was merely 8.26 per cent of total revenues in FY05, is expected to go up to 55 per cent of the total revenue in a few years.
As the garments business gives higher margin compared to fabric, the growing focus on apparel business coupled with a rise in volumes will further ensure higher margins and higher growth in bottom line. At present, it has operating margins of about 21 per cent, which could improve by another 3-4 per cent over the next two to three years.
Valuations
At the offer price of Rs 170-185, the issue is offered at a P/E multiple of 15-16 times of its post issue annualised earnings of FY07 and 9-10 times of estimated FY08 earnings.
Compared to the average industry P/E of 26 times, the valuations are attractive. It also enjoys better operating margins of 21 per cent and has an estimated return on equity of about 18-19 per cent.
Moreover, the company is in growth phase, expanding its reach and capacities one step higher on the value chain–in the growing apparel market.
Issue Opens: 12February, 2014
Issue Closes: 14 February, 2014
