Jakharia Fabric Ltd. (JFL) is engaged in the business of dyeing and processing of fabrics on job work basis for other textile companies as well as for own manufacturing product lines.
Business
The Company procures Grey Fabric from the market and further dyes and finishes the same as per the client’s requirements on the basis of quality of the fabric, sizing requirements etc.
JFL also outsources certain processes like weaving of the fabric and printing as per the demand of the customers based on the quality required. It manufactures and processes the fabric especially suitable for Shirting. JFL is in process of setting up an additional processing facility at Plot No. J1/1, MIDC Tarapur Industrial Area, Boisar, Palghar – 401 506 for colouring, dying, printing and finishing and processing working or manufacturing of cotton, linen, wool synthetics and various other textile products.
The Issue
To part finance setting up of processing unit and general corpus fund needs, JFL is coming out with a maiden IPO of 1092000 equity shares of Rs. 10 each at a fixed price of Rs. 180 per share to mobilize Rs. 19.66 crore.
Issue opens for subscription on 29.06.18 and will close on 03.07.18. Minimum application is to be made for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 26.87% of the post issue paid up capital of the company.
Issue is solely lead managed by Aryaman Financial Services Ltd. Bigshare Services Pvt. Ltd. is the registrar to the issue. Having issued initial equity at par, it raised further equity in the range of Rs. 30 (August 2014) and Rs.150 (March 2018) per share and has also issued bonus shares in the ratio of 1 for 2 (December 2011).
Average cost of acquisition of shares by the promoters is Rs. 3.85, Rs. 7.81 and Rs. 9.56 per share. Post issue, JFL’s current paid up capital of Rs. 2.97 cr. will stand enhanced to Rs. 4.06 cr. As on 31.12.17 its debt ratio was 1.03: 1.
Performance
On performance front, for last four fiscals, JFL has posted turnover/net profits of Rs. 75.83 cr. / Rs. 3.57 cr. (FY14), Rs. 89.17 cr. / Rs. 4.33 cr. (FY15), Rs. 77.23 cr. / Rs. 4.46 cr. (FY16) and Rs. 77.02 cr. / Rs. 3.39 cr. (FY17).
For first nine months of FY18 ended on 31.12.17 it has earned net profit of Rs. 1.89 cr. on a turnover of Rs. 53.76 cr. Thus it has shown almost static top line for all these years with inconsistency in bottom lines. For last three fiscals it has posted an average EPS of Rs. 13.13 and an average RoNW of 23.41%.
Issue is priced at a P/BV of 2.45 on the basis of its NAV of Rs. 73.56 as on 31.12.17 and at a P/BV of 1.76 on the basis of post issue NAV of Rs. 102.16.
If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 29 against industry average of 35. Thus issue is fully priced. As per offer documents it has shown Vishal Fabrics, Gini Silk and Donear Ind as its listed peers that are currently trading at a P/E of around 152, 27 and 16 (as on 25.06.18).
On merchant banker’s front, this is 31st mandate from its stable in last three fiscals. Out of last 10 listings 3 opened at discount, 3 at par and the 4 with a premium ranging 1% to 6% on the day of listing. Thus it has poor track record.
Conclusion / Investment Strategy
A fully priced issue from a company having static top line with inconsistent bottom line. Merchant banker has poor track record. There is no harm in giving this issue a miss.
