Pradip Overseas IPO Review

Promoted by Pradipkumar Karia, Chetan Karia and Vishal Karia, Pradip Overseas is one of the few niche textile companies in India focused on home linen products in wider and narrow width. Currently, the company has facilities at Changodar near Ahmedabad in Gujarat.

The company caters to both domestic and export markets. The order book as on February 15, 2010 was Rs 333.78 crore, comprising export orders worth Rs 101.51 crore and domestic orders worth Rs 232.27 crore. Exports constitute around 45-50% of the net sales in the past three years. Majority of the company exports are indirect exports and primarily shipped to American and European markets. The company has also makes small quantity of garments, dress materials and bottom wear fabrics, primarily for international markets and has drawn up plans to scale it up. Apart from these value added products, it is also looking at industrial textiles as potential opportunity. The company aims to grow business in all existing markets, i.e. India, Europe and North America and also intends to explore markets in Middle East, East Africa and Russia. The company is also focusing on value added products such as quilts and organic cotton home Lenin products.

The existing manufacturing facility at Changodhar has been granted authorization, according to Oeko-Tex Standard 100, to use the Oeko-Tex mark for articles, namely bed sets (made-ups), woven fabrics made out of 100% cotton and polyester, bleached, reactive dyed, reactive printed, dispersed dyed and dispersed printed and pigment printed (inclusive sewing threads, buttons and zippers), produced by/ using material certified according to Oeko-Tex Standard 100. In a move to strengthen the business presence, the company has also received permission from International Development LLC, Tampa, FL, USA (IDL) for using and marketing the brand, Lucy B Linens, for home linen products in India and other pertinent countries. The company distributes its home linen products through C A Patel Textiles, which has a retail network of more than 2,000 retailers across the country.

The company has drawn up plans to expand its current capacity from 136.5 million meters to 169.50 million meters per annum by setting up manufacturing facility in a proposed textile SEZ near Bhamasra Village, Ahemadabad, Gujarat. Expanded capacity is to be commissioned by January 2011. The capacity expansion will require Rs 99.95 crore and additional working capital will require Rs 99.95 crore. IPO funds will yield Rs 106-Rs 116 crore

Strengths:

* Capacity utilization continuously improving. From 86.32% in FY 2007, it has improved to 90.57% in FY 2008 and then jumped to 97.92% in FY 2009. In the nine month ended December 2009, it stands at 95.96% on increased capacity.

Weakness:

* The company operates in a highly competitive market and faces stiff competition from other organized players in this segment and also from the unorganized sector.
* The textile industry is cyclical and sensitive to the changes in the global economy. The home textile sector is export oriented and so is more vulnerable to global economic and liquidity factors.
* The company is also implementing textile SEZ. Funds have not been tied up and certain other formalities are yet to be completed.

Valuation

The company has posted a 78% jump in net sales to Rs 1170.58 crore. Of this, trading sales amounted to Rs 225.08 crore. There was a modest 8% increase in net profit to Rs 41.46 crore in FY 2009. Sales for the nine months ended December 2009 were Rs 1216.83 crore (trading sales Rs 200.40crore), with net profit being Rs 51.10 crore. The annualized EPS for the nine months on post issue equity works out to Rs 16.9. At the offer price band of Rs 100- Rs 110 per share, PE works out to 5.9-6.5 times. Alok Industries and Welspun India are trading at P/E of 7.2 and 5.2 times their nine-month annualized EPS.