Bang Overseas Allotment - Subscription Details

Sr.No.	Category			No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)			1.1412
1(a)	Foreign Institutional Investors (FIIs)
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1(c)	Mutual Funds
1(d)	Others
2	Non Institutional Investors			1.8055
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)			1.1712
3(a)	Cut Off
3(b)	Price Bids
4	Employee Reservation			1.0146
4(a)	Cut Off
4(b)	Price Bids

Grey Market - Emaar MGF, Reliance Power, KNR Constructions

Future Capital Holding 765 360 to 380


Reliance Power 450 160 to 170


Emaar MGF 610 to 690 110 to 120


J. Kumar Infraprojects 110 to 120 3 to 5


Cords Cable Ind 125 to 135 10 to 12


KNR Construction 170 to 180 Discount


On Mobile Global 425 to 450 40 to 50


Bang Overseas 200 to 207 32 to 35


Shriram EPC 290 to 330 20 to 22


IRB Infrastructure Developers 185 to 220 50 to 55

Bang Overseas IPO Analysis

Incorporated in 1992, Bang Overseas provides fashion fabrics and meets the ready-to-wear requirement of customers in the apparel, textile and retail segment. Starting as a textile trader, the company has been conceptualising and designing fashion fabrics and an outsourcing hub for textile companies in Turkey, Portugal, Mauritius and other European countries since 1998. The first apparel-manufacturing unit, Reunion Clothing Company, with an installed capacity of 350,000 pieces per annum, was set up in Bangalore in 2005, A second manufacturing unit, Formal Clothing Company, with an installed capacity of 360,000 pieces per annum, was started in 2006. At present, the company has an installed capacity of 720,000 and 540,000 pieces per annum at the two manufacturing units. Its products retailed through 157 points of sales comprising own retail outlets, large format stores (LFS) like Shoppers' Stop, Pyramid, Globus, the Loot, Saga, and other multibrand outlets (MBO) spread all over India. A centralised warehousing and logistic centre at Kalher Village near Bhiwandi in Maharashtra facilitates the supply-chain management.

A third manufacturing unit, with total installed capacity of 600,000 pieces per month, is to be set up in the Kolar district in Karnataka and 41 retail outlets are to be opened across India. The current IPO, expected to raise Rs 70 crore, is to meet the expenditure required to set up the manufacturing unit, retail outlets, warehousing and logistic facilities, and for brand building and general corporate purposes including issue expenses.

The fund requirement estimated for setting up the new apparel-manufacturing unit is Rs 36.71 crore, retail outlets Rs 10.63 crore, and warehousing and logistic facilities Rs 10.23 crore. The entire expenditure is to be financed by the IPO. Funds are to be deployed over the next two years.

Strengths

Thomas Scott is an established brand in the men's-wear segment, and contributed Rs 10.50 crore to the turnover in the year ended March 2007 (FY 2007).

Margin has shot up from 5.9% in FY 2003 to 17.4% in FY 2007 due to increase in volume of sales of apparels and sourcing of textiles at better prices.

Has 12 Thomas-Scott retail outlets including three franchisees.

Contribution of sales of apparel to total sales has been increasingly steadily, going up from 40% in FY 2006 to about 50% in FY 2007. This is encouraging as the demand for apparels is poised for a strong growth across the globe.

Weaknesses

Has limited manufacturing experience.

Had negative cash flows in the past. Sustained negative cash flow could impact growth and business. Cash flow from operating and investing activities was a negative Rs 1.58 crore and Rs 7.24 crore respectively, in FY 2006. Cash flow from operating and investing activities was a negative Rs 1.69 crore and Rs 2.18 crore, respectively, in the six months ended September 2007.

The franchise model, proposed to be follow, requires inventory to be carried on books till the sale of the apparels to the end consumer and not pass the inventory risk to the franchisee. This requires high inventories, and could result in inventory write-downs and have an adverse effect on business and finances. Presently, there are only three franchise but 47 new franchise-operated outlets are to be added.

With exports comprising about 39% of garment sales in FY 2007, rupee appreciation is a negative.

Valuation

Consolidated net profit was Rs 10.87 crore in FY 2007/ This represents EPS of Rs 5.7 on post-issue equity of Rs 13.56 crore. The offer price discounts FY 2007 EPS 25.3 times at the lower band price of Rs 200 and 26.2 times at the upper band price of Rs 207. Well established and larger players like Gokaldas Exports are available at much lower 13 times discounting, while higher discounting for Kewal Kiran (32.9 times) and Provogue India (122.1 times) are partly for the strong brand name (of the former) and valuations of the mall development subsidiary (of the latter).

Bang Overseas IPO Review

Investors can avoid the initial public offer of Bang Overseas Ltd (BOL). At the upper end of the price band of Rs 200-Rs 207, the offer is valued at close to 20 times the company’s annualised FY 08 per-share earnings, on a fully expanded equity base. The company is in its infancy, and with an insufficient track record in the branded retail business, there could be execution risks to its expansion plans. If it manages to execute its capacity addition and retail expansion plans successfully, the valuation is likely to be at more attractive levels on a forward basis. Given the turbulence in the markets, however, staying invested with better-established players may be a more appropriate strategy.
Focus on garments

BOL has a domestic market bias and is, therefore, relatively less exposed to rupee fluctuations and export slowdown, problems that are plaguing most other textile companies.

The company started its garments business in 2002. Till then, it was predominantly a trader in imported fabric. The company sells men’s clothing under the brand “Thomas Scott” through a network of multi-brand outlets, departmental stores such as Shoppers’ Stop and Globus and 12 exclusive outlets.

A growing share of garments in the revenue mix has significantly improved profitability. Revenues and profits have grown at a stupendous pace since 2005. The company ended fiscal 2007 with revenues of close to Rs 100 crore. Garments currently account for about 40 per cent of revenues.

Through the proceeds of the offer, the company will expand its garments capacity six-fold to more than 7 million pieces a year and expand its retail chain to 100 stores. The fresh capacity is expected to come on stream by September 2008. The company expects to add an additional 88 stores by June 2009; 41 will be company-operated and the remaining franchisee-run.

The additional garment capacity will likely feed its expanding retail operations. and will also help it cater to increasing demand from apparel retailers. BOL is also to foray into women’s wear with a line of clothing — Miss Scott.

Execution risks

While these moves can help boost margins and profits in the long-term, there are execution risks, especially when it comes to the retail business.

BOL has identified locations across different regions in the country, with focus on tier-two and tier-three cities. However, there has not been much progress in finalising properties for its retail operations. Agreements have been signed for only nine of the planned 41 stores. The company has not entered into further franchisee-agreements for running the remaining stores.

The offer document does not state whether the stores will be stand-alone or in malls, nor does it mention the size of these stores. Less than Rs 10 crore of this Rs 70 crore issue has been earmarked for retail expansion. Cost over-runs are likely, considering increasing real-estate rentals and higher competition from established retailers and other garment exporters in tier-two towns. There could also be considerable delays in store openings. The company’s lack of experience in the retail business also does not inspire confidence in its execution. At the same time, retail operations may be crucial to making a mark in the branded apparel business, considering that the company lacks the financial wherewithal to commit huge sums to brand-building. Several large garment exporters are also turning to the domestic market to combat the slowdown on in the export front, which is likely to heighten competition in this segment.

Considering the low visibility of prospects at this stage, investors may be better off following a wait-and-watch approach and revisit the stock once the company gains a firmer foothold in the domestic apparel market.

The offer opens on January 28 and closes on January 31, 2008.