First Winner Industries IPO Analysis
Strengths
- Integrating backward to manufacture Grey fabrics will help the trading division to source fabric at a reasonable prices. The proposed apparel manufacturing facility could also source the fabrics from the manufacturing facility, thus, giving an integrated structure to the operation.
- Has design capability through in-house designing team as well as established relationship with various wholesale customers, which can be efficiently leveraged for apparel manufacturing and retail venture in the future.
- Foray into apparel retailing through own brands and outlets is a related diversification, which could serve well going forward.
Weaknesses
- Despite weaving capabilities, manufacturing has not started in a big way and income still continues to be mainly from trading, which is plagued by margin pressure.
- The textile industry is highly competitive with competition from both the organized and the unorganized sectors. Is in direct competition with leading Indian and international fabric manufacturers. The limited scale as well as reach will act as a major obstacle to fight competition.
- No long-term agreement with both suppliers of raw material as well as customers. Thus, vulnerable to price risk. Also, no firm commitment from customers.
Valuation
First Winner Industries has set a price band of Rs. 120 to Rs 130 per equity share of Rs 10 each, translating into a P/E of 34.6x at the lower price band and 37.5x at the higher price band, based on the unconsolidated annualized earning per share of Rs 3.5 for the 10-month period ended January 2008 on post-IPO equity.
However, consolidated annualised earning per share works out to Rs 8.6 for the 10-month period. Thus, P/E on the consolidated earning per share works out to 14.0x at the lower band and 15.2x at the lower band. Considering the nature of business, the asking price is high.
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