SPA Sec neutral on First Winner IPO

SPA Securities has come out with a research report on First Winner Industries' IPO. It has recommended neutral rating on the issue.

First Winner Industries has opened for subscription with its initial public offering (IPO) of 55,00,000 equity shares of face value Rs 10 each. The issue will close on June 12, 2008. The price band is between Rs 120 to Rs 130 per equity share.

SPA's report on First Winner Industries IPO:

Investment Positives:
 
Manufacturing activity has helped FWIL improve its margins; Sector is set to grow with more number of malls, rise in disposable income & preference of branded products; CAGR – Topline:45%, EBITDA:272% & PAT:307% from FY04 to FY07; In-house designing capability; Capacity expansion to cater to retail & export market; Backward integration to set up weaving unit has shown good results.

Investment Concerns:

Until last year, majority of the revenues were from trading activities; No previous manufacturing experience in garment; Promoter group companies are in the same line of business; Working capital intensity is high; 35% of the issue proceeds is towards payment of debt; Stiff competition in the textile industry.

CARE has assigned an IPO grade “1/5” to this issue. This indicates POOR fundamentals of the company.

Valuation:

The stock is available at P/E of 14x & 15x on its lower & upper price band respectively on its annualized FY08E EPS of Rs.8.57. FWIL's margins have improved post its backward integration plan of manufacturing activity. FWIL has shown good growth rate in the past. FWIL has limited experience in the manufacturing activity. Post expansion, trading income will still be a major contributor to the topline. The utilization of existing 100 looms stands at 51% and FWIL is still going in for expansion. There is stiff competition in the textile sector from unorganized players who sell their goods directly to the consumers and FWIL will not cater directly to the retail market. With rise in number of malls, hypermarkets, disposable income and a preference for branded products, the sector looks to witness good growth. The industry P/E is at 24.11x which leaves a little upside potential to the current valuation of the stock. Hence, we recommend, “Neutral” to the issue.

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