S P Apparels may tap capital market; likely to offload 25%

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Having successfully clinched the USD 8-million (Rs 36 crore) private equity deal with New York Life Investment Management, NYLIM India fund, the Rs 200-crore S P Apparels is making the next logical move, the capital market foray. The company is hoping to come out with its maiden public issue within the next six months, reports The Hindu Business Line.

The company has taken in the services of the market intermediaries, SBI Capital Markets and IL&FS Investsmart, as the advisors for the issue. The integrated garment producing company, which went for equity dilution by assigning10.71% shares (fresh equity) to the private equity fund recently, is expected to offload 25-30% of its shares through the public float to step up its investment for bolstering its product manufacture/retailing including brand promotion, according to Sundar Rajan, managing director and chief executive officer, S P Apparels.

Roadmap for IPO

"We are in the process of preparing a roadmap for the IPO, which is expected to be through within the next six months," Sundar Rajan said. The company in its deal with NYLIM placed 18 lakh shares aggregating Rs 36 crore, which lifts its paid-up equity base to Rs 16.8 crore from Rs 15 crore.

S P Apparels in fact, according to him, took to private equity route not merely as fund rising option, but also to win the right exposure to the national market and the recognition as a committed player in quality products and services. New York Life Investment picking up his company's equity was out of the fund's conviction on the international standards and the customer relationship enjoyed by S P Apparels, he added.

Expansion plans

S P Apparels earlier acquired the domestic men's brand Crocodile in April last. It has also chalked up Rs 370-crore phase II expansion programme, covering its backward linkages in spinning, knitting, wet-processing, garmenting and retailing, including the cost of acquisition of the brand. While the IPO proposed by the company is to partly meet capital cost of the expansion works, the Rs 36-crore raised from the private equity is to be deployed to provide margin needed by it for the company's borrowings. While the planned IPO is expected to bring the 30% of the outlayed expansion project costs, the rest would be raised through debt financing eligible under the technological upgradation fund scheme, TUFS route.

The company already working on further strengthening it's Crocodile brand is planning a foray into branded children and women's wear within the next six months. "We may also try to develop retail branding (branded shopping) which is poised to strengthen the value of integrated textile enterprise," said Sundar Rajan.

Exports, turnover

At present, S P Apparels exports 90% of its production and among the major global garment retailers sourcing from the company are Mothercare, Tesco, Disney Stores, H&M, Benetton and Dunnes Stores. The garment company consistently posting 25-30% growth in the last three years has achieved a sales turnover of Rs 200 crore during 2005-06. Its sales during the half-yearly period ended September 2006 stood at Rs 120 crore.

"With orders on hand at Rs 130, we'll comfortably cross the Rs 250-crore market in 2006-07," said Stanley Jothiraj, chief financial manager of the company. The new investments will lead to rise in its garment production capacity from 150,000 pieces a day to 250,000 pieces.