Analysts expect double-digit return on Sanathan Textiles debut on December 27

Sanathan Textiles IPO

Shares of Sanathan Textiles are expected to debut with double-digit premium on December 27, due to healthy subscription demand for its IPO despite weakness in equity markets, said analysts who in majority advised holding the stock for long term.

The maiden public issue of the polyester, and cotton yarn manufacturer was subscribed 35.12 times during December 19-23 with strong demand from all categories of investors. Qualified institutional buyers bought 75.62 times their allotted quota, followed by non-institutional and retail investors who picked 42.21 times and 8.93 times their reserved portions.

Prashanth Tapse, Senior VP Research – Research Analyst at Mehta Equities believes the subscription demand was on the back of reasonable valuations when compared with peers, which are trading at premium and the company has left something on the table for new investors to gain on listing day.

Considering market sentiments and healthy subscription demand, he expects the company to list with decent gain around 25 percent and more over its issue price of Rs 321 per share. "Expected healthy listing gain is justified as we believe Sanathan is well placed to meet the rising global demand for yarn and textile products," he said.

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Narendra Solanki, Head Fundamental Research-Investment Services at Anand Rathi Shares and Stock Brokers, and Akriti Mehrotra, research analyst at StoxBox also believe that the company will be listed at a premium of around 26 percent based on the current grey market price.

With an installed capacity of 2,23,750 MTPA facility at Silvassa, Sanathan Textiles is one of the few companies (amongst their peer group) in India with presence across the polyester, cotton and technical textile (which find application in multiple end-use segments including automotive, healthcare, construction, sports and outdoor, and protective clothing) sectors.

Polyester yarn business contributed the maximum at 77 percent to revenue, and cotton yarn at around 19 percent. Based on its operating income, it had a market share of 1.7 percent in the overall Indian textile yarn industry in the fiscal 2024.

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The company plans to expand operations across all three verticals to meet the anticipated increase in demand. As part of this strategy, it is in the advanced stages of commissioning a greenfield facility, the Punjab manufacturing facility, with Phase 1 expected to become operational in fiscal 2025.

At the upper band, the company is valuing at 20.2x its FY24 EPS, while it asked for market capitalisation of Rs 2,709.4 crore, with a market cap-to-sales ratio of 0.9 based on its FY24 earnings.

The IPO comprised of fresh issue of equity shares worth Rs 400 crore, and an offer-for-sale of Rs 150 crore. Sanathan Textiles will utilise fresh issue proceeds for repaying debt, and general corporate purposes.

Strategy Post Listing

Prashanth Tapse of Mehta Equities advised that conservative allotted investors can think of booking profits over and above our expectations.

Further, "Long-term investors should consider holding it for long term despite knowing short term volatility & risk in the markets. For non-allotted investors, we advise accumulating shares if there is a dip post listing due to profit booking attempts," he said.

The global yarn industry and the demand for yarn products are expected to grow in the coming years, driven by the increasing demand for apparel from the fashion industry and the rapid expansion of e-commerce platforms. Investors may continue to hold the shares for long term gains, Narendra Solanki advised.

Akriti Mehrotra of StoxBox believes the company is well-positioned to benefit from India’s growing textile sector, which is driven by rising domestic demand and government initiatives like the PLI scheme. However, she advised booking profits on a premium listing as according to him, the company faces challenges, including a modest market share of 1.7 percent, and declining revenues and profits, and high working capital requirements.

While the company is expanding its production capacity and focusing on recycled yarn, these risks should be considered by the participants, said Akriti who advised monitoring the company’s performance in the coming quarters.

On the financials front, Sanathan Textiles recorded a 12.4 percent decline in profit at Rs 133.8 crore for the fiscal 2024, down from Rs 152.7 crore in the previous fiscal. Revenue also dropped by 11.2 percent to Rs 2,957.5 crore, from Rs 3,329.2 crore in the same period. Profit in the June 2024 quarter stood at Rs 50 crore on revenue of Rs 781.1 crore.

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