What you must know about Piotex Industries IPO?

About Piotex Industries Ltd

Piotex Industries Ltd was incorporated in the year 2019 to engage in the contract manufacture and trading of yarns, fabrics, and cotton bales. These products cater to a plethora of needs such as apparel and home textiles. The company also manufactures cotton yarn on a job-work basis. Broadly, the company operates on 2 key verticals. The first vertical pertains to the trading in cotton bales, synthetic fibres, cotton yarns, and fabrics. It essentially trades these textiles in the major textile centres located at Malegaon, Ichalkaranji, and Bhiwandi in the state of Maharashtra. For cotton yarn, Piotex Industries Ltd has entered into an exclusive distribution agreement with a third party. The second vertical of the business is contract work and fabric weaving. Piotex Industries Ltd supplies the yarn and the contract workers execute the weaving process at a contractually agreed price. The company has about 18 employees on its rolls.

Highlights of the Piotex Industries IPO

Here are some of the highlights of the Piotex Industries IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 10th May 2024 and closes for subscription on 14th May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The fixed price for issue is set at ₹94 per share. Being a fixed price issue, the question of price discovery does not arise.
   
• The IPO of Piotex Industries Ltd has only a fresh issue component and no offer for sale (OFS) portion. While fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Piotex Industries Ltd will issue a total of 15,39,600 shares (15.40 lakh shares approximately), which at the fixed IPO price of ₹94 per share aggregates to fresh fund raising of ₹14.47 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 15,39,600 shares (15.40 lakh shares approximately) which at the fixed IPO price of ₹94 per share will aggregate to overall IPO size of ₹14.47 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 78,000 shares. Spread X Securities Private Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Abhay Asalkar and. Yogesh Nimodiya. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 69.83%.
   
• The fresh issue funds will be used by the company towards funding the working capital requirements of the business. A small portion of the funds will also be allocated towards general corporate expenses.
   
• Beeline Capital Advisors Private Ltd will be the lead manager to the issue, and Cameo Corporate Services Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Private Ltd.

Piotex Industries IPO – Key Dates

The SME IPO of Piotex Industries IPO opens on Friday, 10th May 2024 and closes on Tuesday, 14th May 2024. The Piotex Industries Ltd IPO bid date is from 10th May 2024 at 10.00 AM to 14th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 14th May 2024.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on May 16th 2024, will be visible to investors under the ISIN Code – (INE0R4W01015). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO allocation and minimum investment lot size

Piotex Industries IPO has already announced the market maker allocation at 78,000 shares as inventory for market making. Spread X Securities Private Ltd will be the market maker for the IPO. The breakdown of the overall IPO of Piotex Industries Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP filed with SEBI

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹1,12,800 (1,200 x ₹94 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 2,400 shares and having a minimum lot value of ₹2,25,600. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Financial highlights: Piotex Industries Ltd

The table below captures the key financials of Piotex Industries Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues have grown steadily in the last 2 years. Piotex Industries has already reported the numbers for FY24 also. The profits have also grown, but the net margins have stayed tepid at around the 2.54% mark.
   
• Piotex Industries Ltd is in the textile retailing business where margins are decided on IRR based pricing. Hence net margins are likely to be in the range of 2% to 3% only. However, return on equity (ROE) is robust at 32.04% in FY24, while the return on assets (ROA) is at 8.33% in the latest year. A lot will depend on these ratios sustaining.
   
• The asset turnover ratio or the sweating ratio has been very robust at 3.28X in the latest year, but that is not surprising considering that the business model is an asset-light business model. One must say that this sweating ratio gets magnified by the robust levels of return on assets (ROA).

Valuation story for Piotex Industries Ltd

Let us now turn to the valuation story of the company. It has latest year EPS of ₹8.48 and that roughly corresponds with the weighted  average EPS as well. However, we have not considered the weighted average EPS as numbers have been fairly volatile in the last 3 years. The latest year earnings are being discounted by the IPO price of ₹94 per share at 11-12 times P/E ratio. That is a reasonable level of P/E ratio to have, especially considering that the company has sustained a profitable model. Since the company has reported FY24 full year numbers, there is no scope for extrapolation of valuations at this juncture.

The company is into a business where the top line is steady, although the net profit margins will continue to remain around the 3% levels in a best-case scenario. However, the idea is to make up for that with a robust level of ROE and ROA, which is something the company has managed. Investors can look at a pure textile retail play in the stock. While valuations are reasonable, the volatility of profits in the past would be a risk for the IPO investor.