What you must know about Shri Techtex IPO

Shri Techtex Ltd, is an SME IPO on the NSE which is opening for subscription on 26th July 2023. The company, Shri Techtex Ltd, was incorporated in in the year 2011 to manufacture polypropylene non-woven fabrics in a variety of sizes and densities. Typically, the Polypropylene non-woven fabrics are used for a variety of ecological applications. They find applications in areas like organic farming, hospitals, healthcare services, nursing homes, home furnishing, industrial goods, consumer goods etc. The product has a fairly large institutional market where it finds a variety of applications.

It started off as a company trading in polymers and eventually graduated to becoming a full-fledged manufacturer of polypropylene woven fabric. It also undertakes manufacturing on a job-work basis on behalf of other manufacturers. The structure of the company underwent a change in the year 2018 when the entire contract manufacturing business was transferred to Aurum Fabritech. After that, the main company, Shri Techtex Lt is only engaged in one single line of product viz. polypropylene woven fabric.

Key terms of Shri Techtex IPO 

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

1. The issue opens for subscription on 26th July 2023 and closes for subscription on 28th July 2023; both days inclusive.
    
2. The company stock has a face value of ₹10 per share and the IPO issue will be a book built issue. The price band has been fixed in the range of ₹54 to ₹61 per share. For all our analysis in this IPO report, we will use the upper end of band as the benchmark.
    
3. The entire issue is a fresh issue of shares. The company will issue a total of 74.00 lakh shares, which at the upper end of the price band of ₹61 per share aggregates to a total fund raising of ₹45.14 crore. There is no offer for sale (OFS) component in the IPO.
    
4. Like every SME IPO, this issue also has a marketing making portion with a market maker portion allocation carved out of the issue. The market maker to the issue will provide two-way quotes to ensure liquidity on the counter.
    
5. The company has been promoted by Hanskumar Agarwal and Shradha Agrawal and the promoter stake in the company stands currently at 100%. Post the IPO, being a fresh issue of shares, the promoter stake will be get diluted to 70.34%.
    
6. The fresh issue funds will be used for construction of factory shed, commissioning of solar plant, purchase of machineries and other capex as well as to meet the working capital funding gaps of the company from time to time.
    
7. While Beeline Capital Advisors Private Ltd will be the lead manager to the issue, Link Intime India Private Ltd will be the registrar to the issue. Post the issue, the issued capital base will expand from 175.50 lakh shares to 249.50 lakh shares.

The company has allocated 50% of the issue size for the QIB investors, 35% for the retail investors while the balance 15% is allocated to HNI / NII investors. This will be as a percentage of the net issue after the anchor portion is removed from the total issue size. The table below captures the IPO reservation for Shri Techtex Ltd.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹122,000 (2,000 x ₹61 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 4,000 shares and having a minimum lot value of ₹244,000. There is no upper limit on what the HNI / NII investors can apply for. The table below captures the break-up in detail.

Key dates to be aware of in the Shri Techtex IPO (SME)

Shri Techtex IPO opens on Wednesday, July 26th, 2023 and closes on Friday July 28th, 2023. The Shri Techtex Ltd IPO bid date is from July 26th, 2023 10.00 AM to July 28th 2023, 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is the 28th of July 2023.

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.

Financial highlights of Shri Techtex Ltd

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

Data Source: Company DRHP filed with SEBI

The profit margins have been very robust at above 15% in the latest year and at much higher levels in previous years. Even the return on equity has been in excess of 40% in all the three years, which paves the way for more attractive valuations for the company. While sales growth has been robust, it is the profit growth that has been relatively erratic, but that is more due to the supply chain constraints created by the pandemic. Investors must remember that this is a traditionally high margin business. However, the company needs to build on its asset turnover ratio as a measure of asset sweating. That needs to improve.

The weighted average EPS of the company for the last 3 years is around ₹5.20 and that makes the company reasonably valued at the upper band of ₹61 per share. In terms of valuation, the stock valuation is less than 10 times forward earnings, so it is not too expensive. However, it remains a high risk investment for the investors and only for those with a longer term investment perspective.