Yarn Manufacturer, Sanathan Textiles files for IPO, to raise 1300 crs

Mumbai-based Sanathan Textiles, one of the few companies in India with presence across the polyester, cotton and technical textile sectors has filed its draft red herring prospectus (DRHP) with the market regulator Securities and Exchange Board of India (SEBI) to raise funds through an Initial Public Offering (IPO). The shares of the company are proposed to be listed on NSE and BSE.

As per market sources, the issue size will be in the range of Rs 1200-1300 crore.

The Yarn manufacturer plans to raise funds via Initial Public Offering which comprises of fresh issue of equity shares aggregating up to Rs 500 crore (The “Fresh Issue”) and an offer for sale of up to 11,400,000 equity shares (The “Offer for Sale”) by Dattani Family.

Additionally, the company, in consultation with the lead bankers to the issue may consider a pre-IPO placement of equity shares aggregating up to Rs 100 crore.

Proceeds from the fresh issuance of shares will be used to extent of Rs 325 crore to repay/prepay in full or part, of certain borrowings availed by the company, Rs 65 crore for funding working capital requirements besides general corporate purposes.

Sanathan Textiles Limited was incorporated in 2005. Dattani family, the promoters of Sanathan, have more than 100 years of cumulative experience in the yarn industry, the company enjoys a rich legacy and history passed on by promoters.

Its business is divided into three separate yarn business verticals, consisting of Polyester yarn products; Cotton yarn products; and Yarns for technical textiles and industrial uses, manufactured at its Silvassa facility.

Over the years, the company has scaled up its yarn production with a total capacity from 4,500 MTPA in 2006 to 221,050 metric ton per annum (MTPA) in 2021 supplying across a broad spectrum of industries such as apparels including sportswear, activewear and innerwear, home textiles, travel and leisure (luggage, suitcases, parachutes, etc.), medical usages, automobiles, etc. Sanathan also has a high share of value added products which contributed 52.16% of the revenues for the six months period ended September 30, 2021. As on September 2021, they manufacture more than 12,900 varieties of yarn products with more than 100,000 SKUs.

The company caters to a number of multinational, regional and local companies such as Arvind Ltd, Trident Ltd, Welspun India Ltd, Page Industries Ltd, D’décor Home Fabrics Pvt Ltd and also to other companies including Creative Group, Ascent Yarns and Paragon which in turn cater to consumer brands like DKNY, Calvin Klein, Zara, US Polo Association, Adidas, Nike, H&M, Levis, Uniqlo and many more.

Looking at the growth in demand for recycled yarn, STL recently introduced a recycled polyester yarn product vertical which is marketed under the brand “Reviro”. It uses chips made from waste plastic bottles and then into yarn for fabrics.

Sanathan Textiles recorded a profit of Rs 185.63 crore on revenue of Rs 1,918.36 crore for FY21 which had impact of lockdown during April-June 2020, and clocked a profit of Rs 170.78 crore on revenue of Rs 1,438.88 crore for the six month ended September 2021. Company had a healthy return on equity (RoE) of 29.42% for FY21.

India is the largest producer of cotton and second largest manufacturer of polyester yarn in the world. The country’s textile and apparel market which is estimated to Rs. 8,153 billion during fiscal 2021 and is projected to grow at a CAGR of 11-13% from fiscal 2022 till fiscal 2026 and reach a value of Rs. 15,300 – 15,400 billion. During this period, the exports are expected to grow at a CAGR of 9-11% and domestic industry to grow at slightly higher pace of 13-15%.

Edelweiss Financial Services Limited and JM Financial Limited are the book running lead managers to the issue, Axcelus Finserv is advisor to the offer with AZB & Partners and Trilegal being the legal counsels.

The size of the cotton yarn industry is expected to increase to Rs 905-910 billion in fiscal 2022 from Rs 690 billion in the fiscal 2021 and phenomenal growth in cotton yarn exports was on the back of global recovery as the impact of the second wave of the pandemic was less severe compared with the first wave. Downstream demand from domestic RMG is expected to be hit severely by the pandemic. In addition, the US’ ban on Xinjiang (China)-based cotton and derived products led to increase in export demand for cotton fabric, RMG and home textiles.

After China and the EU, India is the world’s third-largest exporter of textiles in the world in 2020 as it has the highest acreage for cotton compared with the other major cotton-producing nations with 13.4 million hectares in cotton season. Global brands and retailers have started expanding their manufacturing horizon outside of China as during the pandemic, many countries across the globe realized the consequences of over-reliance on a single source in the manufacturing sector and India stands out to be attractive option in terms of labour costs, ease of doing business and skilled workforce, along with incentives provided by the Government of India, such as the production-linked incentive (PLI) scheme offering Rs 10,863 crore to the synthetic or man-made fiber (MMF) to propel exports and increase production to cater additional demand.

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