At present, the company has two manufacturing facilities, both at Bangalore, under the names Reunion Clothing Company and Formal Clothing Company.
The Reunion Clothing Company has a manufacturing unit with an installed capacity of 7,20,000 pieces per annum, while the Formal Clothing Company unit has 3,50,000 pieces per annum. The company intends to expand its garments business by establishing a new unit in Bangalore, which would manufacture apparel like shirts and trousers, both for men and women. It plans to increase its retail outlets from 9 to 100. In the 100 retail outlets 50% would be on a franchise-basis.
Of around Rs 72 crore the company intends to put up, it would invest Rs 36 crore in setting up the new unit, around Rs 10 crore for its retail chains, around Rs 10 crore for warehouses at Mumbai, Delhi, Hyderabad, Chennai, and Bangalore.
More than 90% of the raw materials used in the company's units are imported. The fabrics it uses come from textile mills located in Turkey, Portugal, Mauritius, and China. An important raw material used in fabric is cotton. There is plenty of cotton but a sudden surge in exports has kept prices of cotton at a higher level. This will be a major issue for the company.
Investonomics and valuation
On the valuation front, considering the annualised earnings on a fully diluted equity basis, the company quotes a P/E of around 19(x) and 20(x) at the lower and upper end of the price band respectively. This is quite a steep offering, considering most of the textile companies quote a single digit P/E.
Also, the company's performance in the last year has been tremendously volatile, and its stabilisation and sustainability after stabilisation would be a concern. Investors must consider the aforementioned facts before investing.