SP Apparels IPO subscribed 12% till 5 pm on day 1, should you invest?

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New Delhi | Updated: August 2, 2016 5:20:23 PM

SP Apparels IPO hit capital markets on Tuesday and is expected to raise around Rs 239 crore at the upper price band through the public offer.

SP Apparel IPO things to knowSP Apparels IPO hit capital markets on Tuesday and is expected to raise around Rs 239 crore at the upper price band through the public offer. (Photo: Reuters)

SP Apparels IPO hit capital markets on Tuesday and is expected to raise around Rs 239 crore at the upper price band through the public offer. The company has fixed a price band at Rs 258-268 per equity share of face value of Rs 10 each. The issue will close on August 4 and an investor can bid for minimum of 55 equity shares and in multiples of 55 equity shares thereafter. Shares of the company are proposed to be listed on the BSE and NSE both. The initial public offer was subscribed 12 per cent on the first day of offer till 5 pm.

The offer consists of fresh issue of equity shares aggregating up to Rs 215 crore and an offer for sale of up to 9 lakh equity shares by New York Life Investment Management India Fund (FVCI) II LLC, the selling shareholder. The company on Monday garnered around Rs 72 crore from anchor raised nearly Rs 72 crore from anchor investors by selling shares at a price of Rs 268 apiece.

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Below are 6 things you should know before subscribing SP Apparels IPO:

Business: The Tirupur-based company is engaged in the manufacturing and exporting knitted garments of children and infants.

Promoters: P Sundararajan and S Latha are the promoters of SP Apparels. Sundararajan has over 30 years of experience, while Latha has experience of around 24 years in the textile and apparel industry.

Lead managers: Centrum Capital and Motilal Oswal Investment Advisors are the book running lead managers to the issue.

Financials: For the year ended March 31, 2016, SP Apparels reported net profit of Rs 48.12 crore against Rs 25.49 crore a year ago. In the financial years 2011-12, 2012-13 and 2013-14, the company reported net profit of Rs 6.82 crore, 5.22 crore and 12.56 crore, respectively. As of March 31, 2016, total debt of the company stood at Rs 259.36 crore comprising of long-term borrowings, short-term borrowings and current maturities of long-term borrowings. The debt-equity ratio for financial year 2016, 2015 and 2014 was 1.95, 2.45 and 3.16, respectively.

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Strength & weakness: The company has robust base of international retailers of garments for infants and children, including with established brands with global operations such as TESCO and Primark. However, SP Apparel does not have any long-term supply agreements with them.

Should you invest: According to HEM Securities, at price band of Rs 258-268, price-to-earnings (P/E) multiple will turn out to be 18.6-19.39 on post issue FY16 EPS of Rs 14 of company. SP Apparels looks fully priced when compare to its peer Kitex Garment (P/E of 20).Therefore on valuation parameter, the company looks fully priced at current level. The brokerage house has ‘Avoid’ rating on the IPO.

ICICI Securities in a research note said, “The company (19x P/E) is richly valued compared to its peers. Thus, We recommend Avoid.”

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