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Momai Apparels IPO scan by VS Fernando
Since the advent of 'SME-Platform' in early 2012, the country's largest exchange (NSE) has received only six IPOs whereas the oldest exchange in Asia (BSE) has entertained as many as 73. The reason for this anomaly is not far to seek. There is a popular perception in the market that NSE's listing guidelines are more stringent, protecting the investors, than BSE's norms which are more liberal, entertaining the promoters!
The promoters of Momai Apparels had gone to BSE-SME in March 2013 for listing their flagship, Ashapura Intimates Fashion. But for Momai's public float they have approached NSE. Whereas Ashapura priced its IPO at Rs 40 and tapped Rs 21 cr, Momai is asking not less than Rs 78 a share, aggregating Rs 30 cr. Will Momai emulate Ashapura in fetching capital appreciation, or will it go down like other NSE-SMEs whose market returns are too low to compare with BSE-SMEs?
| OFFER AT A GLANCE | |
| Name | Momai Apparels Ltd |
| Offer Amount | Rs 30 cr |
| Offer Quantity | 33.34 to 38.46 lakh shares of Rs 10 each |
| Offer on Total Equity | 23.95% to 26.66% |
| Post-issue Promo stake | 21.46% to 22.25% |
| Post-IPO Capital | Rs 14.43 cr |
| Offer Price | Rs 78 to Rs 90 |
| Application Quantity | 1,600 & Multiples of 1,600 |
| Offer Opens | 25-Sep-14 |
| Offer Closes | 30-Sep-14 |
| Listing | SME Platform of NSE |
| Rating | 4 out of 5 |
| Rated By | CARE |
| Lead Manager | Pantomath Capital Advisors |
| Syndicate Members | Hem Securities & Choice Equity |
| Registrar | Link Intime |
The Offer
Momai is making a fresh issue of Rs 30 cr through the book-building route with a price band of Rs 78 to Rs 90. Since the company has privately placed about 17.09 lakh shares (worth Rs 13.33 cr) with 83 high net worth public investors (HNIs) at Rs 78 a piece only a couple of weeks ago, it is most likely to fix the IPO price at the lower end of the band (Rs 78). In that case, the offer quantity would be 38.46 shares which would constitute 26.66% of the post-IPO capital of the company. The book running lead manager (BRLM) of the offer, Pantomath Capital Advisors, has underwritten the entire issue. Investors have to apply for a minimum of 1600 shares or Rs 124800. The shares are to be listed on the SME platform of NSE.
Momai is making a fresh issue of Rs 30 cr through the book-building route with a price band of Rs 78 to Rs 90. Since the company has privately placed about 17.09 lakh shares (worth Rs 13.33 cr) with 83 high net worth public investors (HNIs) at Rs 78 a piece only a couple of weeks ago, it is most likely to fix the IPO price at the lower end of the band (Rs 78). In that case, the offer quantity would be 38.46 shares which would constitute 26.66% of the post-IPO capital of the company. The book running lead manager (BRLM) of the offer, Pantomath Capital Advisors, has underwritten the entire issue. Investors have to apply for a minimum of 1600 shares or Rs 124800. The shares are to be listed on the SME platform of NSE.
Issue Object
As per the offer document, Momai proposes to utilize Rs 7 cr towards acquisition of land for setting up new manufacturing facility and Rs 24 cr is earmarked for long term working capital. The new factory construction and plant & machinery are estimated to cost Rs 12 cr and Rs 7 cr respectively which are proposed to be met with a combination of bank debt, private placement proceeds and own funds. Nonetheless, the Rs 50 cr funding proposal has not been appraised by any independent agency and the deployment of funds is left to the discretion of the management.
As per the offer document, Momai proposes to utilize Rs 7 cr towards acquisition of land for setting up new manufacturing facility and Rs 24 cr is earmarked for long term working capital. The new factory construction and plant & machinery are estimated to cost Rs 12 cr and Rs 7 cr respectively which are proposed to be met with a combination of bank debt, private placement proceeds and own funds. Nonetheless, the Rs 50 cr funding proposal has not been appraised by any independent agency and the deployment of funds is left to the discretion of the management.
Rating
Momai has been awarded 'CARE SME Fundamental Grade 4' by Credit Analysis and Research Ltd. The '4 out of 5' grade denotes for very good fundamentals. Incidentally, Ashapura Intimates, which has relatively better fundamentals, too received the same grade from CARE last year.
Momai has been awarded 'CARE SME Fundamental Grade 4' by Credit Analysis and Research Ltd. The '4 out of 5' grade denotes for very good fundamentals. Incidentally, Ashapura Intimates, which has relatively better fundamentals, too received the same grade from CARE last year.
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Parentage
Momai comes from the stable of Ashapura which offered shares to public in March last year at a price of Rs 40 a piece. Ashapura has fetched more than 275% capital appreciation to investors in one and a half years. The person behind Ashapura, Harshad Thakkar (37) reportedly entered into the intimate garments industry at the age of 18 and has acquired experience of 19 years. Thakkar's qualification might be just ‘schooling' but, his knowledge of intimate garment industry and business acumen is ‘ocean' size.
Momai comes from the stable of Ashapura which offered shares to public in March last year at a price of Rs 40 a piece. Ashapura has fetched more than 275% capital appreciation to investors in one and a half years. The person behind Ashapura, Harshad Thakkar (37) reportedly entered into the intimate garments industry at the age of 18 and has acquired experience of 19 years. Thakkar's qualification might be just ‘schooling' but, his knowledge of intimate garment industry and business acumen is ‘ocean' size.
What is more, when the word ‘Valentine' was an anathema to some right wing groups in the country, Thakkar has boldly chosen the name for his brand and has nurtured it since 1998. In last three fiscals alone, nearly Rs 10 cr has been spent on the brand promotion. Thakkar manages his group in such a way that marketing and retailing is done under the public banner Ashapura Intimates Fashion, while Momai and other are contracted to cater to Ashapura's need.
A notable aspect of Ashapura group is that, unlike other garment players in the listed domain, investment in plant & machinery or production equipments are relatively very low. Against a group turnover of about Rs 150 cr, its investment in productive assets is less than Rs 1.5 cr.
Currently the group's manufacturing operations are concentrated around Bhiwandi, near Thane. The group now wants to shift all the production facilities to Gujarat and proposes to convert the Bhiwandi properties into godowns, warehousing their inventories.
As regards the performance of the group's maiden public venture, AIFL has posted positive cash flow from operations for the first time in FY14. On the back of steady increase in top line, AIFL's operating margin has improved from 9.1% in FY12 to 11% in FY14. Post-IPO, the company has enhanced the dividend from 5% to 7.5%. Currently the scrip is commanding a P/E of more than 55x which is close to the branded innerwear heavyweight Page Industries.
| PROMOTER'S PERFORMANCE: POST-ISSUE vs PRE-ISSUE | ||||
| ASHAPURA INTIMATES | POST-ISSUE | PRE-ISSUE | ||
| (Rs.Cr) | Mar-14 | Mar-13 | Sep-12 | Mar-12 |
| Revenue | 165.7 | 130.62 | 57.36 | 101.47 |
| Other Income | 1.86 | 0.62 | 0.12 | 0.35 |
| Operating Profit | 20.07 | 14.42 | 5.51 | 9.59 |
| Operating Margin (%) | 11 | 10.6 | 9.4 | 9.1 |
| Interest | 9.02 | 6.26 | 2.44 | 3.89 |
| Net Profit | 5.41 | 4.73 | 1.65 | 3.41 |
| Equity | 19.47 | 14.22 | 8.91 | 5.31 |
| Reserves | 23.41 | 3.96 | 7.33 | 5.68 |
| Share Premium | 15.75 | 0 | 0 | 0 |
| Borrowings | 56.62 | 62.93 | 37.88 | 34.38 |
| Capital Employed | 99.5 | 81.11 | 54.12 | 45.37 |
| Net Block | 9.31 | 8.91 | 5.33 | 5.2 |
| Plant & Machinery | 0.89 | 0.65 | 0.66 | |
| Inventories | 59.54 | 60.8 | 46.88 | 34.29 |
| Trade Receivables | 41.38 | 83.54 | 60.41 | 16.31 |
| Trade Payables | 20.48 | 69.87 | 54.96 | 7.49 |
| Net Operating Cash Flow | 11.68 | -19.77 | -3.43 | -9.97 |
| Earnings Per Share (Rs) | 2.78 | 3.33 | 1.85 | 6.42 |
| Book Value Per Share (Rs) | 22.02 | 12.78 | 18.23 | 20.7 |
| Price (Rs) | 153.8 | 40 | 40 | 40 |
| Price-Earning Ratio (x) | 55.4 | 12 | 21.6 | 6.2 |
| Price/Book Value (x) | 7 | 3.1 | 2.2 | 1.9 |
| Price/Revenue (x) | 1.8 | 0.4 | 0.6 | 0.2 |
| Dividend (%) | 7.5 | 5 | 5 | |
| Yield (%) | 1.9 | 1.3 | 0 | 1.3 |
Momai's Genesis
Incorporated in 2010 by Harshad Thakkar and his associate Dinesh Sodha, Momai Apparels Private Limited (MAPL) was originally into the business of providing raw materials to Jehaan Clothing (proprietary firm of Hitesh Punjani), Momai Apparels (proprietary concern of Dinesh Sodha) and Thakkar's AIFL. In November 2012 the company acquired the above two proprietary firms and in consideration allotted shares worth Rs 83 lakh and Rs 65 lakh to Punjani and Sodha respectively.
Meanwhile in October 2012, Momai entered into a lease agreement with AIFL as well as Thakkar and took factory premises on lease. In January 2013 the company leased out machineries from AIFL and entered into an exclusive agreement for manufacturing of non-branded intimate garments for AIFL. MAPL was converted into a public company in September 2013. The exclusive supply agreement between Momai and AIFL was revoked in February 2014.
Momai's Financial Track
Momai is said to be supplying nearly 90% of its sales to AIFL. Interestingly, Momai itself claims to be outsourcing nearly a half of its sales. The company has a Net Block of Rs 8.4 cr which consists predominantly of buildings. The ‘Plant & Machinery' amounts to just Rs 48 lakh.
As regards Momai's operating performance, from Rs 32 cr in FY12, the company's top line grew over Rs 117 cr in FY14. Operating margin has risen from 2.8% in FY12 to 7.5% in FY14. Net Profit has leapt from Rs 58 lakh in FY12 to Rs 3.27 cr in FY14. The company has proposed a maiden dividend 5% for FY14. On the flip side, the company carried a heavy inventory of Rs 41 cr in FY14 and its operations are yet to result in positive cash flows.
Valuation & Perception
No doubt, intimate garment players command a healthy discounting on the Indian bourses. Market leader Page Industries is priced more than 57 times its historical earnings. Momai's stable mate AIFL too enjoys a P/E of more than 55x. Another supplier to AIFL, Women's Next, attracts a P/E of around 27x. Considering these fabulous discounting, Momai's valuation at the lower band of Rs 78 should not dishearten short term investors.
Valuation & Perception
No doubt, intimate garment players command a healthy discounting on the Indian bourses. Market leader Page Industries is priced more than 57 times its historical earnings. Momai's stable mate AIFL too enjoys a P/E of more than 55x. Another supplier to AIFL, Women's Next, attracts a P/E of around 27x. Considering these fabulous discounting, Momai's valuation at the lower band of Rs 78 should not dishearten short term investors.
However, the long term prospects depend largely on how the promoters would shape up Momai in the next couple of years. It is worth noting here that the promoters have plans to merge Momai with AIFL after some time. In the absence of any credible productive assets, the valuation of the company may not benefit the public shareholders on merger.
Also, the following factors may weigh against Momai's future share price. The company's core promoter stake is abysmally low (21.5%) as compared to Ashapura's (more than 67%). Promoters' close associates and relatives who hold more than 30% are clubbed with public shareholders who may turn sellers once the lock-in is relaxed after one year. Though AIFL's price has appreciated handsomely, its market maker's holding has increased sizably from its IPO level indicating that there are more sellers than buyers at the counter. Promoter believes more in outsourcing than own manufacturing which could prove to be counter-productive in long run. Also, Momai's negative operating cash flows and large inventories make its profit margin suspect.
| HOW MOMAI COMPARES WITH ITS PEER GROUP | |||||||||||
| COMPANY NAME | M-CAP | EQ | BLDNG | P&M | SALES | P/E | P/BV | P/R | OPM | YLD | PRICE |
| (Rs Cr) | (x) | (%) | (Rs) | ||||||||
| Page Industries | 8,792 | 11.15 | 39.44 | 103.5 | 1,173 | 57.2 | 30.4 | 7.5 | 15.2 | 0.8 | 7,882 |
| Rupa & Co | 1,789 | 7.95 | 52.42 | 69.64 | 890 | 28.8 | 6.6 | 2 | 12.6 | 1.1 | 225 |
| Lovable Lingerie | 700 | 16.8 | 2.84 | 12.84 | 159 | 33.1 | 3.7 | 4.4 | 12.8 | 0.5 | 416 |
| Maxwell Ind | 190 | 12.62 | 21.49 | 30.58 | 256 | 35.7 | 2.1 | 0.7 | 8.4 | 0.7 | 30 |
| Ashapura Inti | 288 | 19.47 | 6.71 | 0.89 | 166 | 55.4 | 6.7 | 1.7 | 11.1 | 0.5 | 154 |
| Women's Next | 17 | 2.5 | 0.86 | 0.16 | 38 | 26.5 | 2.2 | 0.5 | 5.8 | 0 | 70 |
| Momai Apparels | 113 | 14.43 | 7.61 | 0.48 | 117 | 34.4 | 1.9 | 1 | 7.5 | 0.6 | 78 |
Momai, an unbranded garment supplier, has priced its IPO steeper than AIFL. The market always discounts branded product companies much better than the unbranded ones. As such, Momai cannot expect the same discounting that AIFL enjoys. Also, if market operators were to be believed, NSE-SME listings will have more realistic and limited discounting as price manipulation is highly restricted.
| HOW MOMAI COMPARES WITH ASHAPURA INTIMATES | ||||
| ASHAPURA | MOMAI | |||
| (Rs.Cr) | Mar-14 | Mar-13 | Mar-14 | Mar-13 |
| Revenue | 165.7 | 130.62 | 117.29 | 99.55 |
| Other Income | 1.86 | 0.62 | 0 | 0 |
| Operating Profit | 20.07 | 14.42 | 8.93 | 4.28 |
| OPM | 11 | 10.6 | 7.47 | 4.3 |
| Net Profit | 5.41 | 4.73 | 3.27 | 1.95 |
| Equity | 19.47 | 14.22 | 8.87 | 1.53 |
| Reserves | 23.41 | 3.96 | 8.32 | 2.54 |
| Borrowings | 56.62 | 62.93 | 33.3 | 31.21 |
| Capital Employed | 99.5 | 81.11 | 50.49 | 35.28 |
| Net Block | 9.31 | 8.91 | 8.4 | 5.08 |
| Plant & Machinery | 0.89 | 0.65 | 0.48 | 0.41 |
| Inventories | 59.54 | 60.8 | 41.12 | 16.87 |
| Trade Receivables | 41.38 | 83.54 | 16.06 | 31.97 |
| Trade Payables | 20.48 | 69.87 | 15.49 | 17.71 |
| Net Operating Cash Flow | 11.68 | -19.77 | -1.13 | -27.18 |
| Earnings Per Share (Rs) | 2.78 | 3.33 | 3.69 | 12.75 |
| Book Value Per Share (Rs) | 22.02 | 12.78 | 19.38 | |
| Price (Rs) | 153.8 | 40 | 78 | |
| Price-Earning Ratio (x) | 55.4 | 12 | 21.2 | |
| Price/Book Value (x) | 7 | 3.1 | 4 | |
| Price/Revenue (x) | 1.8 | 0.4 | 0.6 | |
| Dividend (%) | 7.5 | 5 | 5 | |
| Yield (%) | 1.9 | 1.3 | 0.6 | |
Manager's Track
Momai has hired Pantomath Capital Advisors which has so far managed three IPOs – all on the BSE-SME platform. Momai would be the first NSE-SME IPO for the investment banker. As regards the market performance of Pantomath-managed IPOs, the last one, Ultracab, is yet to be listed. The first one Si.Vi.Shipping is infrequently traded though the scrip's last quote fetched a capital appreciation of about 43% in six month period. What's intriguing is, the company's post-IPO EPS fell sharply as compared to its pre-IPO level yet, it has managed to command significant premium, thanks to the market maker!
Momai has hired Pantomath Capital Advisors which has so far managed three IPOs – all on the BSE-SME platform. Momai would be the first NSE-SME IPO for the investment banker. As regards the market performance of Pantomath-managed IPOs, the last one, Ultracab, is yet to be listed. The first one Si.Vi.Shipping is infrequently traded though the scrip's last quote fetched a capital appreciation of about 43% in six month period. What's intriguing is, the company's post-IPO EPS fell sharply as compared to its pre-IPO level yet, it has managed to command significant premium, thanks to the market maker!
| The other IPO managed by Pantomath was Women’s next which is actually controlled by an associate of Ashapura’s promoter, Harshad Thakkar. Incidentally, like Momai, Women’s Next too is a contract manufacturer of Ashapura Intimates. Women’s Next managed to maintain the EPS post-issue and the scrip is priced at a respectable discounting of about 16 times the FY14 earnings. Nevertheless, the capital appreciation has been restricted to only 6% in six months as the IPO was steeply priced at Rs 65. | ||||||||
| MARKET PERFORMANCE OF PANTOMATH CAPITAL-MANAGED IPOs | ||||||||
| ISSUER | IPO | FV | IPO | MKT | GAIN | Pre-IPO | Post-IPO | P/E |
| NAME | DATE | Rs | PRICE | PRICE | % | EPS | EPS | (x) |
| SI.VI .Shipping | 18-Feb-14 | 10 | 25 | 35.7 | 42.8 | 5.43 | 0.13 | 264.6 |
| Women's Next | 28-Mar-14 | 10 | 65 | 69 | 6.2 | 4.5 | 4.39 | 15.7 |
| Ultracab (India) | 15-Sep-14 | 10 | 36 | Yet to list | 3.21 | NA | 11.2 | |
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