RETAIL RESEARCH

IPO Snapshot

30 July 2016

S.P. Apparels Ltd

Background & Operations:

Issue Snapshot:
Issue Open: August 02 - August 04 2016
Price Band: Rs. 258 268
*Issue Size: 89,22,388 Equity Shares
(including Fresh issue of 80,22,388 Equity
Shares + Offer for sale 9,00,000 equity
shares)
Offer Size: Rs.230.19 239.12 crs
QIB
Retail
Non Institutional

upto
50% eq sh
atleast 35% eq sh
atleast 15% eq sh

Face Value: Rs 10
Book value: Rs 65.72 (March 31, 2016)
Bid size: - 55 equity shares and in
multiples thereof
100% Book built Issue
Capital Structure:
Pre Issue Equity:
Post issue Equity:

Rs. 17.14 cr
Rs.25.16 cr

Listing: BSE & NSE

Book Running Lead Manager: Motilal
Oswal Investment Advisors Private
Limited, Centrum Capital Limited
Registrar to issue: Link Intime India Pvt
Ltd
Shareholding Pattern
Shareholding Pattern

Pre
*Post
issue % issue %

Promoters & Promoter 87.50

Group
Public (incl institutions 12.50
& employees)
Total
100.0
*=assuming pricing at the higher end of band

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59.60
40.40
100.0

S P Apparels Ltd (SPAL) is a leading manufacturer and exporter of knitted garments for infants
and children in India manufacturing at its integrated facilities that allow it to provide end-toend garment manufacturing services from greige fabric to finished products. It also
manufactures and retail menswear garments in India under the brand Crocodile. Longstanding relationship with major customers has been one of the most significant factors
contributing to SPALs growth. SPAL exports business for knitted garments for infants and
children constitutes a significant portion of its business. 86.13%, 84.62% and 79.84% of its total
revenues for the Fiscal Years 2016, 2015 and 2014, respectively, were generated by its business
of export of knitted garments products for infants and children (including duty drawback and
other export incentives). Its product range for knitted garments for infants and children
includes body suits, sleep suits, tops and bottoms. For Fiscal Year 2016, the company exported
approximately 35.98 million pieces of knitted garments for infants and children directly to its
international customers, including TESCO and Primark. Its facilities are equipped to provide
various products within the garments manufacturing production chain to its customers. Its
business consists of two main divisions (i) garment division (for manufacture and export of
knitted garments for infants and children); and (ii) retail division (for manufacture, distribution
and marketing of products in India under the brand name Crocodile).
SPAL has two Subsidiaries, Crocodile Products Private Limited (CPPL) and S.P. Apparels (UK)
(P) Limited (SPUK). CPPL, which is a joint venture between the Company and Crocodile
International Pte. Ltd. (CIPL), is engaged in the business of, inter alia, establishing and
managing units to manufacture, trade, deal, import and export garments and has entered into
a technology license agreement with CIPL for the exclusive manufacture, distribution and
marketing of menswear products under the trademark Crocodile in India. It sells the
Crocodile branded products through a sales and distribution network that includes 40
exclusive brand outlets, of which 37 are company owned operated stores and three are
franchise stores, and third-party e-commerce platforms. It also has agreements with
distributors in relation to the sale, marketing and distribution of Crocodile products. SPUK was
incorporated in 2014 to explore possible marketing opportunities and engage in trading
activities with new customers in the United Kingdom, Ireland and other European countries
SPAL 21 operating manufacturing facilities and the manufacturing facility at Netaji Apparel Park
(NAP) which it is are in the process of establishing, are located in and around the region of
Avinashi, Tamil Nadu, India and within a radius of approximately 125 kilometres of its
Registered Office. In recognition of its high quality of manufacturing operations, SPAL has been
awarded the Gold Supplier Award by TESCO in 2013, Values Award by TESCO in 2011-12 and
Trading Fairly Award for setting benchmarks in Tirupur for compliance with labor standards,
investing in workers and supporting community projects by TESCO in 2009.
The wide range of infrastructure and machinery at SPALs facilities for production of yarn,
dyeing of fabric, sewing, cutting, printing, embroidery and finishing of garments enable it to
service its customers by fulfilling multiple bulk orders in a timely manner. The proximity of its
manufacturing facilities and its integrated set-up allows it to optimize its operations and service
for its customers in a timely manner. Its strong focus on quality has helped SPAL to become the
preferred vendor of choice for certain of its large international customers.
On a restated consolidated basis, SPAL generated total revenues of Rs. 5,377.54 million, Rs.
4,792.33 million and Rs. 4,520.73 million for the Fiscal Years 2016, 2015 and 2014, respectively.
It recorded a net profit of Rs 347.14 million, Rs 100.48 million and Rs 66.67 million for the Fiscal
Years 2016, 2015 and 2014, respectively.

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Objects of Issue:
The Issue comprises a Fresh Issue by SPAL and an Offer for Sale by the Selling Shareholders. SPAL will not receive any proceeds from the
Offer for Sale. The objects of the Net Proceeds of the Fresh Issue are:
Repayment or prepayment of debt incurred by the Company
Expansion and modernization of manufacturing facility at Valapady, Salem, Tamil Nadu;
Addition of balancing machineries for existing dyeing unit at SIPCOT, Perundurai
Opening of new stores for the sale of Crocodile products; and
General corporate purposes.

Requirement of Funds and Utilization of Net Proceeds Rs

S. No.

Particulars

Rs in million

Total
estimated
amount
required

Amount
proposed to be
financed from
the Net
Proceeds

Estimated schedule of
implementation

630

630

630

Fiscal
2017

Fiscal
2018

Fiscal
2019

701.6

701.6

280.7

350.74

70.16

Repayment or prepayment of debt incurred by the Company

Expansion and modernization of manufacturing facility at
Valapady, Salem, Tamil Nadu
Addition of balancing machineries for existing dyeing unit at
SIPCOT, Perundurai

278.54

278.54

65.37

103.9

109.27

Opening of new stores for the sale of Crocodile products; and

49.12

49.12

49.12

General corporate purposes.

Competitive Strengths:
Key customer base with reputed international brands
One of the leading manufacturers for export of knitted garments for infants and children in India
Ability to set-up units that are integrated with its operations allows it to scale-up its operations
Benefit from specialization in the manufacture of garments for infants and children
Strong in-house design, testing, fitment and quality inspection facilities
Experienced management team led by Promoters and key management personnel
Business Strategy:
Enhancing existing capacities and improving operational efficiencies
Deepening product penetration with existing customers and increasing customer base
Strengthening Retail presence
Invest in infrastructure and technology

Key Concerns:
SPAL does not hold any copyright or other forms of intellectual property protection in relation to the designs of its products and the
Crocodile brand which could materially affect the business.
Export of knitted garments for infants and children constitutes a significant portion of its business for which SPAL does not have long-term
sales contracts
SPAL derives a significant portion of its revenue in British Pound Sterling and U.S. Dollar and hence is exposed to the risks associated with
fluctuations in foreign exchange rates which could negatively impact its profitability and financial condition.
Inability to effectively manage growth or to successfully implement business plan and growth strategy could have an adverse effect on the
business, results of operations and financial condition.
SPAL is subject to stringent labor laws or other industry standards and any strike, work stoppage or increased wage demand by its
employees or any other kind of disputes with its employees could adversely affect its business, financial condition and results of
operations.
SPAL may not be able to adapt to changing market trends and customer requirements in the menswear market in a timely manner, or at all
SPAL depends on a limited number of customers for significant portion of its export revenues. The loss of one or more of its significant
customers or significant reduction in production and sales of, or demand for its production from its significant customers may adversely
affect the business, financial condition, result of operations and cash flows

RETAIL RESEARCH

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Some of the Equity Shares held by the Promoter, Mr. P. Sundararajan have been pledged with the State Bank of Mysore and such pledge
may be enforced in the event of any default by the Company
Any changes in regulations or applicable Government incentives would materially and adversely affect its operations and growth prospects
The products manufactured by SPAL in relation to the Crocodile brand are vulnerable to counterfeiting or imitation by third parties that
may affect the reputation of the Company.
There is significant competition in the retail sector which may have an impact on SPALs retail division in relation to its Crocodile
menswear brand.
In certain cases SPAL engage contract manufacturers for fulfillment of orders placed by its customers. If its contract manufacturers
operations are interrupted for any significant period of time, its business and results of operations would be materially and adversely
affected
SPAL is exposed to the credit risk of its franchisees for the Crocodile brand, and any non-payment or non-performance by any of them
could materially and adversely affect the financial condition and results of its operations.
Changing laws, rules and regulations and legal uncertainties in India, including adverse application of corporate and tax laws, may adversely
affect the business and financial results.
Business is dependent on the Indian economy.
Indian garments exporters face significant competition in its principal markets.
Any downgrading of Indias debt rating by a domestic or international rating agency could adversely affect the business.

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