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IPO Snapshot

Scotts Garments Limited.

April 26, 2013

Highlights of the issue:


Issue Snapshot:
Scotts Garments Limited (SGL) is garment manufacturing company in
India with state of the art facilities for manufacturing of quality hi fashion
garments and has built the domain expertise in designing and sampling of
garment for a period of about two decades that has been a significant
contributor in procuring orders from the international market especially
Europe. Its manufacturing facilities and additional facilities such as
embroidery, printing, dyeing and washing enables it to enhance its product
portfolio catering to different class of customer in the international market.

Issue open April 25 April 29 2013


Price Band: Rs. 130 Rs.132
Issue Size: Rs. 136.59 crs 138.69 crs
Issue Size: 1,05,06,954 equity shares
QIB
Retail
Non Institutional
Employee

upto
atleast
atleast
upto

25,14,238 eq sh
35,19,934 eq sh
40,22,782 eq sh
4,50,000 eq sh

Face Value: Rs 10
Book value - Rs 90.98 (October 31, 2012)
Bid size: 100 equity shares and in multiples thereof
100% Book built Issue
Capital Structure:
Pre Issue Equity:
Post issue Equity:

Rs
Rs.

28.47 crs
38.98 crs

Listing: BSE & NSE


Lead Manager: Keynote Corporate Services td.
Co - Lead Manager: Canara Bank Merchant
Banking Division
Registrar to issue: Link Intime India Pvt Ltd.
Current Shareholding Pattern
Pre issue
Shareholding Pattern
%
Promoters & Promoters
Group
71.43
Public (incl Employees &
others)
28.57
Total
100.0
CARE Fundamental
average fundamentals

Grade:

3/5

Post issue
%
52.18
47.82
100.0
indicating

SGLs operations and facilities enables it to manufacture readymade


apparel by spanning various aspects of the apparel production chain, from
managing the design to delivery and quality assurance processes involved
in producing readymade apparels. It is one of the competitive
manufacturer and exporter of readymade garments with modern
manufacturing facilities; fully backed by facilities for product development,
design studio and efficient sampling infrastructure to provide quality
services to its customers. It exports its quality products to several
international clients across the Globe. Currently, it has 24 manufacturing
units in Karnataka and Tamil Nadu
During the year ended March 31, 2012, SGL has exported 91.44% of its
total sales of readymade knitted and woven apparel to international
clients. During the current financial year it has exported its products to 69
international customers in 41 countries. The company has a 2.1M.W
capacity windmill at Bellary, Karnataka and three windmills in Tamil Nadu
with a total capacity of.95 M.W and has entered into Wheeling and
Banking agreement with Gulbarga Electricity Supply Company Limited
and Tamilnadu Electricity Board for the sale of the power generated
through the windmill. During F.Y2011 - 12 the total income from wind
power generation amounted to Rs 347.89 lacs
SGL had reported net sales of Rs 500 crore and net profit of Rs 84 crore
in FY12. However, adjusting the one-time gain on sale of investment (of
Rs 59.5 crore), the adjusted net profit stood at Rs 25 crore, a fall of 29.7
per cent compared to FY11. In the 7 months ended Oct 2012, it reported
sales of Rs.329 cr and a PAT of Rs.20.4 cr.
Objects of Issue:
The objects of the Issue are:
Setting up of unit for Trouser manufacturing at Doddaballapur,
Karnataka and Knitting & Fabric processing unit at Kagal- Kolhapur,
Maharashtra
Margin Money for working capital of new units.
General Corporate Purpose
Means of Finance:

Rs. Lacs
Grand
S. No. Particulars
Amount Total
1 Term Loan for Doddaballapur Project from Canara Bank
6000.0
2 Term Loan for Kagal Project from Canara Bank
9000.0 15000.0
3 Public Issue of Equity Shares
*
4 Internal Accruals
*
Total
*

Cost of Project:
S. No. Particulars
Setting up of unit for Trouser manufacturing at Doddaballapur, Karnataka and Knitting & Fabric processing unit at
1. Kagal- Kolhapur, Maharashtra
a. Land & Site Development
b. Building and Civil Works
c. Machineries and Equipments

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Rs. Lacs
Amount

1316.0
7286.4
17204.2

d.
e.
f.
2.
3.
4.

Miscellaneous Fixed Assets


Preliminary and pre Operative Expenses
Provisions for Contigiencies
Margin Money for working capital
Issue Expenses
General Corporate Purpose
Total

2612.5
1290.0
1168.7
1116.8
*
*
*
(Source: RHP)

SGLs strengths:

Multiple Product Capability.


Strong Management Team.
Relationship with big sized players in international market.
Produce products at Competitive pricing.
Stringent quality check.
Designing Capabilities.
Sampling Capabilities.
Strategic Location Advantage.

SGLs strategy:

Strengthening Apparel designing and Product Development Process.


Strengthening Product Portfolio and enhancing capacities to meet client demands:.
Integrated Operations.
Controlling Operational Cost.
Tap domestic market and expanding geographic reach.

Risks & Concerns:


SGL has business relationship and association with Bombay Rayon Fashions Limited (BRFL) for last few years. SGL and

BRFL have cross investments in the shares of its Companies and enjoy trade relationship with each other Also some of the
promoters & Promoter Group Companies of BRFL are shareholders/directors in few of its group companies.
Export revenue has contributed more than 90% of the total revenue in last few financial years. SGLs substantial portion of

sales revenue is concentrated in European Region. In the event of any economic turmoil in these regions its revenue would
be substantially impacted.
SGLs major portion of the sales in FY2011-12 was from top ten customers. Any loss of order from these customers may

have adverse impact on the financials of the Company.


Raw materials constitute a significant percentage of its total expenses. Any increase in raw material prices and any

decrease in the supply of raw materials could materially affect SGLs business.
If SGL is unable to obtain required approvals and licenses in timely manner, its business and operations may be adversely

affected.
The success of SGLs business largely depends on its ability to effectively implement and execute its business and growth

strategy.
Business is dependent on SGLs manufacturing facilities. The loss of or shutdown of operations at any of its manufacturing

facilities may have a material adverse effect on its business, financial condition and results of operations.
SGL has entered into related party transaction aggregating to Rs 54302.50 lacs during FY11-12. It cannot be assured that

such transactions will not have an adverse effect on its business,, financial conditions, results of operations and prospects.
SGL has experienced negative Operating Cash Flow in the Financial Year 2010-11 and 2007-08 and cannot rule out the

possibility of such negative cash flows in future.


SGL is subject to industrial unrest, slowdowns and increased employee cost
Inability to visualize the dynamic and changing trend of fashion may hamper the demand and growth of the Company
Disruption in services of third party transport providers may affect SGLs business operations
Industry is prone to frequent changes in government policies; any material changes in the duty structure may adversely

impact SGLs financials.

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Competition from other domestic producers /unorganized sector may adversely affect SGLs competitive position and its

profitability.
Extract from grading rationale by CARE:
The ratings take into account the experienced promoter and management team, companys long and good operational track
record, established and long-standing relation with reputed clients spread across global markets, moderate capital structure,
comfortable debt coverage indicators and relatively stable margins. The ratings assigned, however, are constrained by Scotts
Garments Limiteds (SGLs) customer and business concentration risk with 50%-60% of the revenue being derived from a
single client and significant share of revenue derived from Europe which is faced with extended economic downturn, working
capital intensive nature of operation owing to high inventory days, project implementation risk on account of the significant
capex in next one year.
Going ahead, the ability of SGL to enhance its addressable market by adding new customers to its existing clientele base and
by penetrating into new geographies, managing its working capital efficiently and completion of the ongoing project within the
estimated time and cost would remain the key rating sensitivities.

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perform investment banking, or other services for, any company mentioned in this document. This report is intended for Retail
Clients only and not for any other category of clients, including, but not limited to, Institutional Clients
Disclaimer: HDFC Bank (a shareholder in HDFC Securities Ltd) is associated with this issue in the capacity of Refund
Bankers to the issue and will earn fees for its services. This report is prepared in the normal course, solely upon information
generally available to the public. No representation is made that it is accurate or complete. Notwithstanding that HDFC Bank
is acting for Scotts Garments limited Ltd this report is not issued with the authority Scotts Garments limited Ltd. Readers of
this report are advised to take an informed decision on the issue after independent verification and analysis.

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