Loose fundamentals, `paper profits’, poor corporate governance, etc. etc. make Ashapura Intimates Fashion unfit for investment!

Against the existing capital base of more than Rs 14 cr productive assets amount to only Rs 5 cr; Net cash generation from operations has never been positive; RoC filings have not been done within the stipulated time resulting in penalties; Main supplier within the group does not have approval/license under the Factories Act; Assignment of trade marks pending for years; No formal agreement with the `Exclusive Brand Outlets’ that sell company’s products; Conflict of interest with group company – all these make Ashapura a poor grade.

OFFER AT A GLANCE
Name	Ashapura Intimates Fashion Ltd
Offer Amount	Rs 21 cr
Offer Quantity	52.5 lakh shares of Rs 10 each
Offer on Total Equity	27%
Free Float	32.3%
Post-issue Promo stake	67.7%
Post-IPO Capital	Rs 19.47 cr
Offer Price	Rs 40
Application Quantity	3,000 & Multiples of 3,000
Offer Opens	March 28, 2013
Offer Closes	April 4, 2013
Listing	SME Platform of BSE
Rating	Nil
Lead Manager	KJMC Corporate
Registrar	Link Intime

 

The Offer

Fresh issue of 52,50,000 equity shares of  Rs 10 each at a price of  Rs 40 per share  aggregating to Rs  21 cr. The issue comprises a net public offer of 49,86,000 shares and a reservation of 2,64,000 shares for the market maker. The issue will constitute 27% of the post-IPO capital of the company.

Whereas the lead manager, KJMC Corporate Advisors, has underwritten 7,89,000 equity shares or Rs 3.16 cr (15% of the issue size), a little known market maker, NNM Securities, has underwritten a larger portion of 44,61,000 shares or Rs 17.84 cr (85%). Investors have to apply for a minimum of 3000 shares or Rs 1,20,000. The shares are to be listed on the SME platform of BSE.  

 

Issue Object

The company proposes to utilize the net proceeds of Rs 19.25 cr for setting up of ten exclusive brand outlets (Rs 3 cr), branding & marketing (Rs 3 cr), investing in group-company (Rs 1.5 cr), modernization of machineries (Rs 3 cr), working capital requirements (Rs 7.5 cr) and general corporate purposes (Rs 1.25 cr). Nonetheless, the funding proposals have not been appraised by independent agency and the deployment of funds is left to the discretion of the management. It is pertinent to note here that according to the offer document, the company has not placed order for the purchase of machinery connected with the proposed modernisation.

 

Company Background

Incorporated in 2006 as Ashapura Apparels Private Limited in Mumbai, the company took over the business of proprietorship firm Ashapura Apparels in 2007 and established new facility spreading over 24,000 sq. ft. at Bhiwandi for designing and marketing of intimate garments under the brand “Valentine”. The company claims to have installed modern machineries and introduced the brand “N-Line” in the year 2008. A new brand “Night & Day” was launched in 2009.

The company expanded its facility by adding 10,000 sq. ft. and acquired modern machineries in 2011 besides enlarging its brand portfolio with “Valentine Pink”, “Valentine Secret Skin” and “Valentine Sports”. The company’s top line crossed Rs 100 cr-mark in fiscal 2012. The company’s name was changed to Ashapura Intimate Fashion Ltd (AIFL) only in December 2012.

The main promoter of AIFL Harshad Thakkar (35) whose qualification is `Schooling’ reportedly entered into the intimate garments industry at the age of 18. As per the IPO document, Thakkar is co-opted Member and Chairman, Lingerie Sub-Committee, Clothing Manufacturing Association of India.

 

Track Record

AIFL is reportedly in the business of designing, branding, marketing and retailing intimate garments such as loungewear, bridal night wear, honeymoon sets, bathrobes and night wear. The company expanded its product portfolio by adding other intimate garments such as sportswear, women’s innerwear including lingerie in the year 2011. 

The six-year-old AIFL’s sales have grown at a CAGR of 132% from just Rs 3.53 cr in fiscal 2008 to Rs 101 cr in fiscal 2012. Its PAT has grown at a CAGR of 160% from Rs 7 lac to Rs 3.41 cr during this period.  While the growth has been phenomenal, the quality of the earnings is much to be desired. Notwithstanding the impressive growth the company has failed to net cash from operations during last five years. In other words the profits were only on paper.

 

Valuation

Garment-innerwear manufacturers command a healthy discounting on the Indian bourses which should augur well for new scrips like AIFL. Nevertheless, the company’s lackadaisical fundamentals, quality of its current earnings, absence of dividend and promoters’ low cost of holding (Rs 5.27) make the offer price (Rs 40) too steep to sustain for long term.

How Ashapura compares with innerwear peers
SCRIP NAME	M-CAP	NET BLOC	P/E	P/BV	P/R	OPM	YLD	PRICE
	(Rs Cr)		(x)			%		(Rs)
Page Industries	3,652	129	34.5	22.0	4.5	18.8	1.1	3,274.45
Rupa & Company	1,288	120	24.0	5.6	1.6	13.0	0.9	161.95
Lovable Lingerie	421	37	18.8	2.6	2.8	15.9	0.8	250.30
Maxwell Industries	91	69	74.5	1.0	0.4	8.3	2.1	14.40
Innerwear Compos	5,452	293	29.7	8.5	2.7	15.0
Market Composite	6,253,885		14.9	2.0	1.2	22.4
Ashapura Intimates	78	5	17.2	3.5	0.8	9.1	0.0	40.00

 

Manager’s Track

AIFL has hired KJMC Corporate Advisors (formerly known as KJMC Global Market) as sole lead manager for its IPO. KJMC has not handled any public issues in recent years. The last one managed by the investment banker was Richa Industries in 2006. This scrip is currently traded at less than half of its issue price. The previous one handled by them in 2003, BAG Films, is languishing at 66% discount.

During the nineties, between 1994 and 1999, the merchant banker handled more than a dozen IPOs of which just one is currently quoting at a premium. Six scrips have vanished from the trading screen, two are hardly traded regularly and four are quoting below the offer price.   

Performance of KJMC-associated IPOs
CO_NAME	IPO	IPO	CURRENT	GAIN
	DATE	PRICE	PRICE	%
Richa Industries	13-09-2006	30	16.10	-46.3
B.A.G Films & Media	06-09-2003	10	3.36	-66.4