The Hindu Business Line : Recently listed textile stocks rule below IPO price

Mumbai March 21 February saw a spurt in textile companies proposing to enter the capital market to raise money for capital expansion. The removal of quota restrictions and the domestic retail boom contributed to the optimism among textile firms in a great way. This, in turn, resulted in the companies tapping the capital market for raising funds for capacity expansion.

The companies were also looking to raise capital ahead of the expiration of the Technology Upgradation Fund Scheme (TUFS) that was due to expire in March 2007, but which was subsequently extended for another five years.

Some of the companies that have approached the capital market in recent times are House of Pearl Fashions, Jagjanani Textiles, Technocraft Industries, Mudra Lifestyle Ltd, Indus Fila, Abhishek Mills, Evinix Accessories and Vijayeshwari Textiles.

Most of these companies listed on the stock exchanges at a discount and now, a month later, are currently trading below their issue price.

Analysts attribute the low response to the poor performance of the textile sector in general.

"The frontline textile companies are not doing well right now in terms of market perception. When the frontline company stocks are not doing well, then it reflects on the second and third-tier stocks as well," said Mr Jigar Walia, textile analyst, Parag Parikh Financial Advisory Services Ltd.

"The market response to mid-cap stocks has been negative for a while, which is why the frontline companies are not performing as expected. As a result, it is weighing down on the new companies that have been listed," said another textile analyst.

Capex plans

All the companies had stated in their issue prospectus that the proceeds raised through the issue of equity would be used for capacity expansion.

"Most of the money has gone into spinning and weaving. As an investor, the garmenting and fabric businesses are more lucrative as return on equity is higher in these segments," said Mr Valia.

Another view is that there were too many IPOs at the same time.

"There were too many at the same time and investors do not have that much money. Therefore, subscription suffered," said the textile analyst.

The companies are hopeful of their stock price picking up in the next three to six months.

"Once we come out with our year-end results, the stock price will come back to the issue price as investors will see the potential of the company. Markets are weak right now, which is why there is very little price movement on our stock," said Mr Ganesh Surana, Chief Financial Officer, Mudra Lifestyle Ltd.

The stock of Mudra Lifestyle is trading at Rs 61.20, against its issue price of Rs 90.

Mr Pius Thomas, General Manager (Finance and Purchase), Page Industries Ltd, has similar views about his company's performance and feels that in about six months, when the next two quarters' results are out, investors will realise the potential in the company and the stock will start performing better.