The Hindu Business Line : First Winner Industries: Avoid

Investors can avoid the initial public offering of First Winner Industries (FWI). Although the company is focussed on the domestic market for textiles, which has better prospects than the export market, the lack of significant competitive advantage by virtue of brand presence, links to retail or a fully integrated manufacturing facility, makes this an unattractive investment within the textile sector. The stock is being offered at about 15 times, at the higher end of the price band, based on the annualised consolidated FY-08 earnings per share (on an expanded equity base). There are stocks in the listed space with a longer track record at comparable, if not cheaper, valuations.

First Winner Industries was established in 2003. The company originally traded fabric, catering to the wholesalers and textile outfits in the Maharashtra belt.

Revenues from trading have grown at an annualised rate of 54 per cent in 2004-07 to Rs 60 crore as of January 2008. Profitability has only recently improved however, as the company has been able to source fabric at better rates and also witnessed better realisations.

With the intention of scaling up and improving margins, FWI forayed into manufacturing in 2006. The company has an existing capacity of 105 lakh metres and an additional 100 lakh metres through its subsidiaries. This is a medium size capacity by Indian weaving industry standards.

Objects of the offer

FWI is raising Rs 65 crore-Rs 70 crore from this initial public offer. It will invest Rs 21 crore to fund the expansion of its weaving facility from 108 lakh metres currently to 170 lakh metres. It also proposes to foray into men’s garments and is setting up a plant that will manufacture 1.5 million shirts annually for Rs 12 crore. The facilities are expected to go on stream in early 2009. The company also proposes to repay debt worth Rs 18 crore. Interest accounted for about 3 per cent of FY-08 sales. The balance has been earmarked for general corporate purposes, which could account for as much as third of the offer proceeds.

Prospects

The current manufacturing operation is itself yet to stabilise, going by the low capacity utilisation levels. Most of the manufacturing over the past year had been undertaken on a job work basis — manufacture of fabric on behalf of other manufacturers. Trading of fabric still accounts for more than 90 per cent of sales. In this context, its ability to significantly ramp up sales from newly commissioned capacities remains a concern.

Some of the new fabric capacity will be diverted towards its garment unit. However, it will take a while before its garment operations stabilise, especially as more exporters and new garment outfits target the local market. Moreover, the company will remain dependent on other processing units for its final fabric requirement and as such the advantages of forward integration is minimal.

The company may be able to continue getting orders on a job-work basis and for its trading business. To that extent however, the business is likely to remain largely commodity-driven.

The offer opens on June 9 and closes on June 12. The lead manager is Almondz Global Securities.

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