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Limited customer concentration mars Mandhana IPO

The company’s top ten customers accounted for 55.34% of its revenue for the nine-month period ended 31 December 2009

Mandhana Industries Ltd hits the market on 27 April 2010. The company derived 77.79% of its exports from Europe compared to 83.62% as on 31 March 2010. As of 31 December 2009, exports constituted 17.13% of the company’s total sales. The company derived 55.34% (Rs243.07 crore) of its revenues for the nine-month period ended 31 December 2009 from its top 10 customers. Mandhana’s earnings per share (EPS) stands at Rs16.11 for the year ended 31 March 2009 while the average return on net worth is 27.35%.

The company recorded a net profit of Rs36.56 crore in FY09 compared to Rs35.30 crore in FY08 with total income of Rs463.25 crore and Rs406.93 respectively.
 
The company had negative cash flows from its operating activities in financial year 2007-2008 and for the nine-month period ended 31 December 2009 amounting to Rs4.32 crore and Rs11.68 crore respectively due to an increase in inventory holding and receivable levels and also due to sharp increase in debtors and advances paid. For the corresponding periods the company’s earnings before interest, depreciation, tax and amortisation (EBIDTA) were Rs73.09 crore and Rs93.28 crore respectively.

The company’s non-executive director Sanjay Asher, who was associated with Duck Tarpaulins Ltd (1 January 2002 to 31 March 2002) and Asian Electronics Ltd (31 March 2008 to 31 December 2009) appeared in the wilful defaulters list of the Reserve Bank of India (RBI).

Mandhana has obtained various export licenses under the Export Promotion Capital Goods Scheme (EPCG) wherein the company is required to export goods of a defined amount, failing which, it has to make payment to the Indian government equivalent to the duty benefit enjoyed by the company under the particular scheme along with interest. Promoters will own 62.21% equity post the issue. As on 31 December 2009, its export obligation was Rs317crore.

Ratings agency CARE has assigned ‘IPO Grade 3’ to the issue. According to the Red Herring Prospectus, the proceeds of the IPO will be utilised for setting up of a new garment manufacturing facility at Tarapur, for expansion of yarn dyeing and weaving facility at Tarapur, and to pump margin money for working capital and general corporate purposes. There are 11 litigations pending against the company and four litigations against the director in various categories including one criminal case.

The issue opens on 27 April 2010 and closes on 29 April 2010. The company plans to mop up Rs99.60 crore to Rs107.90 crore at a price band of Rs120-Rs130 per share by issuing fresh equity of 83 crore shares of Rs10 each.

Edelweiss Capital Ltd and Axis Bank Ltd are the lead book-running managers to the issue.

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