Spinning Success: Borana Weaves' IPO Off to a Flying Start

It is celebration time for Borana Weaves, as their initial public offering has been spun into gold — oversubscribed over 21 times by retail investors and over eight times by non-institutional buyers as of 03:21 PM today, Day 1. The strong response signals a welcome revival in the primary market, which finally seems to be stitching itself back together after a slow spell. The issue, which opened for subscription today, will close on May 22.

However, bidding in the portion allocated for qualified institutional buyers is yet to pick up pace. The portion has received bids for just 56,442 shares against 2.01-mn shares reserved for this category. Overall, the IPO has received bids for 6.2 times the number of shares on offer, which is 3.69-mn. The company’s IPO consisted fresh issue of 6.70-mn shares, out of which it allotted 3.02-mn shares to anchor investors on Monday at Rs 216 apiece, raising Rs 65.2 crore.

What’s in the Fabric? Understanding Borana’s Core Business

If you are an avid cloth-lover and happen to visit any garment factory, you will find an essential material that is used in finishing and giving vivid colours to cloths. That material is grey fabric, and Borana Weaves is a Surat-based manufacturer that produces unbleached synthetic grey fabric. This fabric serves as a fundamental material for dyeing and printing, in various industries, including fashion, traditional textiles, technical textiles, home décor, and interior design, the company said in its offer documents.

The company also produces polyester textured yarn, which is produced by heating polyester oriented yarn that is a raw material for grey fabric production. Borana currently runs three units in Surat and its aggregate manufacturing capacity for grey fabric and polyester textured yarn is 233.28-mn meters per annum.

Why Go Public? The Expansion Blueprint

The company kicked off its operations in 2020 and it now operates three units. This company now plans for a major expansion (an additional 50% of the already installed capacity), and thus will use Rs 71.35 crore of the total net proceeds to expand its production capacity by setting up a new unit at Surat. The proposed unit will likely have an annual capacity to produce 112.75 million meters of grey fabric and polyester textured yarn.

Another Rs 26.50 crore will be utilised in funding working capital requirements, according to the red herring prospectus.

What Does the Financials Show About the Firm?

Borana Weaves has managed to grow its earnings steadily over years. Its consolidated net profit for the financial year ended March 2022 came in at just Rs 1.8 crore. However, the grey fabric maker zoomed its profit for the following year by more than 9 times to Rs 16.30 crore. Its earnings for FY24 further rose to Rs 23.59 crore, and by the end of nine months in December 2024, the company’s consolidated net profit surpassed the total earnings for FY24. During the Apr-Dec period, the grey fabric maker recorded a profit of Rs 29.31 crore.

Along with the profit, Borana also steadily increased its consolidated revenue during the aforementioned period. Its revenue increased nearly five-fold between FY22 and FY24. Borana Weaves’ sales for the nine month ended December was Rs 215.71 crore.

Besides earnings, the company has also significantly improved its cash flow. The textile manufacturing firm had Rs 14.99 lakh of net cash and cash equivalents as of December 2024, much higher than Rs 1.70 lakh recorded as of March 2022. It has also cut down its total borrowings by 22% to Rs 54 crore as of December 2024, from what was recorded as of March 2024. Beyond these borrowings, Borana had contingent liabilities amounting to Rs 9.82 crore as of December last year.

The company said it has vertically integrated key operations, such as spinning and texturising, within its manufacturing process, helping it to improve control over the supply chain and enhance production efficiencies.

According to the data cited by Borana, smaller and mid-sized companies in the sector are also achieving superior profitability due to their focus on sustainability, cost management, and niche markets, even though larger players command greater market share.

How the IPO Stacks Up on Valuation?

Valuation is an important metric to understand whether an IPO is fairly priced. At its upper price band of Rs 216, the price-to-earnings ratio is 18, based on the EPS for FY24. Its peer group companies such as KPR Mill and Vardhman Textiles have a price-to-earnings ratio of 50 and 17, respectively. According to Finshots, the average valuation multiple of the industry is at 35—add a line that valuations are fair.

Loose Threads: Risks Investors Should Watch Out For

Now here are some loose ends. At a time where even investors are looking to diversify their portfolio, Borana’s customer base is not diversified. The company derives over 98% of its revenue from clients based in Gujarat and this exposes the company to region specific risks which could adversely affect its business operations. Moreover, almost 26% of the total revenue for FY24 was derived from related parties, according to the red herring prospectus. 

Also during FY24, nearly 55% of the total revenue came from the top 10 customers, while 39% came from top five. Any downturn in orders from these key customers due to any unforeseen reason could seriously impact its operations and financials.

Apart from customer concentration, the company’s product portfolio also lacks diversity. It derived over 72% of the total revenue for FY24 from sale of grey fabric. The demand for grey fabric is closely tied to the performance of end industries such as apparel and home textiles and any downturn in these sectors could lead to reduced orders for grey fabric.

Other Details and GMP

The public issue is available at a price band of Rs 205–216 per share, and a lot size of 69 shares. Thus, investors can bid for a minimum of 69 shares and in multiples thereof. The shares of Borana Weaves were commanding a strong premium in the grey market ahead of the opening of the public issue. According to reports, the shares were seen trading at around Rs 271 per share, or at over 25% premium to the cap price of the issue.