What you must know about Kalahridhaan Trendz IPO?

Kalahridhaan Trendz Ltd was incorporated in the year 2016 and is predominantly into the manufacture of dyes and the company also processes textiles. It is largely into the manufacture and trading of fabrics with embroidery, trading of grey fabrics, buying of grey fabrics and printing and dyeing of suiting, shirting, and dress fabrics for sale in the B2B market. Kalahridhaan Trendz Ltd operates with 2 verticals viz. the Embroidery and knitting and the Dyeing and printing vertical. Kalahridhaan Trendz Ltd has a manufacturing facility located in the city of Ahmedabad in Gujarat with an installed production capacity of 1.00 lakh metres per day. The company has about 12 full-time employees on its rolls. Its manufacturing facility sprawls across 1.50 lakh square feet (SFT).

The dyeing and printing business of Kalahridhaan Trendz Ltd offers the complete Range of Textile Wet Processing & Finishing Machines from Scouring and Bleaching to Dyeing & Printing to Finishing and Folding with the latest fully Automatic Control Instruments. It covers a variety of fabrics made of Natural and Synthetic Fibers; including Cotton, Polyester, Wool, Viscose, Silk etc. The Dress material business unit of Kalahridhaan Trendz Ltd develops a large variety of blends and shades to cater to the ever-changing requirements of clients. Finally, the Shirting and Suiting business is in sync with global fashion trends, and is continuously developing newer products. This business also uses state-of-the-art-technology, highly-skilled workforce, and strong logistics to conceive and deliver quality.

Key terms of the SME IPO of Kalahridhaan Trendz IPO

Here are some of the highlights of the Kalahridhaan Trendz IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 15th February 2024 and closes for subscription on 20th February 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the IPO is set at a fixed price level of ₹45 per share. Being a fixed price issue, the issue of price discovery does not arise at all.
   
• The IPO of Kalahridhaan Trendz Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Kalahridhaan Trendz Ltd will issue a total of 49,98,000 shares (49.98 lakh shares), which at the fixed IPO price of ₹45 per share aggregates to fresh fund raising of ₹22.49 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 49,98,000 shares (49.98 lakh shares) which at the upper band IPO price of ₹45 per share will aggregate to overall IPO size of ₹22.49 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,52,000 shares. Sunflower Broking Private Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Niranjan Agarwal, Aditya Agarwal, and Sunita Agarwal. The promoter holding in the company currently stands at 96.22%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 68.24%.
   
• The fresh issue funds will be used by the company towards the working capital needs of the company and a part of the funds will also go towards general corporate purposes. Part of the proceeds will also be used for meeting the issue expenses.
   
• Interactive Financial Services Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Sunflower Broking Private Ltd.

IPO allocation and minimum lot size for investment

Kalahridhaan Trendz Ltd has already announced the market maker allocation at 2,52,000 shares as inventory for market making. Sunflower Broking Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Kalahridhaan Trendz Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹1,35,000 (3,000 x ₹45 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 6,000 shares and having a minimum lot value of ₹2,70,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Kalahridhaan Trendz Ltd IPO (SME)

The SME IPO of Kalahridhaan Trendz Ltd IPO opens on Thursday, 15th February 2024 and closes on Tuesday, 20th February 2024. The Kalahridhaan Trendz Ltd IPO bid date is from 15th February 2024 at 10.00 AM to 20th February 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 20th February 2024.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on February 22nd 2024, will be visible to investors under the ISIN Code – (INE02M801018).

Financial highlights of Kalahridhaan Trendz Ltd

The table below captures the key financials of Kalahridhaan Trendz Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues have been flat in the latest year, but has grown sharply in the previous year. Overall, the 2-year growth does look tepid. The PAT margins are relatively sober in the latest year at 3.62% and the dilution could reduce this number.
   
• While net margins of the company have been relatively subdued, the return on equity (ROE) at 36.75% and the return on assets (ROA) at 6.08% in the latest year are very attractive and robust. That is more due to the low equity base of the company.
   
• The asset turnover ratio or the sweating ratio has been above 1.6X, which is attractive. In addition, when you add the ROA at 6.08%, the future impact on the ROE could be quite substantial; especially once the sales start to pick in the coming quarters.

The company has latest year EPS of ₹7.74 and even though previous data may not really be comparable, the weighted average EPS of last 3 years stand at ₹4.92. The latest year earnings are being discounted by the IPO price of ₹45 per share at 5.81 times P/E ratio. However, if we annualize the 6-month EPS of ₹3.93 for FY24, we are looking at relatively more reasonable valuations based on forward earnings numbers. The company is located in the erstwhile textile capital of India and the market is huge. Textile sector is seeing a revival, thanks to the PLI scheme. The company may be small, but may be a high risk call for the investor in the textile space in India.