What you must know about Sahaj Fashions IPO

Sahaj Fashions Ltd was incorporated in 2011 to manufacture fabric for garment making, home furnishings, and a variety of industrial applications. Apart from manufacturing cotton suiting and shirting fabric, Sahaj Fashions Ltd also makes polyester-based and cotton-polyester blended fabrics. Its product that is in high demand from the garments manufacturers is the cotton yarn-dyed fabrics. Its product catalogue comprises of Piece dyed shirting, cotton yarn dyed shirting, Chambray, Self-designed shirting, Lycra and linen fabrics, cotton duck fabric, drill, and twill fabric. It has its manufacturing unit located on the Kishangarh Bhilwara Express Highway, near Ajmer in Rajasthan.

The company has built a complete infrastructure ecosystem for top class performance and delivery to customers. It has high speed air jet looms, compressors for supply of best quality air, humidification plant to suit cotton fabrics manufacturing at high speed and a lot more. For the weaving preparatory jobs, the company has installed sectoral warping machines, apart from two direct warping machines for cone unwinding and warping. Sizing of all types of yarn is done through PLC based sizing machines while there is also a complete DG set power back-up system to ensure uninterrupted power supply to the unit.

Key terms of the Sahaj Fashions IPO SME

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

• The issue opens for subscription on 25th August 2023 and closes for subscription on 29th August 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the fresh issue IPO has been fixed at a fixed rate of ₹30 per share.
   
• Sahaj Fashions IPO has a fresh issue component and a book built portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive for the shareholders.
   
• As part of the fresh portion of the IPO, Sahaj Fashions will issue a total of 44,76,000 shares (44.76 lakhs), which at the fixed price of ₹30 per share aggregates to a total fund raising of ₹13.43 crore.
   
• The offer for sale portion is relatively much smaller. The OFS entails the issue 1,76,000 shares (1.76 lakhs), which  at the fixed price of ₹30 per shares translates into a total OFS issue size of ₹0.53 crore.
   
• As a result, the total size of the IPO will comprise the issue of 46,52,000 shares (46.52 lakhs), which at the fixed price of ₹30 per share aggregates to a total IPO issue size of ₹13.96 crore for the IPO of Sahaj Fashions.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 2,36,000 shares. The market maker for the issue is NNM Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Rohit Toshniwal, Sadhana Toshniwal, and others. The promoter holding in the company currently stands at 97.95%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will reduce.
   
• The fresh issue funds will be used by the company for meeting its working capital funding gaps and for prepayment of certain secured borrowings. Part of the funds raised will also go towards general corporate expenses.
   
• While Khambatta Securities Ltd will be the lead manager to the issue, Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is NNM Securities Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 5.07% of the issue size for the market makers, 47.47% for the retail investors and the balance 47.46% for the HNI / NII investors or the non-retail investors in the IPO of Sahaj Fashions Ltd. The break up in terms of minimum and maximum allowed quota has been captured in the table below.

The minimum lot size for the IPO investment will be 4,000 shares. Thus, retail investors can invest a minimum of ₹120,000 (4,000 x ₹30 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 8,000 shares and having a minimum lot value of ₹240,000. 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 Sahaj Fashions IPO

Sahaj Fashions IPO opens on Friday, August 25th, 2023 and closes on Tuesday August 29th, 2023. The Sahaj Fashions Ltd IPO bid date is from August 25th, 2023 10.00 AM to August 29th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is August 29th, 2023.

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.

Financial highlights of Sahaj Fashions Ltd

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

Data Source: Company DRHP filed with SEBI

The company has reported net margins of over 3% only in the current year, whereas in previous years the net margins were under 1%, which raises serious questions about the ability of the company to sustain valuations. Also, the ROE is above 10% only in the current fiscal but was just around 3-4% in the previous years. Also, if you look at the sales trend of the company, the revenues have actually contracted since 2020, which means the company is yet to come to come to terms with the supply chain constraints caused by the pandemic. This is also a sector where there is a lot of pressure coming from the unorganized sector and that should also keep the stock under pressure.

The traditional P/E model becomes difficult to apply in the case of Sahaj Fashions as the company has delivered a relatively better performance only in the latest year. Also, the P/E equations change drastically if the current year is included but remain unattractive if the latest FY23 year is not included. That is the real challenge for investors as they need to take a call on whether the FY23 performance was an exception or a harbinger of the future growth of the company. The investment call would be based on that inference. Investors have to be cautious about the company as it ranks high on risk and returns on capital and sales have not been too attractive on a consistent basis.