CM RATING

25/100

Scotts Garments (SGL) manufactures hi-fashion readymade garments. It has domain expertise in providing sampling and design and has additional facilities such as embroidery, printing, dyeing and washing. Presently it is largely engaged in manufacturing and export of readymade garments.

SGL has two dedicated and well-equipped design studios in Tirupur and in Bangalore with skilled and experienced employees preparing design ns. The studios are equipped with latest design software including CAD/CAM. These design studios generate various styles for garment business and at the same time, enables it to work on designs supplied by the customers.

The company has set up a 2.1-M.W capacity windmill at Bellary, Karnataka, and three windmills at Tamil Nadu with a total capacity of 1.95 M.W. It has entered into a wheeling and banking agreement with Gulbarga Electricity Supply Company for the sale of the power generated through the wind mill. The company has also signed a wheeling and banking agreement with Tamil Nadu electricity board for the sale of power through windmill at Tirunelveli district, Tamil Nadu

Its main suppliers of raw materials are Bombay Rayon Fashions Ltd, Arthanari Loom Centre (Textile) Pvt. Ltd, RSWM, A New Vision (Bombay), KG Denim, Arvind Ltd, A-Tex (India) Pvt. Ltd., Raymond Uco Denim Pvt. Ltd., and Mahalaxmi Textiles.

SGL operates one shift or two shifts depending on the orders in hand. Presently it has installed capacity of 99,72,000 pieces/annum for manufacturing woven garments and 1,17,36,000 pieces/annum for knitted garments respectively. The company proposes to install additional capacity of 40,000 for knitting & processing and 30,000 pieces for trouser making.

SGL proposes to raise Rs 136.59 - Rs 138.69 crore by offering 1,05,06,954 equity shares of Rs. 10. The upper price band is fixed at Rs 132 and the lower price band is fixed at Rs 130. The company will utilize funds for setting up unit for trouser manufacturing at Doddaballapur, Karnataka, and knitting and fabric processing at Kagal, Kolhapur.

Strengths

The product portfolio comprises woven and knitted garments that includes shirts (cotton and denim), tops, skirts, trouser (cotton and denim), shorts, cargos, T-shirts (basic and embroidered), sweats and jerseys. It exports products to several MNCs into more than 20 countries across the globe. It has set up an exclusive display showroom at the Apparel Export Promotion Council in Gurgaon

Customers include value retailers as well as higher-end fashion brand retailers such as Best Seller, Old Navy, H& M Hennes & Mauritz, Rhodie Suppliers, C&A, S. Oliver, Jules, No Excess, Mayoral Moda, and Infinil S.A. It supplies multi product offerings to Bestsellers for their 5 sub-brands: Veromoda, Jack and Jones, Only, Exit and Selected. It focuses on maintaining long-term relationships with customers. SGL has strong relationship with some of leading customers, and have a decade old business relations with Best Seller, which is one of its largest customers in terms of revenues.

Weaknesses

90% of sales are from exports and 76% of exports go to Europe, which is facing economic slowdown.

It does not have much domestic presence.

Clash of interest with Bombay Rayon Fashions (BRFL). BRFL has a strong presence across the entire value chain of design, yarn dyeing, weaving, fabric processing, garment manufacturing and retail. The company manufactures a wide variety of fabrics and garments. SGL has business relationship and association with Bombay Rayon Fashions (BRFL) since the last few years. SGL holds 2,61,397 equity shares, i.e., 0.94% of the paid-up capital of BRFL. BRFL holds 20,00,000 equity shares, i.e., 7.48% of the paid-up equity capital of SGL. SGLs Promoter Naseer Ahmed is one of the non-executive and non-independent members on the board of BRFL. Its proposed project of knitting and fabric processing at Kagal Industrial Textile Technology Park, developed by Kagal Industrial Textile Technology Park Pvt Ltd is an SPV promoted by BRFL. Further, B.R.Machine Tools Pvt. Ltd, a group company of BRFL, also holds 30,05,500 equity shares, i.e., 11.24% of the paid-up equity capital of SGL. Also, some of the promoters and promoter group companies of BRFL are shareholders and directors in a few of the SGL group companies.

SGL and BRFL have entered into a joint MOU with the government of Karnataka for setting up of textile units at 12 locations in Karnataka. SGL and BRFL have mutually agreed to independently set up textile units at 5 and 7 locations, respectively. The present project at Doddaballapur is one of the locations forming part of the MOU.

For the year ended March 2012, sales increased just 1% to Rs 500.25 crore and PBT before extraordinary gains fell 9% to Rs 42.88 crore. PBT before extraordinary items was around Rs 43 crore for the past three years.

Valuation

The annualized EPS for the seven months ended October 2012 on post-IPO equity works out to Rs 9.0, which is discounted 14.4 - 14.7 times by issue price of Rs 130-132. Bombay Rayon, a comparable but much larger player, trades at standalone TTM P/E of 18.0.

Scotts Garments: Issue highlights
Sector	Garment exports
Offer size(in Rs crore)
- On lower price band	136.59
- On upper price band	138.69
Offer size(in no. of shares )
- Fresh issue	10506954
Price band (Rs)	130-132
Post issue capital (Rs crore)	38.98
Post-issue promoter shareholding (%)	52.18
Issue open date	25/04/2013
Issue closed date	29/04/2013
Rating	25/100

Scotts Garments: Financials

	0903 (12)	1003 (12)	1103 (12)	1203 (12)	1210 (7)
Sales	363.88	430.17	495.28	500.25	329.40
OPM (%)	13.4	15.8	13.8	14.3	14.2
OP	48.92	67.90	68.22	71.73	46.71
Other inc.	1.87	4.19	8.47	6.39	5.93
PBIDT	50.78	72.09	76.70	78.12	52.64
Interest	12.36	16.45	14.91	20.82	11.15
PBDT	38.42	55.64	61.78	57.30	41.49
Dep.	9.90	12.40	14.52	14.42	11.59
PBT	28.52	43.24	47.26	42.88	29.90
EO	8.69	0.00	0.00	59.49	0.00
PBT after EO	37.21	43.24	47.26	102.37	29.90
Tax	9.99	15.40	12.33	18.33	9.49
PAT	27.22	27.84	34.93	84.04	20.41
EPS (Rs)*	5.4	7.1	9.0	9.0	9.0
* EPS annualized on the post issue equity of Rs 38.98 crore on face value of Rs 10 each EO: extraordinary items, EPS is calculated after excluding EO and relevant tax All figures in Rs crore Source: Capitaline Databases

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