Earlier this year in March 2024, Shree Karni Fabcom made a stellar debut listing at Rs 260 apiece, a premium of 14%. Its IPO offer price was Rs 228.
At present, the stock trades at Rs 750 per share.
Financial Metrics Shree Karni Fabcom
| Market Cap | ₹ 534 Cr. |
| Current Price | ₹ 755 |
| Stock P/E | 36.3 |
| ROCE | 21.34 % |
| ROE | 21.83 % |
| Sales | ₹ 137 Cr. |
| Debt to equity | 1.41 |
| Return over 6 Months | 176 % |
OUR VIEW
- We believe 36 PE is still a fairly cheap even after the run-up, considering the company operates in a fairly niche sector (technical textiles), with strong management and a lot of Capex put in place to drive growth & margin expansion.
- Use of IPO Proceeds: Almost 75% of IPO proceeds i.e ₹ 33 crores will be used for setting up a new dyeing facility (backward integration) and manufacturing of bags (forward integration) to grow up in the value chain.
- The current capacity utilization stands at approximately 55%, generating a topline revenue of ₹137 crore. With strategic backward and forward integration, the company aims to move up the value chain. By FY26, it is projected that the revenue could reach ₹220-240 crore, accompanied by margin expansion.
- Shree Karni Fabcom is currently trading at a forward P/E multiple of 15. Given the company’s future potential, we believe the stock is undervalued.
Financials-
| Particulars | FY21 | FY22 | FY23 | FY24 | FY25 E | FY26 E |
| Revenues | 32.87 | 83.57 | 126.95 | 137.00 | 178.10 | 231.53 |
| Other Income | 0.02 | 0.08 | 0.09 | 1.00 | 1.00 | 1.00 |
| Total Income | 32.90 | 83.65 | 127.04 | 138.00 | 179.10 | 232.53 |
| Cost of Materials Consumed | 29.18 | 83.24 | 122.98 | 101.00 | ||
| Changes In Inventories of Finished Goods | -2.03 | -12.32 | -20.04 | 1.00 | ||
| Employee Costs | 0.58 | 1.17 | 1.96 | 5.00 | ||
| Other Expenses | 1.37 | 3.29 | 6.94 | 5.00 | ||
| EBITDA | 3.81 | 8.28 | 15.20 | 26.00 | 35.62 | 46.31 |
| EBITDA (%) | 12% | 10% | 12% | 19% | 20% | 20% |
| Finance Cost | 1.88 | 2.50 | 5.16 | 4.00 | 4.00 | 4.00 |
| Depreciation | 0.24 | 0.53 | 1.52 | 3.00 | 3.00 | 3.00 |
| PBT | 1.68 | 5.25 | 8.52 | 19.00 | 28.62 | 39.31 |
| Tax | 0.15 | 0.11 | 2.96 | 4.00 | 4.00 | 4.00 |
| PAT | 1.53 | 5.14 | 5.56 | 15.00 | 24.62 | 35.31 |
| NPM(%) | 5% | 6% | 4% | 11% | 14% | 15% |
| EPS | 20.80 | 34.14 | 48.96 | |||
| CMP | 755 | |||||
| Forward PE | 15.42 | |||||
| BUY |
Overview of the Business
Incorporated in March 2018, Shree Karni Fabcom specializes in the manufacturing of technical textiles tailored for diverse industries such as luggage, medical arch support, chairs, shoes, and apparels. Specializing in Woven Fabrics, Knitted Fabrics, Coated Fabrics, and 100% polyester. Company specialized in converting yarn into fabric through knitting of fabrics.
Key Raw Materials are yarn, resin, acrylic, and coating chemicals to produce specialized technical textiles
How are Technical Textiles different?
Technical textiles involve altering the characteristics and properties of the fabric through various processes such as weaving, dyeing, or coating to meet precise performance requirements.
For a layman to understand the products,
Consider jackets that are waterproof, fireproof, or windproof—all are made using technical textiles. Everyday items like sports shoes or backpacks are also examples; their rugged, durable fabric is a result of technical textile processes, ensuring they don’t tear easily.
Product Portfolio – Application
A) Interlining Fabric – Jackets, wallet and hard luggage
B) Tafeta Fabric – Back-packs, rain cover, umbrella, vehicle cover, soft and hard
luggage
C) Matty Fabric – Soft and hard luggage, back-packs
D) Air Mesh – Backpacks, shoes, chairs, masks, helmets, medical arch support.
E)PU Coated Matty – Back Packs
F) WR Coated Lining – Back-packs, rain cover, umbrella, vehicle cover, soft and hard
luggage
G) AF Coated Lining – Back-packs, soft and hard luggage
H) PVC and EVA Lamination – Soft Luggage
Luggage Fabric
Geographic Bifurcation
Shree Karni Fabcom is engaged in a Business-to-Business (B2B) model with institutional manufacturers and traders located 13 states with Gujarat and Maharashtra accounting for 80% of its revenue in FY24
Revenue Concentration
Top 5 Customers – 60.3% in FY24 vs 43.54% in FY23
Top 10 Customers – 74.23% in FY24 vs 61.12% in FY23
Management
- Rajiv Lakhotia
- Manoj Kumar Karnani
- Raj Kumar Agarwal
- Radhe Shyam Daga
Manufacturing Set up
- Knitting Unit – 90 tonnes/month
- Weaving Unit – 70000 mtrs/day
- Coatings – 50000 meters/day
- PVC- 15000 meters/day
- EVA lamination – 8000 meters/day
- Heat embossing- 40000 meters/day
To ensure to supply quality products which meet the applicable standards, they have set up a Research and Development facility (“R&D facility”), which consists of quality assurance and quality control teams who check and conduct various tests in their ‘in-house laboratory’ on the fabrics at various stages starting from grey cloth to the finished fabrics manufactured.
Acquisition
Company has acquired a 66.67% stake in IGK Technical Textile LLP w.e.f. October 31, 2023, which is engaged in weaving, coating, sizing, and embossing of specialized technical textiles.
IPO Details
Co. raised 42.5 Crs through the IPO and got listed on March 14, 2024.
The Net proceeds will be utilized for:
- Funding the capital expenditure setting up a dyeing unit in Navsari District, Surat, Gujarat;
- Funding the purchase of new machinery
- Working capital requirements of the company;
- General Corporate Purposes.
Established Client base
Khadim, VIP, Samsonite, Bata, Hidesign, Tommy Hilfiger, Safari, Benetton, Swiss Military, Flamingo, Benetton, Karam, Dell etc
- The company availed Interest-Free loan from the promoters – 23.78 crores
(It could means their PAT would have been much lower if they had charged interest on this loan amount) - The capacity utilization is very low which stands at 55%
- Top ten Clients contribute 74.23 % of the revenue (as of latest data in Nov’23) – Needs to diversify its clientele.
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