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Neelam Linens and Garments (India)

• Neelam Linens and Garments (India) is coming out with an initial public offering (IPO) of 54,18,000 equity shares in a price band Rs 20-24 per equity share.
• The issue will open on November 8, 2024 and will close on November 12, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 2.00 times of its face value on the lower side and 2.40 times on the higher side.
• Book running lead manager to the issue is Expert Global Consultants.
• Compliance Officer for the issue is Supriya Gupta.

Profile of the company

Neelam Linens and Garments (India) operates as a soft home furnishing company based out of Maharashtra, India, extending its services to a global clientele, including USA, Australia and Far East. It specializes in the processing, finishing and supplying of bedsheets, Pillow cover, Duvet Cover, Towels, Rugs, Doher, Shirts & Garments predominantly for discounted retail outlets. It sources surplus or slightly imperfect fabric from the domestic market, applying value-added services such as designing, digital printing, dyeing, stitching, embroidery, and other enhancements. Subsequently, it distributes these refined products to discounted retail outlets in diverse countries.

The company entered the apparel industry by starting an in-house production of men’s and women’s fashion apparel since 2023. The company also earns revenue from sale of import licenses. An import license is a governmental authorization required for the importation of goods that are not freely importable. Licenses of this form restrict the number of items entering a country to exactly the requirements of those products and the country’s customs regulations. The government primarily offers the licenses as a financial incentive to exporters, and once granted, they become commodities. Import licenses, which grant the holder the right to import goods that may be restricted or regulated, are considered a service when they are sold or transferred.

The sale of license business of the company can be bifurcated into two parts, i.e. sale of the import license received from the government as an incentive and trading of the import license available in the market. The sale of import license received from government as a part of incentive includes RODTEP (Remission of duties and taxes on export product) and ROSCTL (Rebate of state & central Taxes and Levies). These e-scripts are issued by customs in respect of Remission of embedded local duties & taxes levied on FOB value of the exported goods. As the Company does not import any type of goods, they sale the same to the importer available in the market at a reasonable discount. To make Indian product competitive against the nation such as Vietnam, Bangladesh, Thailand etc., government give incentive to the eligible exporters. Textile industry is one of the industry which is covered under this scheme. 

Proceed is being used for:

• Funding capital expenditure requirement of the company towards purchase of Embroidery Machines for expansion
• Prepayment or repayment of all or a portion of certain outstanding borrowings availed by the company
• General corporate purposes

Industry Overview

India is the world’s second-largest producer of textiles and garments. It is also the sixth-largest exporter of textiles spanning apparel, home and technical products. India has a 4.6% share of the global trade in textiles and apparel. India is the world’s 3rd largest exporter of Textiles and Apparel. The textiles and apparel industry contributes 2.3% to the country’s GDP, 13%to industrial production and 12% to exports. The textile industry has around 45 million workers employed in the textiles sector, including 3.5 million handloom workers. India’s textile and apparel exports (including handicrafts) stood at $44.4 billion in FY22, a 41% increase YoY. The Indian textile industry has made a mark in the world with its innovative and attractive products. Total textile exports are expected to reach $65 billion by FY26. The Indian textile and apparel industry is expected to grow at 10% CAGR from 2019-20 to reach $190 billion by 2025-26. The Rs 10,683 crore ($1.44 billion) PLI scheme is expected to be a major boost for textile manufacturers. The scheme proposes to incentivize MMF (man-made fibre) apparel, MMF fabrics and 10 segments of technical textiles products.

Exports of textiles Ready-made garment (RMG) of all textiles, cotton yarns/fabrics/made-ups/handloom products, man-made yarns/fabrics/made-ups, handicrafts excl. handmade carpets, carpets and jute manufacturing. including floor coverings) stood at $44.4 billion in FY22. India’s RMG exports are likely to surpass $ 30 billion by 2027, growing at a CAGR of 12-13%. During (April-March) 2022-23, the total exports of textiles stood at $36.68 billion. Textile exports reached $44.4 billion in FY22, a 41% YoY growth.

Meanwhile, the PLI Scheme for Textiles to promote production of Manmade Fibre (MMF) apparel, MMF Fabrics and Products of Technical Textiles in the country to create 60-70 global players, attract fresh investment of $2.5 billion approximately and generate almost 7.5 lakh new employment opportunities. The Production-Linked Incentive (PLI) Scheme for Textiles products: MMF segment and technical textiles is envisaged to enhance India’s manufacturing capabilities and enhancing exports with an approved financial outlay of Rs 10,683 crore over a five-year period. The objective is to enable Textile sector to achieve size and scale and to become competitive. Further, there are eleven Exports Promotion Councils (EPCs) representing various segments of the textiles & apparel value chain, viz. readymade garments, cotton, silk, jute, wool, power loom, handloom, handicrafts and carpets. These Councils work in close cooperation with the Ministry of Textiles and other Ministries to promote the growth and export of their respective sectors in global markets. The Councils participate in textiles and apparel fairs and exhibitions and standalone shows in India and in overseas markets to enhance exports and access new markets. 

Pros and strengths

Purchase of higher quality thread count fabric at lower price: Fine lines begin with higher thread count, to get higher thread count one requires high quality of the cotton that depends on the length of the individual fibers. High thread count bedding is used in all the western countries as it is the status symbol for the riches, as the higher the count the better the fabric. By procuring surplus or slightly imperfect fabric in bulk from its suppliers, it benefits from advantageous pricing, allowing it to acquire these materials at a reduced cost. This strategic sourcing enables it to offer modified and customized products to its customers at discounted prices. Its ability to obtain these fabrics at a lower expense translates into significant cost savings, which it passes on to its customers, ensuring that they can enjoy high-quality, tailor-made products at affordable rates.

Infrastructure and integrated capabilities to deliver quality products: To cater to the growing demand from its existing customers and to meet the requirements of new customers, the company intends to invest the embroidery machines, which will help to improve the efficiency and the quality of work. The company provides quality products to its customers. It is devoted to quality assurance. Its quality products have earned it goodwill from its customers, which has resulted in customer retention and order repetition and also new addition to the customer base. It provides products with competitive rates.

Experienced promoters and dedicated employee base: The company’s promoter’s experience in the textile sector has allowed it to quickly respond to market developments by identifying emerging trends and adapting its product offerings accordingly. Through their extensive industry experience and wide network of contacts, its promoters have been able to identify and pursue its customers. This has allowed it to expand its operational capacities by leveraging the resources and expertise of other organizations.

Risks and concerns  

Business is highly concentrated on the sale of bedsheets: The company’s business predominantly focuses on bedsheets, which makes it particularly susceptible to fluctuations in demand. The company has garnered 67.91%, 49.45% and 68.77% of revenues from sale of bedsheets in FY24, FY23 and FY22 respectively. The company specifically caters to the market of bed sheets and its sales are dependent on a number of factors such as increased competition, pricing pressures or fluctuations in the demand for or supply of its products and other factors outside its control. The number of customers demanding bedsheets may decline or not continue to increase. If it is unable to anticipate and gauge customer preferences, or if it is unable to adapt to such changes in a timely basis or at all, it may lose or fail to attract customers, its inventory may become obsolete and it may be subject to pricing pressure to sell its inventory at a discount.

Dependent on a few customers for a major part of its revenues: The company generate significant revenue from top five customers. It has garnered 58.91%, 50.64% and 73.60% of revenue from top five customers in FY24, FY23 and FY22 respectively. The company presently does not have any long-term or exclusive arrangements with any of its customers and it cannot assure that it will be able to sell the quantities it has historically supplied to such customers. In the event its competitors’ products offer better margins to such customers or otherwise incentivize them, there can be no assurance that its customers will continue to place orders with it. Most of its transactions with its customers are typically on a purchase order basis without any commitment for a fixed volume of business. In addition, its customers may also cancel purchase orders at short notice or without notice, which could have an impact on its inventory management. In the event of frequent cancellations of purchase orders, the same could have a material adverse effect on its business, financial condition, results of operations and cash flows.

Geographical constrain: The company’s production unit is located within the state of Maharashtra, India. Its processing operations and consequently its business is dependent upon its ability to manage this unit, which are subject to operating risks, including those beyond its control. In the event of any disruptions at its unit, due to natural or man-made disasters, workforce disruptions, delay in regulatory approvals, fire, failure of machinery, lack of continued access to assured supply of electrical power and water at reasonable costs, changes in the policies of the states or local government or authorities or any significant social, political or economic disturbances or civil disruptions in and around Bhiwandi, Thane, Maharashtra its ability to produce its products may be adversely affected.

Outlook

Neelam Linens and Garments (India) is a soft home furnishing company. It processes, finishes, and supplies bedsheets, pillow covers, duvet covers, towels, rugs, doors, shirts, and garments. The company mainly serves discounted retail outlets. The company currently manufactures 4000 sets per day and its capacity to manufacture is 6000 sets per day. On the concern side, a majority of the company’s supplies for its operations are obtained from a limited number of suppliers. The company’s business predominantly focuses on bedsheets, which makes it particularly susceptible to fluctuations in demand. Any shifts in consumer preferences have the potential to significantly impact its business, as well as influence its operational outcomes and financial standing.

The company is coming out with a maiden IPO of 54,18,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 20-24 per equity share. The aggregate size of the offer is around Rs 10.84 crore to Rs 13.00 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations for the financial year 2023-24 was Rs 10,233.91 lakh. This represents a 1.18% decrease compared to the previous financial years’ revenue from operations of Rs 10,356.30 lakh. The decrease is attributable to decrease in sale of licenses by Rs 1,945.04 lakh and increase in sale of goods by Rs 1,822.65 lakh. Moreover, the company’s PAT is Rs 246.05 lakh for the financial year 2023-24 compared to Rs 237.88 lakh in financial year 2022-23.

The company intends to tap new markets and further sell directly through its stores. Direct Selling to customers by opening and developing its stores will improve its margins. This strategy will empower it to have more control over pricing and distribution, allowing it to build stronger relationships with its customers. By selling directly to customers, it can offer tailored solutions and better meet their requirements. This will not only increase its revenue potential but also enable it to showcase the quality and value of its products, positioning it as a trusted and preferred supplier in the market.