Borana Waves IPO review (May apply)

•    The company is engaged in the business of producing and marketing of unbleached synthetic grey fabrics for B2B segment.
•    It posted spectacular growth since FY23 onwards with rise in top and bottom lines.
•    Its shift from conventional process to water jet loom process yielded the desired benefits.
•    Based on its financial data, the issue appears fully priced.
•    Well-informed investors may park funds for medium term.

ABOUT COMPANY:
Borana Waves Ltd. (BWL) is a textile manufacturer based in Surat, specializing in the production of unbleached synthetic grey fabric. This fabric serves as a fundamental material for further processing, such as dyeing and printing, in various industries, including fashion, traditional textiles, technical textiles, home décor, and interior design. The company is engaged in the business with B2B model.

The Company commenced its operations in 2020, and the production from its first unit, Unit 1 located at Plot No. AA/93/P, Hojiwala Industrial Estate, SUSML, Surat, Gujarat, was subsequently started in 2021. As on date, it operates three manufacturing units in Surat, Gujarat, equipped with textile manufacturing technologies for, inter alia, texturizing, warping, water jet looms, and textile folding.

The versatility of grey fabric allows it to complement a wide range of unbleached fabrics across different styles, making it a valuable resource in the textile supply chain. (Source: D&B Report). In addition to grey fabric, the Company also manufactures polyester textured yarn (“PTY Yarn”), which is produced by heating polyester-oriented yarn (“POY Yarn”), its raw material used in the production of grey fabric. As of December 31, 2024, it had 666 employees on its payroll. Its capacity utilization has been around 80% on an average since FY23. 

As of December 31, 2024, it had a total of 15 texturizing machines, 6 warping machines, 700 water jet looms and 10 folding machines active at its three units. The Indian market is experiencing a notable shift towards synthetic textiles, driven by their affordability, durability, and ease of maintenance. Current demand for polyester in India stands at approximately 4 million tonnes and is projected to rise to 6.7 million tonnes by 2025, indicating a growing consumer preference for synthetic materials. 

Further, evolving fashion trends, particularly the rise in brand consciousness and rapidly changing styles, are increasing the appeal of synthetic textiles. With the global end-use market for man-made fibers expected to expand by 3.7% by 2025, the Indian synthetic textile industry is well-positioned to benefit, with growth opportunities in both domestic consumption and exports (Source: D&B Report).

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6708000 fresh equity shares of Rs. 10 each to mobilize Rs. 144.89 cr. (at the upper cap). The company has announced a price band of Rs. 205 – Rs. 216 per equity shares. The issue opens for subscription on May 20, 2025, and will close on May 22, 2025. The minimum application to be made is for 69 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.18% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 71.35 cr. for cost of establishing new manufacturing unit for capacity expansion, Rs. 26.50 cr. for working capital., and the rest for general corporate purposes. 

The company has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors.

The sole Book Running Lead Managers (BRLM) to this issue is Beeline Capital Advisors Pvt. Ltd., while KFin Technologies Ltd., is the registrar to the issue. Spread X Securities Pvt. Ltd. is the syndicate member for the IPO.

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 2014 per share in July 2022. It has also issued bonus shares in the ratio of 500 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.02, Rs. 1.35, Rs. 1.39, and Rs. 4.02 per share. 

Post-IPO, its current paid-up equity capital of Rs. 19.94 cr. will stand enhanced to Rs. 26.65 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 575.54 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 42.36 cr. / Rs. 1.80 cr. (FY22), Rs. 135.53 cr. / Rs. 16.30 cr. (FY23), and Rs. 199.61 cr. / Rs. 23.59 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 29.31 cr. on a total income of Rs. 215.71 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 8.77 (simple average) and an average RoNW of 64%. The issue is priced at a P/BV of 5.63 based on its NAV of Rs. 38.40 as of December 31, 2024, and at a P/BV of 2.60 based on its post-IPO NAV of Rs. 83.11 per share (at the upper cap). 

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 14.73. Based on FY24 earnings, the P/E stands at 24.41. Thus, the issue is fully priced. 

The company reported PAT margins of 4.25% (FY22), 12.04% (FY23), 11.85% (FY24), 13.85% (9M-FY25), and RoCE margins of 12.23%, 34.93%, 27.42%, 27.11% for the referred periods, respectively. 

According to the management, their shift of process from conventional to water jet loom based not only yielded benefits for them in the form of higher margins, it has helped end users being a low-cost durable product, that spurted its demand.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER’S TRACK RECORD:
This is the 60th mandate from Beeline Capital in the last four fiscals including the ongoing one. Out of the last 11 listings, all listed with premium ranging from 0.56% to 146.91 on listing date.