True Colors BSE SME IPO review (Not Rated)

•    The company is engaged in the business of import and distribution of digital textile printers and related products.
•    It marked growth in its top and bottom lines for the reported periods.
•    Quantum jump in bottom lines for FY25 raise eyebrows and concern over its sustainability.
•    Based on its recent financial data, the IPO appears aggressively priced.
•    Well-informed investors may park funds for medium term.

ABOUT COMPANY:
True Colors Ltd. (TCL) is engaged in the business of import and distribution of digital textile printers and manufacturing and supplying of products related to digital textile printing industry. Digital textile printing, also known as direct-to-garment (DTG) or digital garment printing, is a modern technique that involves transferring a variety of digital images and designs directly onto textiles and garments using specialized or adapted inkjet technology. This method is particularly well-suited for producing high-resolution images, intricate patterns, detailed graphics, and smooth tonal transitions. It supports a broad spectrum of end-use applications, including fashion and apparel, home textiles, interior design, promotional and advertising materials, sportswear, activewear, accessories, industrial textiles, and home décor. 

Compared to traditional printing techniques, digital textile printing offers several advantages such as superior print quality, customization capabilities, operational flexibility, faster turnaround times, cost efficiency for small runs, reduced environmental impact, compatibility with diverse fabric types, consistent output, and enhanced access to international markets. Its comprehensive product portfolio encompasses various digital textile printers, such as direct belt inkjet printers, double-side inkjet printers, sublimation inkjet printers, heat transfer machines, pigment printers, and DTF (Direct to Film/Fabric) printers. Each machine is designed to deliver high-quality prints with efficiency and precision, meeting the diverse demands of modern textile production.

As part of its business model, the company also engages in the supply of imported inks to customers to whom it has supplied digital textile printers. The inks, sourced from reputed global manufacturers, are tailored for compatibility with the printers provided by the company, ensuring optimal print quality and machine performance. By offering a bundled solution of hardware and consumables, this business vertical strengthens customer stickiness, builds recurring revenue streams, and enhances the lifecycle value of each client relationship. The company maintains inventory and technical support to ensure consistent supply and service continuity, positioning itself as a reliable partner in the digital textile printing ecosystem.

In its sublimation paper manufacturing and supply division, the company offers a premium range of papers designed to deliver vibrant, high-quality prints across a wide variety of end-use applications. Its products are available in customizable GSM options ranging from 30 to 100 widths from 36 to 72 inches, making them suitable for diverse industry requirements. These sublimation papers are extensively used in the textile industry, particularly for apparel, home furnishings, and fashion accessories. Common applications include sportswear, activewear, swimwear, leggings, scarves, curtains, cushions, and table cover. They are also widely used for corporate and customized uniforms, fast fashion garments, and promotional items such as branded T-shirts, bags, and lanyards. With their adaptability to polyester and blended fabrics, sublimation papers play a key role in enabling vibrant, durable, and cost-effective textile printing solutions across both domestic and export markets.

In the digital textile print manufacturing, the fabric offerings encompass a wide variety of materials, including natural fibers like cotton and silk, and viscose as well as synthetic blends. This versatility gives it to cater to multiple segments within the textile industry, such as fashion apparel, home furnishings and accessories. By utilizing advanced digital inkjet printers, it ensures vibrant colours, intricate patterns and durable prints for customer. By combining these three (3) businesses segments, it has built a self-sustaining ecosystem that allows customers to access machines and consumables (inks & sublimation paper), digital textile printing for custom fabric requirements, and after sales service, technical support & spare parts. This structure ensures operational efficiency, strengthens customer relationships, and establishes it as a one-stop solution for digital textile printing. As of June 30, 2025, it had 671 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 6699600 equity shares to mobilize Rs. 127.96 cr. The issue comprises of 5699600 fresh equity shares (worth Rs. 108.86 cr. at the upper cap), and an Offer for Sale (OFS) of 1000000 equity shares (worth Rs. 19.10 cr. at the upper cap). The company has announced the price band of Rs. 181 - Rs. 191 per share of Rs. 10 each. The IPO opens for subscription on September 23, 2025, and will close on September 25, 2025. The minimum application to be made is for 1200 shares and in multiple of 600 shares thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.17% of post-IPO paid-up equity capital of the company. From the net proceeds of the issue, the company will utilize Rs. 48.90 cr. for working capital, Rs. 41.83 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.

The IPO is solely lead managed by GYR Capital Advisors Pvt. Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker. 

The company has issued initial equity shares at par, and issued further equity shares in the price range of Rs. 56 – Rs. 135 per share between March 2023 and March 2025. It has also issued bonus shares in the ratio of 18 for 1 in March 2025. The average cost of acquisition of shares by the promoters is Rs. 1.93, Rs. 2.79, and Rs. 2.95 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 18.96 cr. will stand enhanced to Rs. 24.65 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 470.90 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit, of Rs. 80.94 cr. / Rs. 3.92 cr. (FY23), Rs. 160.91 cr. / Rs. 8.25 cr. (FY24), Rs. 234.05 cr. / Rs. 24.69 cr. (FY25). The company marked growth in its top and bottom lines for the reported years, however, boosted bottom line for FY25 raise eyebrows and concern over its sustainability.

For the last three fiscals, the company as posted an average EPS of Rs. 9.09, and an average RoNW of 51.33%. The issue is priced at a P/BV of 6.53 based on its NAV of Rs. 29.26 as of March 31, 2025, but its post-IPO NAV data is missing from the offer documents.

If we attribute its FY25 super earnings on post-IPO expanded equity base, then the asking price is at a P/E of 19.06, and based on its FY24 earnings, the P/E stands at 57.19. Thus, based on its recent financial data, the issue appears aggressively priced.

The company has posted PAT margins of 4.86% (FY23), 5.15% (FY24), 10.57% (FY25), and RoCE Margins of 21.43%, 18.56%, 35.94%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performances 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 RECORDS:
This is the 46th mandate from GYR Capital in the last five fiscals (including the ongoing one). Out of last 10 listings, 1 opened at par, and the rest opened with a premium ranging from 4.18% to 117.50% on the date of listing.