Borana Weaves (Borana) 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 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. In addition to grey fabric, Borana also manufactures polyester textured yarn, which is produced by heating polyester-oriented yarn, the company’s raw material used in the production of grey fabric.

Borana operates three manufacturing units in Surat, Gujarat, equipped with textile manufacturing technologies for, inter alia,texturizing, warping, water jet looms, and textile folding.

As of December 31, 2024, the company had a total of 15 texturizing machines, 6 warping machines, 700 water jet looms, and 10 folding machines active at its three units.

Further, the company plans to set up unit 4 at Hojiwala Industrial Estate, Surat. The proposed unit will have an installed production capacity of 11,27,52,000 meters per annum, which will augment the company’s currently existing installed production capacity to a total of 34,60,32,000 meters per annum.

Object of the offer

The IPO consists of a fresh issue of 67,08,000 shares. At the higher price band of Rs 216 per share, the company will raise Rs 144.89 crore.

Out of the proceeds from the fresh issue, Rs 71.35 crore will be used to finance the cost of establishing a new manufacturing Unit to expand its production capabilities to produce grey fabric at Surat, Rs 26.50 crore to fund incremental working capital requirement and the balance towards general corporate purposes.

Strengths

Borana specializes in the production of unbleached synthetic grey fabric which finds application in various industriesincluding fashion, traditional textiles, technical textiles, home décor, and interior design. The company is well positioned to capitalize on the growing demand in the textile sector and has shown steady growth in its production capacity and utilization across its units over the past three financial years.

Borana has invested in 700 water jet looms capable of producing uniform textured fabric. These machinesoffer greater precision in the weaving process, resulting in fabric that exhibits uniform texture and consistent quality.Furthermore, the reliance on water as a propulsion method lessens energy consumption, and the absence of harmfulchemicals associated with conventional fabric treatments promotes a more sustainable approach to textile manufacturing.

The manufacturing facility of Borana is located at Hojiwala Industrial Estate, Surat and Surat is known as a textile city of Gujarat and Silk City of India. Also, Surat, is the largest producer of man-made fibre and filament fabric with around 40% share in the country. Hence, the company’s presence in the textile hub has benefitted it in terms of easy availability of raw materials and labor.

The company is part of the Surat based Borana group having over three decades of track record in textile industry though various group entities in cotton as well as man-made fabric segment. The company’s Chairman and Managing Director Mangilal Ambalal Borana has over 24 years of experience in textiles industry and has been responsible in augmenting relationships with various stakeholders which has helped the company expand its operations.

Weaknesses

If the necessary approvals, licenses, or permits to operate Proposed Unit 4 are not obtained, it may negatively impact the company’s financial status.

As of December 31, 2024, over 98% of their revenue comes from customers in Gujarat, and they lack long-term agreements with these clients. Any alterations or cancellations of purchase orders from these customers, or their inability to accurately predict demand for their products, may negatively affect the company’s business.

The company’s business is heavily dependent on the sale of grey fabric, which contributed 84.24% of its revenue from operations in the nine months ending December 31, 2024. Any reduction in the sale of grey fabric, or the company’s ability to produce and sell grey fabric, or the price at which the company can sell grey fabric, may have an adverse effect on the company’s financial health.

The company has a limited operating history, as it commenced its operation in 2020 and the company may not be able to continue to grow at its historical rate of growth.

Borana operates in a highly competitive and fragmented textile industry. The company witnesses intense competition from both organized and unorganized players domestically. This fragmented and highly competitive industry results in price competition thereby posing a threat to the profit margins of the companies operating in the industry.

The primary raw materials used by the company to manufacture grey fabrics are Partially Oriented Yarn (POY) and Polyester Filament Yarn (PFY) which is the derivative of crude oil and hence the profit margins of the company are susceptible to volatility in the prices of these raw materials. Also, the raw material cost forms 60-70% of the cost structure. The major supplier of the company is Reliance Industries, Garden Silk Mills and others with whom companies like Borana have limited bargaining power. The fragmented nature of the business will limit the ability of the company to pass on changes in raw material prices exposing its profitability to volatile raw material prices.

The company enters related-party transactions in the ordinary course of the business and such transactions might have an adverse impact on the company’s operations. The company derived 13.9%, 25.8% 35% and 50.6% of its total revenues from related parties in 9MFY2025, FY2024, FY2023 and FY2022, respectively.

Operations of the company are labor intensive and an increase in employee cost including on account of changes in regulations may prevent the company from maintaining competitive advantage and may reduce profitability.

There is an outstanding legal proceeding involving one of the company’s independent directors. Any adverse outcome in such proceeding may have an adverse impact on the company’s reputation.

The company had contingent liabilities amounting to Rs 9.82 crore as on Dec31,2024.

Valuation

For the nine months ending December 2024, the company reported PAT of Rs 29.31 crore on net revenues of Rs 211.62 crore.

In FY2024, consolidated sales were up by 47.0% to Rs 199.06 crore compared to FY2023. OPM increased by 143 bps to 20.68%, which led to a 58.0% increase in operating profit to Rs 41.17 crore. Other income increased 324.3% to Rs 0.55 crore, while interest cost increased 89.0% to Rs 4.18 crore and depreciation increased 124.0% to Rs 9.15 crore. PBT increased by 42.7% to Rs 28.39 crore. Tax expenses for FY2024 were Rs 4.81 crore compared to tax expense of Rs 3.61 crore in FY2023. Net profit inclined 44.7% to Rs 23.59 crore.

FY2024 EPS on post-issue equity works out to Rs 8.85. At the upper price band of Rs 216, P/E(FY2024) works out to 24.41X.

Listed industry peers of the company are Sangam(India), VTM, Jindal Worldwide and Century Enka. In comparison, Sangham (India) is trading at P/TTMEPS of 56.8 times, VTM is trading at P/TTM EPS 25.7 times, Jindal Worldwide is trading at P/TTM EPS 75.5 times and Century Enka is trading at a P/EPS(FY 2025) of 14.7 times.