Sanathan Textile IPO

We are one of the few companies (amongst our peer group) in India with presence across the polyester, cotton and technical textile (which find application in multiple end-use segments including automotive, healthcare, construction, sports and outdoor, and protective clothing) sectors.

Focus on the product development of new products, through process innovation.

Fully integrated yarn manufacturing plant set up at a strategic location with equipment supplied by domestic and globally renowned players.

Long standing association with leading consumer brands with a low customer concentration.

Deep knowledge and understanding of optimal product assortment and strong supplier network enabling procurement at predicable and competitive pricing, leading to an overall efficient cycle.

Healthy financial performance.

Experienced management team with a proven track record.

The company does not have long term agreements for supply of its raw materials. If the company is unable to procure raw materials of the required quality and quantity, at competitive prices, its business, results of operations and financial condition may be adversely affected. Majority of its raw materials are sourced from few key suppliers. Discontinuation of operations of such suppliers may adversely affect its ability to source raw materials at a competitive price.

If the company is unable to gauge the demand of its products accurately and are unable to maintain an optimal level of inventory, its business, results of operations and financial condition may be adversely affected.

Any variation in the utilization of the Net Proceeds as disclosed in this Red Herring Prospectus shall be subject to certain compliance requirements, including prior Shareholders` approval.

Its relationship with the company distributors is critical to its business. During quarter ended June 30, 2024, Fiscals 2024, 2023 and 2022, 96.55% 94.48%, 93.01% and 93.31%, respectively, of its total revenue from operations was attributable to its distributors. If the company is unable to maintain successful relationships with its distributors, the company business, results of operations and financial condition may be adversely affected.

Its may not be able to successfully manage the growth of the company business if its not able to effectively implement the company strategies. In particular, the proposed increase in its manufacturing capacities may not be successful or its may not have demand for the company products which may be commensurate to the proposed increase of its manufacturing capacities.

The Company has a high working capital requirement and if the Company is unable to raise sufficient working capital the operations of the Company will be adversely affected. The company is in the advanced stages of commissioning a manufacturing facility in Wazirabad, Punjab through its Subsidiary, Sanathan Polycot Private Limited. Once this Subsidiary is operational, then it will also have to arrange for further funding for additional working capital requirement.

Its revenue from operations and the company PAT Margin has reduced in Fiscal 2024 as compared to Fiscal 2023. If the company is unable to maintain or increase its revenue from operations, the company profit and its profit margin, then it may have an adverse effect on the company`s business operations and its growth strategies.

During quarter ended June 30, 2024, Fiscals 2024, 2023 and 2022, the company derived 62.51%, 65.10%, 60.88% and 55.63% its revenue from operations from domestic sales from the company customers in Gujarat, Maharashtra and Punjab, which exposes it to risks specific to these Indian geographies and market.

Any losses, on account of foreign currency exchange rate fluctuations may adversely affect its business, results of operations and financial condition.

The Offer Price, market capitalization to total income multiple, price to earnings ratio and enterprise value to EBITDA ratio based on the Offer Price of the Company, may not be indicative of the market price of the Equity Shares on listing.

Any under-utilization of its proposed capacities may affect the company ability to fully absorb fixed costs and thus may adversely impact its financial performance.

Any delays and/or defaults in customer payments could result in increase of working capital investment and/or reduction of the Company`s profits, thereby affecting its operation and financial condition.

The company propose to utilize a portion of the Net Proceeds for repayment and, or, pre-payment of a portion, of certain outstanding borrowings availed by the Company, and for investment in its subsidiary viz. Sanathan Polycot Private Limited, for repayment and/ or pre-payment, in full or part, of certain recently availed borrowings availed by its subsidiary viz. Sanathan Polycot Private Limited. Accordingly, the utilization of the Net Proceeds will not result in creation of any tangible assets.

The company has incurred significant indebtedness which exposes it to various risks which may have an adverse effect on its business, results of operations and financial conditions. Conditions and restrictions imposed on it by the agreements governing its indebtedness could adversely affect its ability to operate the company business.

The company has added 136, 622, 623 and 714 new customers during quarter ended June 30, 2024, Fiscals 2024, 2023 and 2022, respectively, representing a growth of 0.99% 4.72%, 4.96% and 6.03% respectively over the prior period, with a customer retention ratio of 100% of all customers, in each of these periods. If the company is unable to attract new customers, retain customers at existing levels or sell additional products to its existing customers, the company revenue growth will be adversely affected.

Its business depends on the company production facility in Silvassa. Any loss of or shutdown of operations of its production facility on any grounds could adversely affect the company business or results of operations.

The company is in the advanced stages of commissioning a manufacturing facility in Wazirabad, Punjab through its Subsidiary, Sanathan Polycot Private Limited. Its business and the company growth will depends on this facility in addition to its existing manufacturing facilities. Any loss of or shutdown of operations of this facility, once operational, could adversely affect its business or results of operations.

The Company intends to utilise a portion of the Net Proceeds of the Offer towards investment in its subsidiary viz. Sanathan Polycot Private Limited, for repayment and/ or pre-payment, in full or part, of certain borrowings availed by it. This Subsidiary has been incorporated in Fiscal 2022 and has recently commenced operations in March 2024 in Silvassa and is yet to commence operations at the Punjab Manufacturing Facility. This Subsidiary has incurred losses during quarter ended June 30, 2024 and Fiscals 2024, 2023 and 2022.

The company import a large portion of its raw materials from international suppliers and any adverse foreign exchange fluctuation could increase its cost of operations and affect the company profitability. Further, any restriction or embargo on the sourcing of raw materials from certain countries could adversely affect its business and financial condition.

The company export its products to various countries, on account of which the company may be subject to significant import duties or restrictions. Further, unavailability of fiscal benefits enjoyed by it or its inability to comply with related requirements may have an adverse effect on its business and results of operations.

The objects of the Offer for which funds are being raised have not been appraised by any bank or financial institution and are based on management estimates.

The company is dependent on its Promoters, Key Managerial Personnel and Senior Management. Failure to retain or replace them will adversely affect its business.

The company has a large work force, and its employee benefit expense and contract labour charges are one of the larger components of its fixed operating costs. An increase in employee benefit expenses and, or, contract labour charges could reduce its profitability. Further, the company operations could be adversely affected by work stoppages or increased wage demands by its employees or any other kind of dispute with the company employees.

The company has incurred significant capital expenditure in the past and will continue to incur significant capital expenditure in the future, and such expenditure may not yield the benefits its anticipate.

The company does not have long-term agreements with a majority of its customers. Any changes or cancellations to the company orders or its inability to forecast demand for the company products may adversely affect its business, results of operations and financial condition.

During each of the quarter ended June 30, 2024, Fiscal 2024, Fiscal 2023 and Fiscal 2022 its capacity utilisation was over 100%. Over utilisation of its production capacity may lead to breakdown, malfunction or damage to the machinery, which may impact its results of operations and financial condition. Information relating to the installed capacity, actual production and capacity utilization of its manufacturing facilities included in this Red Herring Prospectus are based on various assumptions and estimates and future production and capacity may vary.

The Offer of [*] Equity Shares aggregating up to Rs. 5,500.00 million, comprises a Fresh Issue of up to [*] Equity Shares aggregating up to Rs. 4,000.00 million, and Offer for Sale of up to [?] Equity Shares aggregating up to Rs. 1,500.00 million by the Selling Shareholders. The Offer for Sale comprises 27.27% of the total Offer size. Our Company will not receive any proceeds from the Offer for Sale portion.

One of its Promoter was involved in a regulatory proceeding initiated by SEBI which has been settled. Any such regulatory proceedings, or any adverse action as a result of such regulatory proceedings, may affect its reputation or business.

One of the members of its Promoter Group has not consented to the inclusion of, nor has he provided, information or any confirmations or undertakings pertaining to himself or the entities in which he holds interest, which are required to be disclosed in relation to Promoter Group under the SEBI ICDR Regulations in this Red Herring Prospectus. The disclosures relating to this member of the Promoter Group has been included in this Red Herring Prospectus based on information available in public domain. Accordingly, its cannot assure you that the disclosures relating to such members of its Promoter Group are accurate, complete, or updated. Further, details in relation to Connected Persons which may qualify as a member of its Promoter Group have not been disclosed in this Red Herring Prospectus.

Its Statutory Auditors have drawn attention to qualitative matters of emphasis and a modified opinion on the Company`s internal financial controls, in their examination report on the Restated Consolidated Financial Information.

Its Promoters and members of the Promoter Group hold the entire Equity Share capital of the Company and upon completion of this Offer, its Promoters and members of its Promoter Group will collectively hold [*]% of the Equity share capital of the Company. Accordingly, its Promoters and members of the Promoter Group have significant control over the Company and have the ability to direct its business and affairs; their interests may conflict with your interests as a shareholder.

The company is dependent on third party logistic and support service providers for the delivery of raw materials and finished products and any disruptions in their services including transportation services or a decrease in the quality of their services may adversely affect its business, financial condition and results of operations.

Inability to obtain or protect its intellectual property rights may adversely affect the company business.

Its expansion into new product categories and a substantial increase in the number of products offered may expose it to new challenges and more risks. Further, any inability to innovate or failure to adapt to changes in its industry may adversely affect its business, financial condition, cash flows and results of operations.

During quarter ended June 30, 2024, Fiscals 2024, 2023 and 2022, its revenue from operations from exports was 3.43%, 4.39%, 10.22% and 13.05%, respectively, of the company total revenue from operations. The global scope of its operations exposes it to risks of doing business in foreign countries, including the constantly changing economic, regulatory, social and political conditions in the jurisdictions in which the company operates and seek to operate, which could adversely affect its business, financial condition and results of operations.

An inability to maintain adequate insurance cover in connection with its business may adversely affect the company operations and profitability.

The company is in the advanced stage of commissioning the Punjab Manufacturing Facility in Wazirabad through its wholly owned subsidiary Sanathan Polycot Private Limited. If there are time and, or, cost overruns in commissioning the Punjab Manufacturing Facility then it could have a material adverse effect on its financial condition, results of operations and growth prospects.

This Red Herring Prospectus contains information from an industry report prepared by CRISIL which the company has commissioned and paid for.

The company is heavily dependent on technology in carrying out its business activities and it forms an integral part of the company business. If the company faces failures of its information technology systems, the company may not be able to compete effectively which may result in lower revenue, higher costs and would adversely affect its business and results of operations.

Its business, results of operations and financial condition may be adversely affected if operations at the facilities of its raw material suppliers are disrupted. The company`s business, results of operations and financial condition may also be affected if the operations of its customers are disrupted.

There are certain outstanding legal proceedings involving the Company which, if determined against it, could have a material adverse effect on its business, cash flows, financial condition and results of operations.

The company has leased and, or availed on license, the use of certain properties from which the company operate its business. There can be no assurance that the lease, and, or license agreements will be renewed upon termination or that its will be able to obtain other premises on lease on same or similar commercial terms.

Improper storage, processing and handling of raw materials and finished products may cause damage to its inventory leading to an adverse effect on the company business, results of operations and cash flows.

The company appoint contract labour for carrying out certain of its operations and the company may be held responsible for paying the wages of such workers, if the independent contractors through whom such workers are hired default on their obligations, and such obligations could have an adverse effect on its results of operations, cash flows and financial condition. Further, there may be disruption of their services or quality issues which may affect its business, results of operations and profitability.

The Company, in the past, has rescheduled payments of its credit facilities from its lenders and has availed moratoriums for payment deferral of the re-payment of principal amount of facility availed by the Company from certain lenders.

Its Promoters, Promoter Group, Directors, Key Managerial Personnel, Senior Management of the Company and Subsidiaries may enter into ventures that may lead to real or potential conflicts of interest with its business. Further, the company Promoters, Directors, Key Managerial Personnel, Senior Management have interests in the Company other than reimbursement of expenses incurred or normal remuneration or benefits. Any real or potential conflicts of interest that may arise in this regard may materially adversely impact its business, financial condition, results of operations and cash flows.

Reliance has been placed on affidavit furnished by Paresh Vrajlal Dattani, one of its Promoter, for details of his profile included in this Red Herring Prospectus.

Any failures to obtain, renew and maintain requisite statutory and regulatory permits, licenses and approvals for its operations from time to time may adversely affect the company`s business.

Its board of directors have not passed certain resolutions in relation to certain issue of Equity Shares by the Company. However, there is no violation of the provisions of the Companies Act and no penal provision is applicable. Additionally, while as part of its corporate records, the company has the relevant Form 2 for 22,000 Equity Shares allotted by the Company on July 3, 2006, its cannot trace the corresponding RoC payment challan in relation to the allotment. However, in terms of the Companies Act, there will not be any adverse implication in relation to the untraceable RoC challan.

Its may need to seek additional financing in the future to support the company growth strategies. Any failures to raise additional financing could have an adverse effect on its business, results of operations, financial condition and cash flows.

Any downgrading of its credit rating by a domestic or international credit rating agency may increase interest rates for the company future borrowings, which would increase its cost of borrowings, and adversely affect the company ability to borrow on a competitive basis.

Its brand is integral to the company success. If the company fails to effectively maintain, promote and enhance its brand, the company`s business and competitive advantage may be harmed.

Any failures in its quality control processes may have an adverse effect on the company business, results of operations and financial condition.

If its third-party service providers and key suppliers are not able to or does not fulfil their service obligations, its operations could be disrupted, and the company operating results could be effected.

Its Promoters and the Selling Shareholders have subscribed to, and purchased, Equity Shares, at a price which could be below the Offer Price. The average cost of acquisition of Equity Shares by its Promoters and Selling Shareholders could also be lower than the Offer Price.

Its financial condition and profitability may be adversely affected if all or any of its contingent liabilities materialize.

The Company has in the past entered into related party transactions and may continue to do so in the future. During quarter ended June 30, 2024, Fiscals 2024, 2023 and 2022, the sum of all related party transactions entered into by the Company as a percentage of revenue from operations was 3.31%%, 5.58%, 7.71%, and 3.78%, respectively. its cannot assure you that the company could not have achieved more favourable terms if such transactions had not been entered into with related parties and that such transactions will not have an adverse effect on its financial conditions and result of operations.

Health, safety, and environmental matters, including compliance with environmental laws and remediation of contamination, could result in substantially increased capital requirements and operating costs.

The company operates in a competitive business environment. Competition from existing players and new entrants and consequent pricing pressures and its inability to compete effectively could have a material adverse effect on the company operating margins, business growth and prospects, financial condition and results of operations and may lead to a lower market share.

If the company is subject to any frauds, theft, or embezzlement by its employees, suppliers, contractors or distributors, it could adversely affect the company reputation, results of operations, financial condition and cash flows.

Its business is dependent on the adequate and uninterrupted supply of electrical power at a reasonable cost. Unavailability of such adequate and uninterrupted supply of electrical power may significantly impact its business and results of operation.

The Company has not paid dividends during the last 3 Fiscals and during the current Fiscal. There can be no assurance that the Company will be in a position to pay dividends in the future. Its ability to pay dividends in the future may be affected by any material adverse effect on its future earnings, financial condition or cash flows.

Compliance with provisions of Foreign Account Tax Compliance Act may affect payments on the Equity Shares.

Its customers may engage in certain transactions in or with countries or persons that are subject to U.S. and other sanctions.

Certain Non-GAAP financial measures and certain other statistical information relating to its operations and financial performance like EBITDA, EBITDA Margin, Net Debt, Net Debt/ EBITDA, Fixed Asset Turnover Ratio and Net Asset Value per Equity Share have been included in this Red Herring Prospectus. These Non-GAAP financial measures are not measures of operating performance or liquidity defined by Ind AS and may not be comparable.