Initial Public Offering - Jinaam’s Dress Ltd.

Business Background: 

Jinaam’s is a manufacturer of Indian ethnic and fusion wear for women. Jinaam’s design manufacture and market women’s apparels across multiple brands. 

Th products are distributed through distribution network spread across around 19 states and 4 union territories in India. Jinaam’s operate a retail store for women’s apparel located at The Gateway Hotel, Surat, Gujarat. They also have an exclusive tie up with e-commerce platform www.manndola.com, owned by one of the group company, for online marketing and selling of our products.

Brands marketed by Jinaam’s:  

Promoter family: 

Jinaam’s is promoted by Oswal Family. Rahul Hemraj Oswal is the Managing Director of the company. Promoter family (13 in no.) owns 92.82% pre-issue shares. 

Compensation: 

• Mr. Rahul Oswal’s renumeration was Rs. 24 lakhs in FY2017 and FY2018. The renumeration was Rs. 64 lakhs in FY2016! 
• Mr. Pritam Oswal and Mr. Vishal Oswal took renumeration of ~Rs. 12 lakhs FY2017 and FY2018. Renumeration was Rs. 51.2 lakhs in FY2016!

Promoter's compensation levels have significantly come down in FY2017. Company’s performance was subdued in FY2017 compared to 2016. Business did well in FY2018 but renumeration levels have remained low. Did management keep the compensation low due to this upcoming public offering? 

Public offering details:

Company has pre-issue outstanding shares of 1.51 cr. Company will come out with initial public issue of 72 lakh shares, resulting in post issue outstanding shares of 2.23 cr. 

Public issue proceeds will be utilised for - 

• Purchase of Machineries (Rs. 7 cr)
• Augmenting the long term working capital requirements of our Company (Rs. 18 cr)
• Repayment of certain debt facilities availed by our Company (Rs. 5 cr)
• General corporate purposes
• To meet the Issue related expenses

Issuances in last 12 months: 

• Private Placement of 472,000 Equity Shares at a premium of ₹ 60 per Equity Share on June 7, 2018
• Private Placement of 386,000 Equity Shares at a premium of ₹ 60 per Equity Share on July 3, 2018
• Private Placement of 224,000 Equity Shares at a premium of ₹60 per Equity Share on February 13, 2019

These issuances infused capital of Rs. 7 cr in the business valuing the company @ Rs. 105 cr. 

Revenue & Profit profile: 

• Revenue has grown at a meagre CAGR of ~4% since FY2016. 
• Net profit has grown at CAGR of 54%while EBITDA has grown at CAGR of 23% since 2016. This increase in PAT & EBITDA is primarily due to decrease in employment expenses Employee benefits have come down from Rs. 11.9 cr to Rs. 7.3 cr in FY2018 - a drop of Rs. 4.6 cr. During this period PAT increased by Rs. 5.7 cr. Company has mentioned automation of processes for this significant drop in employee expenses. 
• The gross margins have been volatile ranging from 30% in FY2016 down to 12% in FY2018. Gross margins improved to 23% in H1-2019.

Working Capital:

Company has high inventory and receivable days. 

Majority of company’s sales are through various distributors. Company seems to be allowing higher credit period to push for sales. Receivable days have sustained above 100 days.

Inventory days is also high leading to significant increase working capital requirement. High inventory days may be due to multiple brands marketed by the company. All brands may not move to market at the same velocity. Company should do a better job at demand planning and managing inventory. 

Cash Flow: 

Company has shown positive cash flows above PAT since 2016, except in H1-2019. The change in working capital is high due to significant increase in inventory levels. 

Borrowing: 

Borrowing levels have been on increasing trend. Debt to equity is ~1.5 as on Sept 2018. 

Rs. 4.6 cr is outstanding as vehicles loans for cars - Audi Q3, Rage Rover Vogues (2 in no.), Chevrolet Cruz, Mercedes E class, Mercedes C class, Honda Jazz, Ford Figo, Audi Q7. Company owns 9 cars- most of which are luxury cars! Around 10% of the total borrowings is in the form of vehicle loans! 

Vehicle forms ~Rs. 4.7 cr of the total gross block of Rs. 31.4 cr as on 1st Apr 2018. 

Company has outstanding debt of ~Rs. 14.55 cr from directors and related parties. The borrowing rate from the related parties seems cheaper than borrowing from banks. Company had outstanding debt of Rs. 3.23 cr from MD as on FY2018 ending with interest liability of Rs. 20.5 lakhs. Assuming the this debt was outstanding throughout FY2018, the interest would be ~6.3% pa.

Installed capacity utilisation

Company has installed capacity of 6 lakh meters per annum for last 3 years. The capacity utilisation has been 44.6%, 46.9% and 77% in FY2016, FY2017 and FY2018 respectively. Higher capacity utilisation in FY2018 led to revenue increase of 14% over last year. 

Lead Manager: 

SMC Capitals is the lead manager which previously managed BSE Ltd. public issuance.  

Conclusion: 

Zinaam’s is in a fast growing Women ethnic and fusion market. However company is not able to grow in tandem with market. 

Company has elongating working capital cycle primarily due to their physical distribution network. With increase in own store sales and online sales, receivable days are expected to come down. The physical distribution network may also be impeding the revenue growth. The online sales should give impetuous to the sales. 

Company is highly indebted - 10% of the loans are for luxury cars. This is reflection of the lifestyle of the promoters. Minority shareholders should be mindful of such non productive loans, stretching the balance sheet of the company. 

Disclosure: 

All data has been taken from public sources. I don't have any investment in Jinaam's. An investor should do her own analysis before making an investment decision. The views expressed are personal and doesn't represent that of my employer’s. This article is just a collection of my thoughts about the company.

I am not registered with SEBI under SEBI (Research Analysts) Regulations, 2014. As per the clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations.

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