United Cotfab Limited is engaged in manufacturing of high quality recycled open-end cotton yarn derived from the cotton waste from spinning industry. United Cotfab IPO is aiming to raise Rs 36.29 Crore as fresh issue at an Issue Price of Rs 70/- per share, to be listed on the BSE SME platform.

About United Cotfab Limited:

• They are engaged in the manufacturing of high quality open end yarn catering to the textile industry.
• During the Financial Year 2020-23, Company was in the process acquisition of land admeasuring area of 7264 sq mtrs located at Village Timba, Taluka Daskroi, Ahmedabad, for setting up Manufacturing facility having an installed capacity of approx 9125 (MT) per annum.
• Company commenced the production of cotton yarn in April 2023.
• Manufacturing facility is equipped with modern and automatic plant and machinery.
• During FY 2022-23, company was engaged in the business of trading of cotton yarn. In April 2023, Company commenced the manufacturing of open ended cotton yarn. Cotton yarn is a type of yarn that is made from cotton fibres.
• Cotton yarn is known for its softness, breathability, and versatility, making it a popular choice for clothing, home textiles, and other fabric-based products.
• Promoters of company are Mr. Nirmalkumar Mangalchand Mittal and Mr. Gagan Nirmalkumar Mittal.

Financials: United Cotfab IPO

United Cotfab IPO: Salient Points

• Cotton yarn comes in various thicknesses, known as yarn weights, which determine its suitability for different products.
• Common yarn weights include lace, fingering, sport, worsted, and bulky, each with its own characteristics and recommended uses. It is widely used in the textile industry for various applications, including knitting, weaving, and crocheting.
• Company is promoted by Mr. Nirmalkumar Mangalchand Mittal and Mr. Gagan Nirmalkumar Mittal who have a combined experience of more than 55 years in the field of cotton textile industry.
• Major part of the net proceeds of IPO will be used to fund working capital and major portion of working capital is utilized towards debtors and inventories.

• Key Performance Indicators

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• Peers:

• Looks ok compared to peers. Ingeneral peers have low profitability indicating average prospects in this business.
• Sebi in 2023 slapped a fine of Rs 48 lakh on eight entities, including promoters of  United Polyfab Gujarat , a company by same promoters and also some promoters of United Polyfab for Rs 48 lakh for violating Sebi (Prohibition of Unfair Trading Practices) Regulations and the SEBI Act.. SEBI stated, that the company, in collusion with the promoters and associates, was engaged in the fraudulent scheme to enable satisfaction of the migration criteria to migrate the company from NSE’s SME Platform ‘Emerge’ to the Main Board of NSE.
• State of Gujarat & Maharashtra contributes 92.90% and 1.33% of total domestic revenue for the financial year ended on March 31, 2024.
• The Manufacturing facility is close to the rich cotton growing areas of Saurashtra region.
• They made purchase of Raw Material (cotton bales) of 5,870.84 Lacs from United Polyfab Gujarat Limited and made sales (yarn) of 5,282.12 to group company Vinod Spinners Private Limited.
• The revenue from group companies are constituting 53.65% for the financial year ended March 31, 2024. The purchase from group companies are constituting 61.89% and 80.97% for the financial year ended on March 31, 2024 and March 31, 2023 respectively.
• Group company United Polyfab Gujarat Limited came with a SME IPO priced at ₹45 per share in 2016. listed at 42.5 and now quotes at Rs 90.3 at a PE of 31x after a 2:1 bonus issue in 2021.
• Management has guided for 5-10% growth in both revenues and profits.
• Working capital cycle is bit long at 60-70 days and company has to maintain stock of 1.5-2 months.
• The company uses 100% of raw materials derived out of cotton waste from spinning industry, There are few players that are into recycled cotton yarn.
• Apart from group companies they supply to Arvind and others. Claim to have good orders in hand.
• Company has put up a new plant (last year) which should result in better output..
• United Cotfab IPO is coming at a PE ratio of 13.9x (fy24 earnings) .
• I may apply in United Cotfab IPO subject to availability of funds and response on last day. The company has high dealing with other promoter companies. Even as it is in risky category and promters have been fined by SEBI, still there are chances that it may give a small listing gain. Making yarn (recycled) from cotton waste and a new plant gives it some edge.
• GMP as reported on social media has been Rs. 20 (28%).
• Beeline Capital Advisors Pvt Ltd is the Lead Manager to the issue. It has a fair to good record. Past issues handled by them include Beacon Trusteeship Limited, Rulka Electricals Limited, Piotex Industries, Winsol Engineers, Emmforce Autotech Limited, Greenhitech Ventures Limited, TAC Infosec Limited IPO, KP Green Engineering Limited, Pratham EPC Projects, V R Infraspace, Rudra Gas Enterprise Limited, Fonebox Retail Limited, Konstelec Engineers, Australian Premium Solar, Indifra Limited, Benchmark Computer Solutions, Sheetal Universal Limited, Rajgor Castor Derivatives, Arvind and Company Shipping Agencies, Karnika Industries Limited, Hi-Green Carbon Limited, Kody Technolab Limited, Chavda Infra Limited, Vinsys IT Services Limited,Ahasolar Technologies, Pentagon Rubber, Remus Pharmaceuticals, Sotac Pharmaceuticals, RBM Infracon Limited, Transvoy Logistics, Dev Labtech, Viviana Power Tech, Vital Chemtech, Aristo Bio-Tech and Lifescience, Viaz Tyres, Vertexplus Technologies etc.
• SME IPO are much more risky and volatile than mainboard IPOs and may not be suitable at least for new retail investors.
• Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . I have in the past cleared some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Do check the data from company’s RHP and exchanges before making any decision. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.