Neelam Linens & Garments (India) Ltd. (NLGIL), a Maharashtra-based home furnishings company, is gearing up for its initial public offering (IPO) on November 8, 2024. Specializing in bed linens, towels, rugs, and garments, NLGIL serves discounted retail outlets across the U.S., Australia, and the Far East. The company sources surplus or slightly imperfect fabrics locally and enhances them with custom design, digital printing, dyeing, and embroidery, offering a budget-friendly product line to its customers.
Expanding beyond home furnishings, NLGIL entered the apparel industry in 2023, producing fashion items for both men and women. Additionally, the company generates revenue by trading import licenses, granted as incentives by the Indian government to encourage exports. These licenses, which are tradable, allow imports of restricted goods, and NLGIL sells them to other importers at a discount.
In its IPO, NLGIL plans to offer 5,418,000 equity shares priced between INR 20 and INR 24 each, targeting a total of INR 13 crore. Of these proceeds, INR 5.57 crore will be invested in new embroidery machines, INR 4 crore will repay debts, and the remainder will fund general corporate expenses. Post-IPO, NLGIL’s equity capital will increase to INR 20.22 crore, with shares expected to debut on NSE SME Emerge.
Financially, the company’s performance has been modest, posting revenues of INR 103.8 crore, INR 105.4 crore, and INR 104.7 crore from FY22 to FY24, respectively, and net profits of INR 2.99 crore, INR 2.38 crore, and INR 2.46 crore. For the first quarter of FY25, NLGIL recorded a profit of INR 0.81 crore on a revenue of INR 21.95 crore. Despite recent efforts to improve profitability, NLGIL’s debt-equity ratio stands at a high 3.12, a significant red flag for potential investors.
The issue price is considered high, with a post-IPO P/E ratio of 15.09 based on projected FY25 earnings and 19.67 based on FY24 earnings, making the offering seem fully priced. Given the company’s modest growth, high leverage, and relatively low profit margins, investors should remain cautious regarding the “High Risk/Low Return” nature of this IPO, suggesting that it may be prudent to sit this one out.
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