Upcoming IPO: The initial public offering (IPO) of Shree Ram Twistex, a manufacturer of cotton yarns, is set to open for bidding on Monday, February 23, and will remain available to investors until Wednesday, February 25.
It aims to raise ₹110.24 crore through this IPO, which is entirely a fresh issue of 1.06 crore shares. The price band for the IPO is fixed at ₹95– ₹104 per share.
The minimum lot size for retail investors has been set at one lot, consisting of 144 shares, requiring a minimum investment of ₹14,976. Investors can apply for a maximum of 13 lots, which requires capital of ₹1,94,688.
The allotment of the issue is likely to be finalised on February 26, and the shares are scheduled to be listed on both the BSE and NSE, with a tentative listing date of Monday, March 2.
Shree Ram Twistex is engaged in the manufacturing of cotton yarns, including compact ring-spun and carded yarns, both combed and carded. Its product range also includes value-added yarns such as Eli Twist (combed and carded), compact slub yarns, and Lycra-blended yarns.
As the IPO is set to open next week, potential investors should also be aware of the key risks outlined by the company in its Red Herring Prospectus (RHP). In this article, we will break down some of these risks.
Key Risks
High customer concentration risk: The company derives a major part of its revenue from a limited number of customers, and the loss of any of these customers or a reduction in revenue from them could have a material adverse effect on its business, financial condition, results of operations, and cash flows.
According to the RHP, the top 10 customers accounted for 90% of total revenue during the nine-month period ended December 31, 2024.
Geographic concentration in Gujarat: In addition, the company’s large customers are primarily located in Gujarat, leaving it exposed to geographic concentration risk. During the nine-month period ended December 31, 2024, revenue from sales in Gujarat amounted to ₹13,834.64 lakhs, representing approximately 91.73% of total revenue from operations.
Dependence on limited cotton suppliers: The company is dependent on a limited number of suppliers for the procurement of cotton bales, its principal raw material. Any disruption in supply or adverse movement in cotton prices may materially affect its business operations.
Stringent quality compliance requirements: The company is subject to stringent quality requirements from its institutional buyers and end-use industries. Any failure to meet prescribed quality specifications may result in product rejections, which could also impact its operating performance.
Product concentration risk: A significant portion of revenue is derived from Carded Cotton Yarn, Combed Cotton Yarn, and ELI Twist Yarn. Any decline in demand, pricing pressures, or adverse developments in the spinning or textile industry could materially and adversely impact its business.
Execution risks in solar power project: The company has commenced initiatives to transition toward solar energy, including a proposed 6.1 MW captive solar power project to be partly funded from the Net Proceeds. Delays or cost overruns in implementation, or failure to achieve projected benefits from the solar power plant, may adversely affect its results of operations.
The total project funding includes ₹1,489 lakhs secured via a term loan from SIDBI and ₹784.55 lakhs proposed to be deployed from the Net Proceeds of the Issue.
Ongoing legal proceedings: Shree Ram Twistex is party to certain legal proceedings. Any adverse decision in such proceedings may have a material adverse effect on its performance.
Delays in statutory dues payments: There have been certain instances of delays in the payment of statutory dues. Any delay in payment or non-payment of statutory dues under dispute may attract financial penalties from the respective government authorities and impact cash flows.
Indirect foreign exchange exposure: Although the company generates the majority of its revenue domestically, it exports its products through merchant exporters. While it is not directly exposed to foreign exchange fluctuations, it may still be indirectly impacted by currency volatility.
Dividend uncertainty risk: The company’s ability to pay dividends in the future will depend upon its future earnings, financial condition, cash flows, working capital requirements, capital expenditure, and restrictive covenants under its financing arrangements.
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
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