Ken Enterprises Ltd. IPO: Key Details

Ken Enterprises

• Ken Enterprises is coming out with an initial public offering (IPO) of 88,99,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 94 per equity share.
• The issue will open on February 5, 2025 and will close on February 7, 2025.
• The shares will be listed on SME Platform of NSE.
• The share is priced 9.40 times higher to its face value of Rs 10. 
• Book running lead manager to the issue is Corporate Makers Capital.
• Compliance Officer for the issue is Shailja Dubey.

Profile of the company

Ken Enterprises is an ISO 9001:2015 certified and award-winning textile company with over twenty years of experience in the field of textile manufacturing. The company is engaged in manufacturing of regular and sustainable greige and finished fabrics for domestic and international markets. The company has achieved many prestigious milestones and received several accolades, including the prestigious Texprocil Export Award. The company started exports, recognizing the contribution of the company in the textile industry.

The company operates as a design-to-delivery solutions provider for both greige and finished fabrics catering to the domestic as well as export markets. The company’s focus on design to delivery, product development, commitment to excellence, sustainability and timely delivery has established it as one of the prominent players in the textile industry. It exports regular and sustainable greige and finished fabrics in more than 10 number of countries. It has approved vendors for leading international brands such as ZARA (Inditex Group), Target and Primark. It offers a diverse range of fabrics such as structures, seer suckers, double layer, three layer, four layer, chambrays, fashion fabrics with metallic yarns etc., catering to various applications such as women fashion wear, men and kids’ shirts, home textiles, embroidery, light canvas etc. amongst others.

It manufactures fabrics for apparel, industrial, technical, shirtings, home furnishings and other such purposes. The company is availing third party manufacturers services for manufacturing of greige fabric on job work basis, in and around Ichalkaranji, Maharashtra which is fabric weaving ecosystem, for boosting its manufacturing capacities. This business model has worked very well for it since past several years wherein it has been able to achieve higher sales by availing third party manufacturers services, as the same does not require any capital expenditure on its part. It has developed business relationships with several manufacturers in and around Ichalkaranji by giving them regular job work orders. It can anytime add further capacities by developing business relationship with such additional manufacturers giving it the flexibility to focus on product development and sales. 

Proceed is being used for:

• Unidentified acquisitions in India and abroad
• Purchase of new machinery
• Capital expenditure for renovation of both manufacturing facilities
• Meeting working capital requirements

Industry Overview

The textile market in India is one of the oldest industries in the country, with a rich heritage that spans centuries. Overall, the industry contributes around 2% to the country's GDP and accounts for 7% of industrial output in value terms. With a 4% share of the global textile and apparel trade, the sector is vital for India's export economy, making up 10.33% of the country's overall export basket during 2021-22. This sector is broadly divided into several segments including fibre and yarn, processed fabrics, garments, and technical textiles. The garment sector is divided into ready-made garments and customized tailoring. The spinning sector is struggling with high under-utilization due to reduced yarn imports from China and sluggish buying from weavers and knitters. The combined effect of reduced exports and lacklustre local consumption has compounded the industry's challenges. In response, initiatives such as the Production Linked Incentive (PLI) and PM Mitra schemes aim to attract investments in man-made fibres and technical textiles, to reduce import dependence over time.

The Indian textile and apparel market size was estimated to be approximately $165 billion in 2023, with the domestic market accounting for $125 billion and exports contributing $40 billion. This growth is driven by increasing domestic demand, favourable government policies, and the rising preference for sustainable and ethically produced textiles, positioning India as a key player in the global textile industry. The total annual production of fabric (comprising of cotton woven fabrics and polyester/viscose blended fabric) in India is estimated to be nearly 493 million running meters in FY 2023. Meanwhile the annual production of knitted cotton fabric is estimated to be nearly 121 thousand tons in FY 2023. The Indian textile and apparel industry, contributing 2% to the nation's GDP and 7% of industrial output, is currently navigating a challenging period. Despite a 4% share in global trade and over 10% contribution to India's export basket in 2021-22, the industry is facing a downturn. Domestic sales have lagged, with consumer spending shifting towards food, electronics, and vehicles, reducing demand for garments. The spinning sector is particularly affected by under-utilization due to decreased yarn imports from China and weak domestic demand from weavers and knitters.

In response to these challenges, initiatives like the Production Linked Incentive (PLI) and PM Mitra schemes have been introduced to attract investments in man-made fibers and technical textiles, aiming to reduce import dependence. However, the industry remains reliant on imported man-made fibers, particularly from China, Vietnam, and Taiwan. The struggles of Bangladesh's garment industry, marked by labor unrest, political instability, and declining exports, are creating significant opportunities for the Indian textile sector. As global brands seek to diversify their supply chains and mitigate risks, India stands to benefit from increased demand for its textile products, provided it can maintain quality and sustainability in its offerings. Additionally, a 40% rise in freight costs due to disruptions in the Red Sea region is further straining operational costs and impacting product pricing. 

Pros and strengths

Asset light model: The company’s production facility is in Ichalkaranji, Maharashtra is located in a renowned hub for the textile manufacturing industry. It has been successfully able to leverage its manufacturing due to its location being surrounded by greige fabric manufacturers and thereby giving it an opportunity to outsource requirements which exceed its in-house capacities. It has an in-house capacity of manufacturing 145 lakh square meters per annum Maharashtra. This gives it an edge as it can get much more manufacturing capacities without any capital investment. This approach positions it, as a scalable industry player without any major capital investment, streamlining inventory management, ensuring cost-effective production, and enhancing overall operational efficiency.

Established relationships with the clients: It has long standing relationships with several of its customers over the past years. It focuses on building long term client relationships and constantly try to cater to customer needs offering them their choice of products and services. Since it is engaged in a B2B business model, its existing clients majorly being apparel exporters/manufacturers, they have been providing it with repeat orders. Such test of time with its customers has earned it a good reputation in the market and helps it in gaining new customer base and increasing its business with existing customers.

Diverse product portfolio offering single point sourcing solution for customers: The company’s business model of arrangements with diverse manufacturing capabilities of several third party manufacturers, gives it an edge to be able to offer a varied product range as much as one thousand SKUs to customers under a single roof. This helps it to retain customers by becoming a single point sourcing solution for most of their fabric requirements. Further, it helps it immensely to get new customers on board by attracting them with its varied product portfolio.

Risks and concerns  

No long term agreement with customers: The company presently do not have any long-term or exclusive arrangements with any of its customers. It cannot assure that it will be able to sell the quantities it has historically supplied to such customers. In the event its competitors’ products offer better margins to such customers or otherwise incentivize them, there can be no assurance that its customers will continue to place orders with it. Most of its transactions with its customers are typically on a purchase order basis without any commitment for a fixed volume of business on a regular basis. There can also be no assurance that its customers will place their orders with it on current or similar terms. Further, its customers could change their business practices or seek to modify the terms that it has customarily followed with them, including in relation to their payment terms. In addition, its customers may also cancel purchase orders at short notice or without notice, which could have an impact on its inventory management. In the event of frequent cancellations of purchase orders, the same could have a material adverse effect on its business, financial condition, results of operations.

High working capital requirements: The company’s business requires significant amount of working capital and major portion of its working capital is utilized towards debtors, inventories, security deposits, marketing and promotions, advance to suppliers, cash and cash equivalents. It also has sanctioned financing facilities of Rs 8,029 lakh which has Rs 4,939 lakh fund based and Rs 3,090 lakh non-fund based. Its inability to maintain sufficient cash flow, credit facility and other sources of funding, in a timely manner, or at all, to meet the requirement of working capital, it could adversely affect its result of its operations and financial condition. Further, it has high outstanding amount due from its customers which may result in a high risk in case of non-payment by these debtors. In case of any such defaults from its debtors, it may affect its business operations and financials.

Dependent on third party manufacturers to manufacture its products on job work basis: The company has two manufacturing facilities having a combined installed capacity of manufacturing 145 lakh square meters per annum of greige fabric. Its manufacturing plants and registered office are based in Ichalkaranji, Kolhapur, Maharashtra. Ichalkaranji is known for its huge textile manufacturing eco system and taking advantage of the same, it has developed business relationships with several manufacturers of greige fabrics and on a routine basis it gets its products manufactured on job work basis from them. There are many such manufacturers readily available in and around Ichalkaranji. It is therefore dependent on such third parties for the manufacturing of its products. Their operations are subject to various operating risks, including some which are beyond their control, which may include breakdowns and failure of equipment, industrial accidents, employee unrest, severe weather conditions, natural disasters etc. Manufacturing fabrics from such third party manufacturers may have an adverse impact on the quality of the products which may in turn have an adverse impact on its results of operations.

Outlook

Ken Enterprises is engaged in the business of textile manufacturing. The company manufactures fabrics for various purposes, including apparel, industrial, technical, shirting, and home furnishings. The company has diverse product portfolio offering single point sourcing solution for customers. It also has in-house product development expertise. On the concern side, the company is dependent on third party manufacturers to manufacture its products on job work basis. Its business is therefore dependent to a large extent on expected performance and operation of such manufacturers. Moreover, it has not entered into any long-term contracts with any of its customers and operate on the basis of purchase orders, which could adversely impact its revenues and profitability.

The company is coming out with an IPO of 88,99,200 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 94 per equity share to mobilize Rs 83.65 crore. On performance front, the company’s total income for the period starting from April 1, 2023 to March 31, 2024 stood at Rs 40,912.72 lakh. The total income consists of revenue from the operations including sale of goods & export of goods and the other income. Moreover, the company’s restated profit after tax for the year ended March 31, 2024 was Rs 892.73 lakh.

The company’s growth strategy revolves around a dual approach, blending organic expansion with strategic brownfield initiatives. Through continuous product innovation and development, it aims to organically further diversify its product offerings and reach a broader customer base, leveraging its in-house capabilities and weaving facilities. Simultaneously, its commitment to brownfield expansion such as building business relationship with more diverse fabric manufacturers, optimizes operational efficiency by utilizing existing infrastructure, including its manufacturing facility. This approach ensures a seamless transition into higher production levels, minimizing costs, and allowing it to effectively meet the increasing market demands.