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House of Pearl Fashion IPO Review – Avoid

January 17, 2007

House of Pearl Fashion is operating in three business streams: manufacturing, marketing and distribution, and sourcing of garments. They currently operate ten modern ready-to-wear apparel manufacturing facilities, of which six are located in North India, One in South India, two in Bangladesh and one in Indonesia.

IPO Details:
Issue Size Rs 314 – Rs 359 crores
No of shares offered – 5.9 Million shares
Price Range for Book Building – Rs 525 -to Rs 600
Fully Diluted Equity after the Issue – Rs 19.68 crore or 1.96 crore equity shares of FV Rs 10.

The company is raising capital to double its current manufacturing capacity. The company manufactures only 25% of the net sales it does and the rest being sourced from different manufacturers. It mainly markets in the UK – 50% and the rest in other European countries and the US.

The company had a sales of RS 448 crores and a PAT of Rs 25.8 crores for Half year ending 2006. The company’s OPM and Net Margins are at 8% and 5.2% which are far lower than that of Gokaldas Exports which has 11% OMP and 7.5% Net Margin.

The IPO is priced in the range of 23-26 times its FY2007 earnings while industry leader Gokaldas Exports is available at 14.3 times its Fy2007 earnings. The valuations look very expensive and their will be no listing gains. Long Term Investors can also avoid the issue.

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