Cedaar Textile IPO

Cedaar Textile Limited claims to manufacture a wide variety of yarns, including raw white yarns, melange yarns, solid top-dyed yarns, grey fancy yarns, and others made from polyester, acrylic, viscose, modal, and tencel fibres.

The company claims its customer base is steadily expanding across domestic and international markets.

The company claims to operate a business model that is both scalable and operationally stable.

The company claims to have well-established capabilities across sourcing, production, and delivery.

A significant portion of the company’s revenue comes from its top 10 customers. As of September 30, 2024, they contributed Rs 50.37 crore (63.81 percent) to the company’s total revenue, Rs 89.23 crore (47.04 percent) in FY24, Rs 59.42 crore (37.08 percent) in FY23, and Rs 123.56 crore (56.83 percent) in FY22. Any failure to retain these key customers, expand the customer base, or a loss of business from these clients could adversely affect the company’s business and financial standing.

The company’s manufacturing facility is concentrated in Ludhiana, Punjab. Any adverse political, or social or economic developments in this region can negatively impact the company.

The company operates entirely on a purchase order basis and has no long-term agreements with any of its customers. Any disruption in regular orders or sudden cancellations from major customers can lead to significant volatility in revenue and profitability.

The company has been witnessing a declining inventory turnover ratio of 0.72 in the period ending September 30, 2024, 2.29 in FY24, 3.25 in FY23, and 7.98 in FY22. This indicates that the company is selling its inventory more slowly, which could result in rising inventory costs, reduced profit margins, and a negative impact on cash flow.

As of September 30, 2024, FY24, FY23, and FY22, the company’s installed production capacity for spinning was utilised at 70 percent, 64 percent, 57 percent, and 50 percent, respectively. The company’s installed production capacity for dyeing was utilised at 90 percent, 91 percent, 75 percent, and 75 percent for the period ended September 30, 2024, FY24, FY23, and FY22, respectively. If the company is unable to enhance capacity on time, it may miss emerging demand opportunities.

A significant portion of the company’s purchases of raw materials comes from its top 10 suppliers. They accounted for Rs 41.95 crore (77.52 percent) of the company’s total purchases in the period ended September 30, 2024, Rs 85.69 crore (64.88 percent) in FY24, Rs 86.27 crore (79.78 percent) in FY23, and Rs 117.18 crore (82.09 percent) in FY22. Any disruption in supplies from one or more of these suppliers could adversely affect the company’s business and finances.

The company recorded negative cash flows from operating activities amounting to Rs 1.96 crore and Rs 15.42 crore in FY23 and FY22, respectively. It also recorded negative cash flows from investing activities amounting to Rs 4.78 crore, Rs 2.51 crore, Rs 6.49 crore and Rs 6.09 crore as of the period ended September 30, 2024, FY24, FY23 and FY22, respectively. It also recorded negative cash flows from financing activities amounting to Rs 2.90 crore and Rs 2.34 crore as of the period ended September 30, 2024 and FY24, respectively. If cash outflows continue to exceed inflows, the company may face liquidity challenges in the future.

As of September 30, 2024, Cedaar Textile had an outstanding financial indebtedness of Rs 120.82 crore. Any failure to service or repay these loans can hurt the company’s operations and financial position.