27 February 2008
CRISIL IPO grade 3/5 assigned to the IPO of
Mandhana Industries Ltd.

CRISIL has assigned a CRISIL IPO Grade "3/5" (pronounced "three on five") to the proposed initial public offer of Mandhana Industries Ltd. (MIL). This grade indicates that the fundamentals of the issue are average relative to other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The offer price for the issue may be higher or lower than the level justified by its fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, the graded instrument's future market price or its suitability for a particular investor.

The grading reflects the company's design oriented operations in niche segments of both fabrics and garments business. The company's Europe based design-focused client profile has helped it to sustain volumes and margins in a period of turmoil for Indian garment exporters. MIL's ability to create a shelf of fabric and garment designs gives it an edge while dealing with its design-focused client profile in the casual wear segment.

However, the company is likely to face challenges in scaling up its design-focused garment business model to four times its current capacity, as planned, without compromising on the margins. Moreover, the ongoing uncertainty in the global currency markets has the potential to impact MIL's business especially in the backdrop of competition from the Chinese players. The grading also reflects the potential conflict of interest on account of MIL's promoters having another entity in the same line of business, catering to bottom wear (MIL caters to tops).

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About the company and the issue
MIL is a Mumbai based company, engaged in the production of fabrics for domestic market and garments largely for export markets. The company, promoted by four brothers of the Mandhana family, was incorporated in 1984 as Mandhana Textile Mills Private Ltd. It was engaged in the business of trading of fabrics. Subsequently, the company entered fabric processing and garmenting businesses and was renamed as MIL. In 2003, a separation in the family led to the two elder Mandhana brothers separating and taking the garmenting business. The younger brothers, Mr Purshottam Mandhana and Mr Biharilal Mandhana (brother of Mr Purshottam), took control of MIL. They became the promoters of the company along with Mr Manish Mandhana (nephew of Mr Purshottam and son of Mr.Biharilal). After separation, the company set up new garmenting capacities and entered yarn dyeing and weaving segment. They also expanded the fabric processing capacities.

The company dyes yarn, converts cotton yarn into grey fabric and also processes grey fabric into finished fabric at its three facilities in Tarapur in Maharashtra. The company procures yarn mainly from Alok Industries and Vardhman Textiles. It also buys fabric which is dyed, texturised and provides various finishes like stone finish, oil repellant, water repellant, peach finish, silicon finish etc.

The company has 1.8 million kg of yarn dyeing capacity, 18 million m of fabric weaving capacity and 20.4 million m of fabric processing capacity at Tarapur in Maharashtra. In addition, it has forward integrated into garmenting, with two units in Bangalore and a smaller unit in Mumbai, having an aggregate capacity to produce 3 million pieces per annum. The company has 3,248 employees on its rolls as on November 30, 2007.

For 2006-07, the company's total income and net profits were Rs 2,416.6 million (Rs 1,831million) and Rs 194.3 million (Rs 121.3 million), respectively. MIL has reported an increase in operating income and net profit in 2005-06 and 2006-07, driven by increased weaving and dyeing and garmenting capacity.

MIL aims to raise approximately Rs 1.15 billion by this proposed public issue of 3,775,000 equity shares (1,258,333 warrants convertible into shares after 18 months) of face value Rs 10. The company plans to utilise the proceeds to expand its yarn dyeing capacity to 3 million kg per annum, its weaving capacity to 30 million m, its processing capacity to 51.6 million m and garmenting capacity to 14 million pieces per annum.

About CRISIL IPO Grading
CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security.

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February 27, 2008