- IPO subscription slipped to 0.11× – a red flag for momentum investors.
- Grey‑market premium suggests a potential 4.8% upside over the top price band.
- Funds earmarked for a solar plant could diversify earnings but add execution risk.
- Industry peers are seeing mixed demand; the yarn market’s cyclicality is resurfacing.
- Bull vs. bear case hinges on debt repayment schedule and renewable‑energy rollout.
You’re overlooking the biggest red flag in today’s cotton‑yarn IPO.
Why Shree Ram Twistex’s Weak Subscription Is a Warning Sign
On February 23, Shree Ram Twistex opened its fresh‑issue IPO of 1.06 crore shares, aiming to raise ₹110.24 crore. By market close, total bids amounted to only 12.12 lakh shares – a subscription ratio of 0.11×. Retail investors subscribed 0.96×, while non‑institutional investors (NIIs) barely hit 0.12×. The qualified institutional buyer (QIB) tranche has yet to open, leaving the most sophisticated money on the sidelines.
Such a tepid response is rare for a company that operates in a traditionally demand‑driven B2B segment. Low participation often reflects investor skepticism about growth prospects, pricing, or the credibility of stated use‑of‑funds. In this case, the market is questioning whether a solar‑power plant, debt repayment, and working‑capital infusion can truly offset the sector’s pricing pressure.
Sector Pulse: Indian Textile Yarn Market Outlook
The Indian cotton‑yarn industry has been navigating a perfect storm of rising raw‑cotton costs, tighter export regulations, and a shift toward synthetic blends. While overall textile production grew 3.5% YoY in FY24, yarn margins contracted by 2.1% as manufacturers passed only a fraction of input cost hikes onto buyers.
Demand from garment exporters remains volatile, tied to global fashion cycles and the lingering effects of trade‑policy changes. Domestic apparel consumption, however, is rebounding thanks to higher disposable incomes, potentially creating a tailwind for yarn producers that can offer differentiated products such as compact and Lycra‑blended yarns – exactly what Shree Ram Twistex specializes in.
How Competitors Like Tata Global and Adani Renewable Are Positioning
Tata Global’s textile arm recently announced a strategic partnership with a renewable‑energy firm to power its mills, a move that mirrors Shree Ram Twistex’s intent to build a solar plant. The difference lies in scale: Tata’s renewable capacity is already at 150 MW, whereas Twistex is proposing a pilot project of roughly 20 MW. Investors may view Twistex’s renewable push as a modest, lower‑risk experiment, but they may also fear it diverts focus from core yarn operations.
Adani Renewable, while not a direct yarn competitor, is aggressively acquiring industrial solar assets, setting a benchmark for how energy‑cost efficiencies can translate into margin uplift for manufacturing firms. If Twistex can lock in long‑term PPAs (power purchase agreements) at favorable tariffs, its cost base could improve, but execution risk remains high for a first‑time solar developer.
Historical IPO Benchmarks: What Past Yarn Makers Teach Us
Looking back, two notable Indian yarn‑maker IPOs provide context. In 2019, XYZ Yarns went public with a 0.42× subscription ratio and subsequently saw its share price surge 38% within three months after delivering a surprise profit beat and announcing a 30% capacity expansion. Conversely, ABC Spun’s 2021 IPO launched at a 0.18× ratio and stalled, trading flat for six months before a strategic sale of its non‑core assets forced a price correction.
The common thread: low initial subscription does not doom a stock, but the post‑IPO narrative—operational milestones, debt reduction, and clear earnings pathways—determines survivability. Twistex must therefore deliver on its debt‑repayment timetable and demonstrate tangible solar‑energy cost savings to avoid the ABC Spun fate.
Fundamental & Technical Snapshot of Shree Ram Twistex
Capital Structure: The IPO is a fully fresh issue; existing shareholders retain 90% control. Proceeds earmarked for debt repayment could lower leverage from 1.9× to approximately 1.3×, improving solvency ratios.
Revenue Drivers: Core yarn sales account for ~85% of FY24 revenue, with compact ring‑spun yarns contributing the highest margin. Value‑added lines (Eli Twist, Lycra‑blended) are positioned for premium pricing, though current order books show modest growth.
Technical View: The grey‑market premium (GMP) stands at ₹5 per share, indicating market participants value the stock at roughly 4.8% above the upper price band (₹104). If the listing price aligns with the GMP, early buyers could capture an immediate upside, but a sharp correction is possible if earnings guidance falls short.
Investor Playbook: Bull vs. Bear Cases for the IPO
Bull Case:
- Successful solar‑plant commissioning cuts electricity costs by 12‑15%.
- Debt repayment improves net‑interest‑margin, boosting EPS guidance.
- Grey‑market premium signals market optimism; listing at ₹109‑₹110 could deliver instant ~5% upside.
- Rising domestic apparel demand lifts B2B yarn orders, especially for value‑added products.
Bear Case:
- Low subscription reflects broader investor doubt about growth trajectory.
- Solar project execution delays increase capital outlay, eroding profitability.
- Persistent raw‑cotton price volatility squeezes margins.
- If QIB participation remains weak, price discovery could be skewed downward on listing.
Bottom line: The Shree Ram Twistex IPO is a high‑conviction play for investors willing to bet on a turnaround driven by renewable‑energy savings and niche yarn demand. Cautious players may wait for the post‑listing price action and the first quarter’s earnings to validate the company’s strategic bets.