Hanung Toys and Textiles, a manufacturer and exporter of stuffed toys and home furnishings, is open for subscription with a public issue of 95-lakh equity shares of Rs 10 each through a 100% book-building process.

The price band ranges between Rs 85 and Rs 95 per equity share. The net issue to the public is 90 lakh equity shares forming 35.73% of the post issue paid up capital of the company.

Karvy Investor Services and Anand Rathi Securities are the book running lead managers for the issue and Karvy Computershare is the registrar. The issue closes on October 5.

The Keynote Capitals report on Hanung Toys and Textiles IPO:

Recommendation - Subscribe with a medium term view

• Hanung Toys & Textiles, HTTL is a producer of stuff toys and home furnishing products, which are mainly exported and has strong design and development facilities with library of 4000 designs.
• Has brands like "Play-n-Pets" and "Muskan" in stuff toys and "Splash" in home furnishings. Customers include Wal-Mart and IKEA.
• Sales mix will have a higher contribution of home textiles going forward, as a result of the proposed greenfiled expansion of home textiles capacity. We expect contribution of home textiles to grow from 33.8% of sales in FY06 to 74.6% and 76%, in FY08 and FY09, respectively.
• Proposed home textiles unit at Uttaranchal will enjoy a number of fiscal incentives like exemption from central excise for first ten years, 100% exemption from income tax exemption for first five years and 30% exemption for next five years, central sales tax @ 1% for first five years.
• Soft loans under Technology Upgradation Fund Scheme, TUFS to help reduce interest cost
• However, overdependence on largest and top five customers remains a cause for concern. Contribution of largest customer has increased from 20.6% of sales in FY05 to 26.2% in FY06, while that of top 5 customers has increased from 60.2% to 83.9% over the corresponding period.
• HTTL has strong customer relationships; home textiles to drive revenue growth going forward. In view of the valuation of 10.6x FY07E and 5.1x FY08E, investors may consider this IPO with a medium term view.
   
  Investment concerns
• Top 1 & Top 5 customer’s contribution increased from 20.6% to 26.2% and 60.2% to 83.9% between FY05 - FY06 of total turnover.
• Strong competition from low cost Chinese products in stuff toys segment.
• Has negative cash flows for period ended June 30, 2006.