Sonaselection - High Growth fabric manufacturer

1. IPO Overview

Sonaselection India Limited is a mainboard IPO on BSE and NSE.

It is a 100% fresh issue. Fresh issue means new shares that bring cash to the company. There is no OFS. OFS means Offer for Sale, where existing owners sell shares and keep the cash.

The offer is up to 14,300,000 shares of face value ₹10 each. At the live band of ₹94 to ₹99, the raise is ₹134.42 crore to ₹141.57 crore.

Pre-issue shares are 42,528,681. Post-issue shares are 56,828,681. Promoters held 86.21% before the issue. On a computed basis, they will hold about 64.5% after the issue. This is dilution of about 21.7 percentage points.

The issue opens on September 17, 2026. It closes on September 21, 2026. Lead manager is Choice Capital Advisors Private Limited. Registrar is Kfin Technologies Limited. Lot size was not disclosed in the inputs.

At ₹99, the top of the band, post-issue P/E is 16.5x on Fiscal 2026 profit. Post-issue EPS is ₹5.99. RoNW is 39.05% for Fiscal 2026. RoNW means Return on Net Worth, or profit divided by net worth. Pre-issue NAV per share is ₹24.78. NAV means Net Asset Value per share, or book value per share.

The unusual flag is this: profits are growing fast, but operating cash flow is negative and debt is 2.48x equity.

2. What the company does

Sonaselection is a fabric converter. It buys raw, unfinished fabric, called greige fabric. It then dyes, treats and finishes it. It sells finished fabric to traders and garment brands.

It does not grow cotton. It does not spin much yarn. It does not weave most cloth. It buys greige fabric or yarn. It outsources weaving where needed. It adds value through chemical and mechanical processing.

The plant performs singeing, desizing, scouring, bleaching, mercerizing, dyeing and finishing. Singeing burns loose fibres. Desizing removes starch. Scouring deep cleans. Bleaching whitens. Mercerizing adds lustre and strength. Finishing adds softness and stability. An in-house lab checks quality. Then it packs and dispatches.

Money comes in three streams.

First is manufacturing. The company owns the fabric. It buys input, processes it, and sells finished fabric. This is now dominant.

Second is job-work processing. The customer owns the fabric. Sonaselection charges a fee to process it. It never takes title. This is the legacy line.

Third is readymade garments, or RMG. This runs through wholly owned subsidiary Sionnah Enterprises Private Limited. Sionnah was incorporated on July 1, 2025. It makes menswear. It uses third-party garment job manufacturers.

The shift from job-work to manufacturing defines the last three years. In Fiscal 2024, job-work was 88.72% of revenue. By Fiscal 2026, manufacturing was 81.50% of revenue.

Manufacturing of textile fabrics

This is the core. Products are 100% cotton, cotton lycra (stretch), cotton blends, and polyester blends. Buyers are textile traders and garment brands across India.

Revenue here has exploded. It was ₹13.65 crore in Fiscal 2024. It rose to ₹220.79 crore in Fiscal 2025. It reached ₹421.29 crore in Fiscal 2026.

The trigger was a new cotton processing plant. It started commercial production in July 2024. Installed capacity rose from 5.40 crore meters per annum to 8.24 crore meters per annum.

Product mix has diversified. In Fiscal 2024, the company made only cotton blends. By Fiscal 2026, the mix was:

Focus is on value-added fabrics. Cotton lycra and cotton blends command better realisation than plain cotton.

The plant is capital-intensive. Machines come from Italy, Germany, China, the UK and Switzerland. They include stenters, mercerisers, washing ranges, sanforisers, singeing machines and jet dyeing machines. Capex on tangible assets was ₹105.29 crore in Fiscal 2024, ₹49.24 crore in Fiscal 2025, and ₹22.56 crore in Fiscal 2026.

Job-work processing of fabrics

This is fee-based processing. Customers supply greige fabric. Sonaselection dyes and finishes to specification.

Revenue is shrinking by design. It was ₹107.33 crore in Fiscal 2024. It fell to ₹95.17 crore in Fiscal 2025. It fell to ₹89.44 crore in Fiscal 2026.

The company keeps this line for flexibility. It fills spare capacity. It keeps the plant running when manufacturing orders are low.

Economics are thinner. The company earns only a fee. But working capital risk is lower. The customer funds the fabric. Top five job-work customers took 4.20% to 16.58% of job-work revenue in Fiscal 2026. That base is concentrated.

Readymade garments (RMG)

This is new and tiny. Revenue was ₹6.21 crore in Fiscal 2026. That is 1.20% of total revenue.

Logic is forward integration. Fabric to garment captures more value per meter. The subsidiary uses outside garment makers. This avoids heavy factory capex. It leased an office in Bengaluru from August 29, 2025.

Execution risk is high. The company discloses limited to no experience in this segment.

The customers

Customers are businesses, not consumers. They are traders and garment brands. They buy on purchase orders. There are no long-term contracts. They can switch suppliers. Retention depends on quality and on-time delivery.

Customer count has tripled. It was 191 in Fiscal 2024. It was 417 in Fiscal 2025. It was 909 in Fiscal 2026. SKUs rose from 1 to 628 over the same period.

Concentration is falling. Top 10 customers were 48.15% of revenue in Fiscal 2024. They were 37.98% in Fiscal 2025. They were 29.44% in Fiscal 2026. Top customer was only 4.65% in Fiscal 2026.

Repeat customers are sticky. 132 customers bought across all three periods. They gave ₹110.98 crore in Fiscal 2024. They gave ₹104.13 crore in Fiscal 2026. Absolute spend held steady. Share fell because new customers joined.

Geography is diversifying but still local. Rajasthan was 95.31% of revenue in Fiscal 2024. It was 37.31% in Fiscal 2026. Delhi was 28.03% in Fiscal 2026. Maharashtra was 16.24%. Karnataka was 9.37%. Exports started in Fiscal 2026 with ₹85.00 lakh to Nepal.

Credit terms run 60 to 90 days. Quality checks cover yarn count, GSM, width, tear strength, colour fastness and shrinkage. GSM means grams per square meter, a measure of fabric weight.

The economics and metrics that matter

This is a volume-and-realisation business. Revenue equals meters processed times price per meter. Installed capacity is 8.24 crore meters per annum. Production was 6.82 crore meters in Fiscal 2026. Utilisation was 82.71%.

FY25 utilisation is on expanded base that started in July 2024.

Headroom remains. Higher utilisation can lift profit without major new capex.

Cost structure shows operating leverage. Cost of materials was 68.93% of revenue in Fiscal 2025. It fell to 59.21% in Fiscal 2026. Employee cost fell from 11.28% to 9.36%. Depreciation fell from 5.48% to 3.68%. Scale is absorbing fixed costs.

Working capital is lengthening. This fits the manufacturing shift. The company now holds yarn, greige and finished goods. It also gives credit to more buyers.

Returns are strong on book equity. Debt is high. Cash flow is weak.

Growth options are clear. Fill utilisation toward 90%+. Push RMG. Expand outside Rajasthan. Start exports. The company holds OEKO-TEX, GOTS and GRS certifications. These help with export buyers. It also signed an MOU for military-specification technical textiles. That is a high-margin niche but early stage.

3. Use of Funds

The issue is 100% fresh. All net proceeds go to the company. No cash goes to selling shareholders because there is no OFS.

Debt repayment will lower interest burden. But it covers only about one-third of total debt. Capex will add processing capacity. The balance will fund general business needs.

4. Financials Overview

Basis note: Fiscal 2024 and Fiscal 2025 are standalone. Fiscal 2026 is consolidated. Consolidated means parent plus subsidiary combined. The subsidiary is only 1.20% of revenue, so trends remain comparable.

All amounts in ₹ crore.

Revenue grew 161.2% in Fiscal 2025 and 63.6% in Fiscal 2026. EBITDA margin compressed as mix shifted to manufacturing. PAT margin fell then partly recovered. Leverage fell only because equity was infused. No stub period is involved. All three are full years.

5. Financial Analysis

Revenue growth is real but mix has moved to lower-margin products

Revenue growth is genuine. It comes from a real plant expansion. Sale of products rose from ₹13.65 crore in Fiscal 2024 to ₹220.79 crore in Fiscal 2025 to ₹427.51 crore in Fiscal 2026. Sale of services fell from ₹107.33 crore to ₹89.44 crore over the same period.

Products were 11.3% of revenue in Fiscal 2024. They were 82.7% in Fiscal 2026. This flips the model. Job-work earns a high-margin fee on no fabric cost. Manufacturing earns full fabric value at a lower margin rate.

That explains margin dilution. PAT margin was 10.82% in Fiscal 2024. It fell to 5.88% in Fiscal 2025. It recovered to 6.58% in Fiscal 2026. The business now earns more rupees of profit on a much larger sales base, but keeps fewer paise per rupee of sales.

Thin PAT margin leaves no room for shocks, finance cost eats a third of profit

PAT is thin for a leveraged manufacturer. Fiscal 2026 PAT was ₹34.02 crore on ₹516.95 crore revenue. That is 6.58%. It remains 4.24 percentage points below Fiscal 2024.

Finance cost is the drag. It was ₹4.75 crore in Fiscal 2024. It rose to ₹14.72 crore in Fiscal 2025. It rose to ₹17.69 crore in Fiscal 2026. As a share of PBT, it was 28.0%, then 56.5%, then 36.8%. PBT means Profit Before Tax.

In Fiscal 2025, more than half of pre-tax profit went to lenders. In Fiscal 2026, over a third still did. Any rise in cotton prices, fall in realisation, or rise in rates hits equity holders fast.

Working capital is ballooning and profits are not turning into cash

Receivables and inventory have exploded. Trade receivables rose from ₹13.99 crore in Fiscal 2024 to ₹103.70 crore in Fiscal 2026. Inventories rose from ₹19.07 crore to ₹153.85 crore.

Debtor days rose from 44 to 61. Inventory days rose from 127 to 150. Net working capital now consumes 34.1% of revenue, up from 20.9% in Fiscal 2024.

Cash flow confirms the strain. Net cash from operations was ₹17.61 crore in Fiscal 2024. It was -₹14.18 crore in Fiscal 2025. It was -₹10.99 crore in Fiscal 2026. Cumulative operating cash flow for the three years was -₹7.56 crore. Cumulative PAT was ₹65.68 crore. Conversion was -0.115x.

Leverage is high and the IPO only partly repairs it

Total borrowings were ₹258.24 crore at end of Fiscal 2026. Net worth was ₹104.16 crore.

Short-term borrowings quadrupled. They rose from ₹32.84 crore in Fiscal 2024 to ₹131.90 crore in Fiscal 2026. Long-term borrowings rose only from ₹111.76 crore to ₹126.34 crore. The company funds long assets and inventory with short debt.

Interest coverage is thin. EBIT divided by finance cost was 4.57x in Fiscal 2024, 2.77x in Fiscal 2025, and 3.72x in Fiscal 2026. The IPO repays ₹80.00 crore. That leaves about ₹178.2 crore of debt. Gearing will improve but remain high.

Growth has never self-funded, cash buffer is razor-thin

Free cash flow has been deeply negative every year. Free cash flow means operating cash flow minus capex. It was -₹87.69 crore in Fiscal 2024, -₹63.42 crore in Fiscal 2025, and -₹33.55 crore in Fiscal 2026.

External financing filled the gap. Net financing inflows were ₹94.65 crore, ₹60.67 crore and ₹33.15 crore across the three years. Cumulative inflows were ₹188.47 crore.

Yet closing cash was only ₹2.38 crore at end of Fiscal 2026. It was ₹4.14 crore in Fiscal 2024 and ₹21.50 lakh in Fiscal 2025. All the borrowed and equity cash went into plant and working capital. Liquidity depends on continued bank support.

Related-party flows and off-book risks need watching

Related-party purchases spiked during the pivot. Purchases from Sona Styles Limited were ₹21.30 lakh in Fiscal 2024. They jumped to ₹120.64 crore in Fiscal 2025. They fell to ₹24.91 crore in Fiscal 2026.

Sales to group companies fell from 10.9% of revenue to 0.6%. The Fiscal 2025 surge relied heavily on a promoter-linked supplier.

Director funding remains on the books. Outstanding borrowings payable to directors and relatives were ₹10.93 crore at end of Fiscal 2026. This includes ₹5.30 crore to Deepank Bhandari, a director's relative, and ₹4.30 crore to Managing Director Harshil Nuwal. A payable of ₹43.05 crore to Sona Styles was outstanding at end of Fiscal 2025.

Contingent liability is material. Export obligation under the EPCG scheme stands at ₹20.00 crore. EPCG means Export Promotion Capital Goods, a scheme that allows duty-free machinery imports against future exports. If exports are not met by June 2031, duty plus penalty crystallises. The amount is 19.2% of net worth. It was 47.2% in Fiscal 2024, so the overhang is shrinking but still matters.

Group structure itself is clean. There is one subsidiary, Sionnah, 100% held. It gave ₹6.21 crore revenue and ₹4.30 lakh PAT in Fiscal 2026. That is 1.20% and 0.13% of consolidated totals. There is no minority interest. Valuation can use consolidated PAT as attributable profit.

6. Valuation Analysis

This is a profitable operating company. Earnings multiple is the right lens. Book value matters less because plant is new and debt is high.

At ₹94 to ₹99, post-issue EPS is ₹5.99. This uses Fiscal 2026 PAT of ₹34.02 crore divided by 56,828,681 post-issue shares. P/E is 15.7x to 16.5x. The DRHP's EPS of ₹8.09 is pre-issue. It flatters the multiple. Investors must use the post-issue figure.

Peer P/E range is 12.23x to 37.29x. Average is 22.58x. Median is 18.22x. Sonaselection at 16.5x sits below median by about 9% to 14%. It sits above Vishal Fabrics at 12.23x.

The discount looks only partly earned. RoNW of 39.05% beats all peers. PAT margin of 6.58% also beats all peers. But profits do not convert to cash. Cumulative operating cash flow is negative. Debt-equity of 2.48x exceeds all peers. Working capital consumes 34% of revenue.

Quality adjustment is needed. High RoNW on a thin equity base, funded by debt and supplier credit, is less valuable than the same RoNW backed by cash. The asking multiple capitalises earnings that needed continuous borrowing to create. For retail investors, the price is not cheap for this risk.

7. Peer Analysis

Post-issue diluted, computed. #Pre-issue. Peer P/E uses BSE close on August 07, 2026. Peer financials come from peers' own annual reports. Company figures come from its DRHP.

Business: Sonaselection is a fabric converter shifting to manufacturing. Peers are larger and more integrated. Sangam spans fibre to garment with 5 plants and exports to 50+ countries. Nitin Spinners makes yarn, knit and woven fabric in the same city, Bhilwara, and exports 62% of sales. Vishal Fabrics is a denim maker in Ahmedabad. Sonaselection's RMG is 1.2% of sales. Peers already sell garments at scale.

Operations: Sonaselection runs at 82.71% utilisation with headroom. Sonaselection's working capital cycle is 134 days and lengthening. Sangam reports about 74 days and improving. Sonaselection uses short-term debt for growth. Peers carry lower gearing: Vishal 0.35x, Nitin 0.76x, Sangam 1.20x, versus Sonaselection 2.48x.

Customers: Sonaselection has 909 buyers and falling concentration. But 37.31% of revenue still comes from Rajasthan. Peers sell to global brands like Walmart, H&M, Gap and Decathlon. Nitin ships to 50+ countries. Sonaselection exports ₹85.00 lakh to Nepal. Its Fiscal 2025 sourcing relied on a group company for 39.3% of revenue-equivalent purchases.

Financials: Sonaselection leads on margins and returns. Its PAT margin of 6.58% beats Nitin at 5.52%, Sangam at 2.55% and Vishal at 2.22%. Its RoNW of 39.05% dwarfs the peer median of 8.02%. But peers convert profit to cash and carry less debt. Sonaselection has negative cumulative operating cash flow and quadrupling short-term debt.

Valuation: At 15.7x-16.5x, Sonaselection trades below median 18.22x but above Vishal 12.23x. The discount reflects small size and higher risk. It does not fully reflect cash and governance risk. Overall verdict: the asking multiple is only partly justified. Superior margins do not offset leverage, cash drain and related-party overhang.

8. Moat

There is no durable moat. Integration of manufacturing plus job-work helps utilisation. Location in Bhilwara gives labour and supply-chain access. Modern machines and an in-house lab support quality. Experienced promoters help relationships.

But these are table stakes in fragmented textiles. There are no long-term contracts. There is one plant. Buyers are price-sensitive. Suppliers can raise yarn prices. Peers own larger, more integrated assets. Any cost or quality edge can be copied.

9. Risks

• Single plant and Rajasthan cluster: One facility of 8.24 crore meters per annum drives all output. 37.31% of revenue and 96.01% of purchases sit in Rajasthan. A local outage, labour issue or policy shock hits sales and supply together.

• Cash and leverage: Operating cash flow was -₹10.99 crore in Fiscal 2026 and -₹14.18 crore in Fiscal 2025. Debt-equity is 2.48x. Short-term debt is ₹131.90 crore. High rates or tight bank limits could force slower growth.

• Customer and supplier concentration: Top 10 customers are 29.44% of revenue. Top 10 suppliers are 58.87% of purchases. Top supplier was 44.55% in Fiscal 2025 before easing to 9.55%. Loss of a key account or supply disruption can dent volumes. Textile cyclicality is industry-wide, but this concentration is company-specific.

• Input volatility with no price lock: Yarn and greige are the main costs. There are no long-term fixed-price contracts. Cotton price swings can squeeze the thin 6.58% PAT margin. This risk is industry-wide, but leverage magnifies it here.

• Governance and compliance: Related-party purchases swung from 56.6% to 9.9% of purchases in one year. Director loans are ₹10.93 crore. Promoters gave personal guarantees. There are 26 delayed filings, one tax case, and one criminal FIR against promoters from 2015. Promoters also sold 5.75% and 2.80% stakes after DRHP filing. Corrective steps are claimed, but overhang remains.

• Export obligation: ₹20.00 crore contingent liability is 19.2% of net worth. Failure to meet exports by 2031 triggers duty and penalty.

10. Verdict

Load-bearing facts: revenue grew 161.2% then 63.6% on a real plant expansion; PAT margin is only 6.58% and finance cost takes 36.8% of pre-tax profit; cumulative operating cash flow is negative while PAT is positive; debt is 2.48x equity and the IPO repays only ₹80.00 crore; post-issue P/E is 15.7x to 16.5x, below peer median but above the cheapest peer.

Conclusion follows those facts. Growth is real but low quality. Margins are thin. Cash does not back profit. Leverage stays high after listing. The discount to peers is fair but should be wider. For retail investors, risk-reward looks stretched at the top of the band.

What must be true: debtor days must fall from 61 and inventory days from 150, and operating cash must turn positive to validate the 39.05% RoNW. What would break it: further rise in working capital or debt, or margin slip from 6.58%, which would show growth consumes more cash than it creates. Earnings multiple is the right lens here; book value alone understates leverage risk.

11. IPO Snapshot