In today’s Finshots, we talk about the IPO of Borana Weaves, a Surat-based fabric maker that’s weaving a profitable story.

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Now onto today’s story.

The Story

If you walk into a garment factory, chances are you won’t see colourful prints or sarees at the beginning. What you’ll probably see is rolls of dull, unfinished cloth stacked from ceiling to floor, with no patterns or colour. Just grey sheets of fabric waiting for a makeover. And that’s what the textile world calls grey fabric. And it’s the lifeblood of India’s garment industry. Basically, you can’t print a kurta or dye a dress until this fabric shows up.

Now most people don’t know where this fabric comes from or how it’s even made. So let’s break it down.

The raw material is usually polyester yarn. Think of it as a plastic-derived thread that’s strong, stretchy and perfect for everything from leggings to sofa covers. First, this yarn goes through a process called ‘texturising’ where it gets twisted and heated to make it bouncier and more breathable. Then it’s fed into ‘water-jet looms’, which are basically high-speed machines that use jets of water to weave these threads into fabric. And the end result is long sheets of uncoloured, unprocessed cloth. Or ‘grey fabric’ that’s later sold to dyeing houses, printing units and exporters who finish the job.

Now the interesting thing is that this entire process is something India and specifically, Surat in Gujarat, has mastered. Surat alone produces nearly 90% of India’s synthetic fabric. It’s the polyester capital of India. And right in the middle of this hub is a small yet fast rising player called Borana Weaves.

The story is simple. Borana started out as an unbleached synthetic grey fabric and polyester textured yarn (PTY) manufacturer in 2020 with one unit. Today, it runs three weaving plants that are working almost at full capacity. So it’s now raising funds to build a fourth unit, adding 348 looms and boosting output by over 50%. That’s where the proceeds from the company’s ₹145 crore IPO, which opens for subscription today, is going — mostly capex (about ₹71 crores) and some working capital (₹26 crores). And there’s no offer for sale from the promoters.

But why should anyone care about a small Surat-based weaver listing on the stock exchange?

To understand that let’s take a look at Borana Weaves’ business.

Now Borana doesn’t make fancy outfits or run an online store. It sells that grey, unfinished fabric to businesses that process it further. So it’s a behind-the-scenes player. But it’s doing a great job doing this simple thing if you take a look at its numbers.

Its FY22 revenue was ₹42 crores. But in FY24 that rose 5x to ₹199 crores. Profits too shot up from ₹1.8 crores to ₹23 crores over the same period. That’s a 13x jump! And in just the first 9 months of FY25, it has already beaten last year’s full-year profit.

So what’s going on?

Well, Borana’s timing was perfect. India’s man-made fabric market is booming. Activewear, home furnishings, traditional wear, you name it. Polyester blends are in and Surat is spinning at best capacity to fill that gap. And Borana was quick to seize this moment. It started with one unit, added a second, then a third. So each time demand surged, Borana expanded. And it did use it wisely with utilisation rates over 98% in some units.

It’s not just the growth that looks exciting. Borana runs a tight ship. Its plants are located near to both the suppliers and customers. Plus, it makes its own textured yarn. So offering both grey fabric as well as PTY yarn gives the company a wider market reach. And this vertical integration done right saves it money, keeps the costs lower and improves delivery time.  

That’s the reason why the company claims margins most textile peers would envy — around 20% EBITDA, and nearly 12% net profit. So for every ₹100 of fabric it sells, about ₹12 turns into profit. And in FY24, Borana clocked a return on equity (ROE) of nearly 49%. All that’s impressive for a business-to-business manufacturer with no branding power in a competitive space.

And the IPO valuations? Well, at an upper price band of ₹216 per share, the company is asking for a post-issue market cap of around ₹575 crores. That works out to a price to earnings ratio (P/E) of 18x. Basically, the company is asking about 18 times the money per share for every rupee it earns today. That’s not dirt cheap, but it’s not outrageous either, especially since bigger peers in this space, like KPR Mill or Vardhman, don’t show this kind of top-line velocity. For a rough comparison, the industry P/E on average is at 35x. Vardhman Textiles sits at a P/E of 17x while that of KPR Mill sits at about 50x, and Borana lies somewhere in the middle.

That said, there are some loose threads here. For one, Borana’s core product, grey fabric, is a commodity. There’s no differentiation, no pricing power or any brand moat. If a rival mill down the road undercuts prices by ₹2, customers jump ship. That means Borana has to play well on efficiency and cost leadership. And that’s not always easy when polyester yarn prices fluctuate or when demand slows. Especially for Borana, since it gets about 84% of its business from grey fabric.

Then there’s the question of subsidies. And this is interesting because a chunk of Borana’s profits are, quite literally, government-sponsored. You see, Gujarat’s textile policy gives Borana hefty benefits like subsidised power and lower interest costs. In FY24 alone, the company received ₹7.5 crores in electricity subsidy, which was almost a third of its net profit. But these schemes aren’t forever. If the state rolls them back, Borana’s margins could shrink fast.

Borana also has a heavy working capital since the business runs on credit. It buys yarn, pays for power and wages, produces the fabric and then waits for about 30 days to get paid. That’s manageable when a company is small. But as capacity increases and receivables pile up, it could strain cash flows. And that’s also why the company is also using part of the IPO proceeds for working capital. Because in a business where raw material prices swing and customers pay late, liquidity is king.

There’s more. Borana earns 98% of its revenue from Gujarat, which is great for logistics but risky in terms of concentration. There’s no long-term contracts in place either. So purchase order cancellations, policy change or a local demand slump could hit sales. The company also has 90% of its suppliers in Gujarat. Plus, it also hasn’t really seen a full business cycle yet. It was born in a post-COVID textile boom. So how will it hold up during a slowdown? That remains to be seen. And the company also sources its key raw material, POY yarn, from promoter group entities. Which could again be a risk if there’s any disruption in these arrangements.

The market seems excited though. Unofficial grey market premiums suggest a strong listing. And many investors see this as a rare way to ride India’s textile resurgence. After all, the country’s apparel and synthetic fabric market is expected to grow impressively in the next few years. If Borana executes well and expands on schedule, the upside could be real.

As for the IPO, the entire ₹145 crore IPO is a fresh issue. No promoters are cashing out. And that’s a good sign. Post-listing, they’ll still hold over 65% of the company.

But this is still a small cap IPO with a small float. The post-issue market capitalisation will be about ₹575 crores. So expect volatility. Listing pop? Maybe. Long-term compounding? That depends.

So the question is do you believe Borana can keep weaving this magic? Or do you worry the threads might unravel when subsidies fade or growth slows?

Until then…

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