Can Kusumgar IPO deliver long-term growth for high risk investors?

ET Intelligence Group: Kusumgar, an engineered fabrics manufacturer, plans to raise ₹650 crore through an offer for sale. The promoter group's stake will fall to 75.4% from 90.1% post listing. The company develops customised fabric solutions for aerospace and defence, industrial, automotive, and outdoor lifestyle applications. The company benefits from strong profitability, with operating margin before depreciation and amortisation (EBITDA margin) of 27.2% in FY26 compared with 10.7-22.9% for listed peers. However, around 45% of revenue is derived from top five customers, highlighting customer concentration risk. A growing export exposure also makes it vulnerable to changes in global trade policies and tariffs. Also, the IPO appears to be priced at a premium to peers, reflecting superior margin and niche positioning. Given these factors, investors with high-risk appetite may consider the issue for long-term.

Business
Incorporated in 1990, Kusumgar manufactures woven, coated and laminated synthetic fabrics, commonly referred to as engineered fabrics, from six manufacturing facilities in Gujarat. The company supplies specialised fabrics used in parachutes, tactical gear and camouflage systems, mechanical rubber goods, inflatable products, activewear, rainwear, backpacks and luggage. Top 10 customers accounted for nearly 60% of FY26 revenue.

Financials
Revenue grew 21.6% annually to ₹692 crore while net profit rose 7.9% to ₹98.2 crore between FY24-26. EBITDA margin moderated to 27.2% in FY26 from 28.2% in FY24. On a year-on-year basis, revenue and net profit declined 11.2% and 12.3% respectively in FY26. EBITDA margin improved to 27.2% from 24.2% in FY25, aided by a favourable product mix.

The revenue decline was primarily due to deferred execution and non-repeating of defence orders along with higher US tariffs which adversely impacted demand from the US market. Exports accounted for nearly 40% of FY26 revenue, with the US contributing about 9-10% of sales. Operating cash flow improved significantly to ₹28 crore in FY26 from a deficit of ₹155 crore in FY25, although it remained below the ₹201 crore generated in FY24. Return on equity (ROE) moderated to 25.8% in FY26 from 86.1% in FY24 but continued to remain higher than 10-14% for peers.

Valuation
Considering the post-IPO equity, the price-earnings (P/E) multiple is 45 compared with 33-46 for peers including Arvind, Garware Technical Fibres and SRF.