Sonaselection India IPO

One of Sonaselection's key strengths is the location of its manufacturing facility in Bhilwara, Rajasthan, which is widely known as the "Manchester of Rajasthan". The region has an established textile ecosystem with more than 400 spinning, weaving and dyeing units. Being located within this cluster gives Sonaselection access to raw material suppliers, skilled labour and supporting services, which can help make procurement and logistics more efficient. The company has also brought its processing activities together at a single 49,540 square metre facility. This can reduce unnecessary material movement, shorten turnaround times and make day-to-day coordination easier. The plant is equipped with modern processing machinery as well as an in-house quality assurance laboratory with precision testing equipment, helping the company maintain fabric quality and meet customer specifications.

Sonaselection follows an integrated business model that combines its own manufacturing with contract job-work services. This allows the company to make better use of its plant while keeping some flexibility in its operations. After commissioning its dedicated cotton fabric processing plant in July 2024, the company shifted more towards manufacturing its own fabrics, giving it greater control over production schedules, costs and quality. In FY26, core manufacturing contributed ₹421.29 crore (81.50%) of operational revenue, while job-work services contributed ₹89.44 crore (17.30%) and the new readymade garments division contributed ₹6.21 crore (1.20%). Together, these businesses helped Sonaselection maintain high capacity utilisation, which reached 82.71% in FY26, compared with 78.24% in FY25 and 89.50% in FY24, against an annual capacity of 82.44 million metres.

Another positive is the company's expanding customer base. The number of active customers increased sharply from 191 in FY24 to 417 in FY25 and then to 909 in FY26. This suggests that the company has been able to add customers as it expands its manufacturing business. Customer concentration also remains relatively low. The largest customer contributed only ₹24.02 crore, or 4.65% of operational revenue, in FY26, while the top ten customers together accounted for ₹152.24 crore, or 29.44%. A broader customer base can provide more stable revenue and reduce the impact of losing any one individual customer.

The company is backed by an experienced promoter group and management team with knowledge across different parts of the textile value chain. Chairman Subhash Chandra Nuwal has more than 30 years of industry experience and provides strategic oversight, while Managing Director Harshil Nuwal brings over 14 years of experience in operations and business development. Promoter Deepank Bhandari, a Textile Engineering graduate from IIT Delhi with more than 11 years of experience, adds technical and strategic expertise. The wider management team also includes General Manager Rajnikant Saraswat, who has over 39 years of operational experience, and Plant Head Ajay Jain, who has more than 24 years of experience in fabric processing. This combination of experience supports the company's day-to-day execution and manufacturing operations.

The business has also delivered strong growth in recent years, with revenue expanding rapidly while maintaining healthy returns on capital. Operational revenue increased at a compound annual growth rate (CAGR), which measures the average yearly growth over a period, of 106.71%, rising from ₹120.98 crore in FY24 to ₹516.95 crore in FY26. EBITDA, or earnings before interest, tax, depreciation and amortisation, grew at a CAGR of 72.51% to ₹84.77 crore, while net profit after tax increased at a CAGR of 61.19% to ₹34.02 crore in FY26. The company reported a return on net worth of 39.05% and a return on capital employed of 19.69% in FY26, showing strong profitability relative to the capital invested in the business.

One of the main operational risks for Sonaselection is its dependence on a single manufacturing facility in Bhilwara, Rajasthan. This creates both geographic and operational concentration. In FY26, Rajasthan contributed ₹192.88 crore, or 37.31%, of total operational revenue and accounted for ₹344.81 crore, or 96.01%, of the company's total raw material purchases. Since the company does not have another manufacturing facility that can act as a backup, a major problem at the Bhilwara plant, such as equipment failure, a labour dispute, power outage or other local disruption, could interrupt production. Such an event could delay deliveries, result in cancelled orders and put pressure on revenue and cash flows.

The company also carries a sizeable debt burden and has reported negative operating cash flow in recent periods. Bank borrowings stood at ₹263.843 crore as of July 31, 2026, while the debt-to-equity ratio was 2.48 times in FY26, compared with 2.96 times in FY25 and 3.72 times in FY24. Rapid sales growth and higher inventory requirements have increased the amount of cash tied up in the business. As a result, operating cash flow was negative at ₹10.99 crore in FY26 and ₹14.18 crore in FY25. The company's interest expense was ₹17.69 crore in FY26, which adds to the pressure on liquidity and leaves less financial flexibility during periods of weaker business conditions.

Sonaselection is also exposed to fluctuations in raw material prices and supplier concentration. Important inputs such as yarn and greige fabric are purchased without long-term fixed-price contracts. This means changes in cotton prices, which can be influenced by factors such as monsoon conditions and global demand, can affect input costs. In FY26, the company's top ten suppliers accounted for ₹211.41 crore, or 58.87%, of total purchases, while the largest supplier alone contributed ₹34.32 crore, or 9.55%. A sharp rise in raw material prices or delays from major suppliers could increase working capital requirements, disrupt production and reduce margins if the higher costs cannot be fully passed on to customers.

Revenue stability is also linked to customer relationships and the company's ongoing shift towards in-house manufacturing. In FY26, the top ten customers contributed ₹152.24 crore, or 29.44%, of operational revenue, mainly through purchase orders rather than long-term contracts. At the same time, Sonaselection has been moving away from contract job-work towards its own manufacturing. Manufacturing accounted for 81.50% of operational revenue, or ₹421.29 crore, in FY26, compared with just 11.28% in FY24. This change gives the company greater control over its products, but it also brings higher working capital, inventory and quality-control requirements. Any difficulty in retaining customers or managing this larger manufacturing operation could affect orders and financial performance.

The business also requires a significant amount of working capital, which is the money tied up in day-to-day operations such as inventory and customer receivables. Working capital requirements increased to ₹170.61 crore in FY26, with working capital days reaching 134 days. Inventory alone stood at 150 days, while debtor days were 61 days. In addition, the company reported commitments of ₹200.05 crore in FY26, equivalent to 19.21% of net worth, mainly related to export obligations under Zero Duty Export Promotion Capital Goods schemes. If these export obligations are not fulfilled within the required timelines, the company could become liable for previously exempted customs duties and interest. This could create additional financial liabilities and put further pressure on cash reserves and net worth.