Sonaselection India IPO: Revenue Soars 4X, But Debt and Cash Flow Raise Red Flags

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By S. JHA

Sonaselection India has delivered explosive revenue growth and rising profits, but high debt, negative operating cash flow, customer concentration and the absence of long-term contracts make the ₹141.57-crore IPO a higher-risk growth bet.

Mumbai, September 12, 2026 — Sonaselection India enters the IPO market with a dramatic growth story.

Revenue from operations rose from ₹121 crore in FY24 to ₹316 crore in FY25 and ₹517 crore in FY26. PAT increased from about ₹13.1 crore to ₹18.56 crore and ₹34.02 crore over the same period. EBITDA climbed from ₹28.49 crore in FY24 to ₹58.12 crore in FY25 and ₹84.77 crore in FY26.

On the surface, this looks like exactly the kind of growth investors seek in an IPO.

But the forensic question is different: How much of that growth is durable, how much cash is it generating, and how much debt is required to support it?

That is where the story becomes considerably more complicated.

Revenue has grown faster than the balance sheet can comfortably absorb

Sonaselection’s revenue grew by roughly 64% in FY26, while PAT rose about 83%. The company has also substantially increased its customer base, from 191 customers in FY24 to 909 in FY26.

Its manufacturing business has also become more important. Manufacturing accounted for about 81.5% of FY26 revenue, compared with 69.88% in FY25 and only 11.28% in FY24. Capacity utilisation stood at approximately 82.71% in FY26.

That suggests a genuine transition from a more job-work-oriented model towards manufacturing finished and value-added fabrics.

This is potentially the strongest part of the investment thesis.

But rapid growth has come with a price.

The biggest red flag: debt

Sonaselection’s FY26 total borrowings were around ₹258.24 crore, against net worth of approximately ₹104.16 crore. The reported debt-to-equity ratio was around 2.48 times.

That is high for an investor looking for a clean balance sheet.

The IPO itself tells us something about the company’s priorities.

Of the approximately ₹141.57 crore issue, about ₹80 crore is earmarked for repayment/prepayment of borrowings, while approximately ₹50.61 crore is proposed for plant and machinery.

That means the IPO is simultaneously a growth-capital exercise and a balance-sheet repair exercise.

The debt repayment is positive.

But investors should ask why such a rapidly growing company requires such substantial leverage to finance its expansion.

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The cash-flow problem is more important than the PAT number

This is perhaps the most important forensic point.

Sonaselection reported negative operating cash flow of ₹10.99 crore in FY26 and ₹14.18 crore in FY25, despite reporting profits in both years.

Why?

Working capital.

Trade receivables rose to around ₹103.70 crore in FY26, from ₹69.69 crore in FY25 and ₹13.9 crore in FY24.

Inventory days were also high.

The company’s DRHP data shows inventory days of around 115 days in FY26, compared with 127 days in FY25.

So while the income statement says ₹34 crore of profit, the cash-flow statement tells investors that substantial money remains locked inside the operating cycle.

For a textile company, this matters enormously.

Profit is accounting. Cash pays the bank.

Where is the order book?

This is another major difference from an infrastructure or engineering IPO.

Sonaselection does not appear to have the kind of quantified long-term order book that investors can use to calculate future revenue visibility.

The company primarily operates through individual purchase orders and does not have long-term contracts with customers, according to the disclosed risk factors.

That does not mean demand is weak.

In fact, the customer base has expanded sharply.

But repeat business should not be confused with a contractual order backlog.

The company had 132 customers with ongoing relationships across at least three reporting periods. Those customers contributed ₹104.13 crore in FY26, compared with ₹108.38 crore in FY25.

The top 10 customers accounted for 29.45% of FY26 revenue, down from 37.98% in FY25 and 48.15% in FY24.

That declining concentration is encouraging.

But the absence of long-term contracts remains a risk.

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The sector opportunity is real

Sonaselection operates in the textile and fabric manufacturing and processing segment, producing cotton, cotton-lycra, cotton-blend and polyester-blend fabrics.

Its Bhilwara facility covers roughly 49,540 square metres and has installed processing capacity of approximately 82.44 million metres annually.

The broader Indian textile industry has structural opportunities from export diversification, China’s supply-chain repositioning, technical textiles and the government’s textile-sector schemes.

The China+1 strategy is particularly relevant.

Indian textile manufacturers can potentially benefit as global buyers diversify sourcing away from excessive dependence on China. But that opportunity is not exclusive to Sonaselection. The company competes against substantially larger and more established textile players.

Its DRHP compares the company with Vishal Fabrics, Sangam India and Nitin Spinners.

Margins tell another story

Sonaselection’s EBITDA margin was approximately 16.4% in FY26, down from 18.39% in FY25 and 23.55% in FY24. PAT margin, however, improved to about 6.58% in FY26 from 5.88% in FY25.

Revenue is growing rapidly, but EBITDA margin has compressed.

That means investors should not automatically extrapolate the FY24-FY26 growth rate into the future.

The company may be gaining scale while simultaneously facing higher input, financing and operating costs.

The single-factory risk

There is another obvious vulnerability.

Sonaselection operates from a single manufacturing facility in Hamirgarh, Bhilwara and does not have an alternative manufacturing facility. A major equipment failure, power disruption, labour issue, accident or other shutdown could affect production and customer deliveries.

For a manufacturing company whose valuation increasingly depends on continued growth, concentration of production in one facility is a material operational risk.

Valuation: not expensive, but not risk-free

At the upper price band of ₹99, the reported post-issue P/E is around 16.5 times, based on post-issue EPS of approximately ₹5.99. The issue size is about ₹141.57 crore, entirely through a fresh issue.

That valuation is not obviously excessive given the company’s growth rate.

But the appropriate comparison is not merely P/E.

Investors should also look at: Debt-to-equity; EV/EBITDA; Operating cash flow; Working-capital intensity; Capacity utilisation; EBITDA margin trajectory; Customer concentration; and Return on capital.

On those parameters, Sonaselection becomes a more complicated proposition.

(This is a forensic news analysis, not personalised investment advice. Investors should read the final RHP and assess the issue against their own risk profile before applying.)