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Aruna Hotels RI review (Avoid)

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•    AHL ventured into many businesses in past and gave up with unsuccessful attempts.
•    At present it is mulling the hotel business and spending money on it.
•    Its financial data showing a very poor track record with a negative NAV.
•    There is no harm in staying away from this at par RI.

Aruna Hotels Ltd. (AHL) was known as Aruna Sugars and Enterprises Ltd. and was engaged in a sugar plant. In 1986 it took over the ferric alum plant from SAS Chemicals to enter the chemical business. In 1987 it took over Geetha Flour Mill's wheat milling plant but discontinued it by 1994-95. In 1990 it ventured into a business class hotel in Chennai and since then it is developing it. In 1998-99 it disposed of its sugar plant being an under-performing business.  It also divested its chemical business in 2002-03 considering a bleak future for alum business. Currently, AHL is continuing with its hotel project and renovating it and these activities will be over by the current fiscal end. Soon thereafter, it will go full-fledged in the hotel business with a capacity of 80 rooms. 

To part finance its plans for repayment/prepayment of unsecured loans from promoter's group (Rs.  20.50 cr.) and general corporate fund needs (Rs. 4.00 cr.), AHL is coming out with a rights issue in the ratio of 83 shares for every 30 shares held as of the record date on July 23, 2021. The company will be issuing 24900000 equity shares of Rs. 10 each at par and mobilizing Rs. 24.90 cr. The issue opens for subscription on September 29, 2021, and will close on October 13, 2021. Post allotment, shares will be listed on BSE.  The company will be spending Rs. 0.40 cr. for this RI process.

The issue is solely lead managed by Saffron Capital Advisors Pvt. Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. 

Post issue AHL's current paid-up equity capital of Rs. 9.00 cr. will stand enhanced to Rs. 33.90 cr. Based on RI pricing, the company is looking for a market cap of Rs. 33.90 cr. Promoters are holding 52.74% equity as of June 30, 2021. 

On the financial performance front, for the last three fiscals, AHL has posted a total income / net profit (loss) of Rs. 0.83 cr./ Rs. - (9.79) cr. (FY19), Rs. 0.10 cr. / Rs. - (7.89) cr. (FY20) and Rs. 0.33 cr./ Rs. - (10.08) cr. (FY21). Thus it has been incurring losses for all these years.  As per restated financial data as of March 31, 2021, its equity capital of Rs. 12.10 cr. has negative other equity (i.e. carried forward losses) of Rs. (87.43) cr. translating into a negative NAV of Rs. (83.70). It has posted a loss of Rs. 1.28 cr. with no income for Q1 of FY22 ended on June 30, 2021. 

The company has not paid any dividend in all these years. There is no guarantee of any dividend in coming years as well following negative net worth. 

The scrip last quoted on cum-right basis at Rs. 26.07 on July 20, 2021, and turned ex-right at Rs. 14.96 on 22nd July 2021. Since then it has marked high/low of Rs. 20.00/ Rs. 11.40 and its last quote is Rs. 17.34 with market operations amidst thin volume. It has posted 52 weeks high/low of Rs. 20.00 / Rs. 2.42 and at the last traded price its market cap stands at Rs. 58.78 cr. 

Conclusion / Investment Strategy

AHL kept shifting its business focus very frequently. At present, it is mulling the hospitality business. Currently, the hospitality industry is in dilemma following pandemic and uncertain near term prospects amidst second and third waves. The company raising money to repay loans from promoters. Asa company has a negative net worth with mounting losses, this at par RI is also very risky. Simply stay away from this offer, any market price operations are purely operator based games. Though based on its last quote at Rs. 17.34 with market operations this par issue is tempting, it’s a pure risk and hence better skip it.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on September 25, 2021

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

The Aruna Hotels Limited Rights Issue Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if Aruna Hotels Limited Rights Issue worth investing. The Aruna Hotels Limited Rights Issue Note sets the Rights Issue expectations in systematic way which tells you if Aruna Hotels Limited Rights Issue good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Aruna Hotels Limited Rights Issue by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.