Asian Granito April 2022 RI review - (May apply)

•    This is the second rights issue (RI) from the company within a year.
•    Last RI was at Rs. 100 per share for Rs. 224.64 cr. in Sept/Oct. 2021.
•    For this RI, AGL has changed its lead manager which raised eyebrows.
•    Counter is well managed on the bourses to lure investors for subscriptions.
•    Shareholders should follow the strategy of selling their existing holdings and apply for RI.

PREFACE:
Asian Granito has surprised one and all with its second RI within a year. In September/October 2021 it came with a RI in the ratio of 19 for 29 at a price of Rs. 100 to mobilize Rs. 224.64 cr. Now it is coming with second rights issue for a bigger size at a lower price. It is now offering RI in the ratio of 37 for 30 shares held at Rs. 63 per share to mobilize Rs. 441.00 cr. Thus its previous RI subscribers are now in dilemma. Post RI its paid-up equity capital will mark a quantum jump and raise a concern about servicing a larger equity base.

ABOUT COMPANY:
Asian Granito India Ltd. (AGIL) was incorporated in the year 1995, began its commercial operations of manufacturing tiles in the year 2003 and since then the Company has grown to create a cluster of integration within itself and its associate concerns. AGIL is engaged in the business of manufacturing tiles, vitrified and ceramic, and caters to consumers through a range of products at various price points including polished, double charged, glazed, unglazed, rustic, matt, homogenous and non-homogeneous body, etc. 

The Company also manufactures engineered marble and quartz stone with varied thickness, design, shape and colour range to cater to the middle to upper-middle segment. In 2019, it forayed into the business of bath-ware range to diversify its product portfolio and strengthen the domestic and international markets reach supported by large penetration opportunities offered by the segment. The Company manufactures some of the products on a contractual basis and imports some of the products. The bath-ware range includes faucets and sanitary ware such as washbasins, urinals, one-piece and wall-hung water closets, among others with features like anti-bacterial, twin flushing technology, scratch, chemical and stain resistance, etc.

The Company along with its subsidiaries owns 5 manufacturing facilities at multiple locations in the state of Gujarat. AGIL's strategic location enables it to procure key raw materials from the quarries in Rajasthan at cheaper costs. All the units have a combined installed production capacity of 2, 24, 26,500 square meters as of February 15, 2022. 

The Company has also installed a wind power generator to augment the power requirements of the aforesaid manufacturing facilities thereby reducing the usage of fossil fuel. To ensure the supply of products meeting the applicable and industry-recognized standards, it has set up quality control facilities at each unit, which consists of quality assurance and quality control teams who check and conduct various tests on the products at various stages starting from the raw materials procured to the finished products manufactured. All its facilities are supplemented by utilities, such as water, power, effluent treatment plant, etc. which makes it an important link between all facilities. As of January 31, 2022, it had 1,652 employees including directors and other staff, who look after business operations, factory management administrative, secretarial, sub-contracting, marketing and accounting functions in accordance with their respective designated goals.

ISSUE DETAILS:
To part finance its needs of funds for (funding new units of 3 subsidiaries Rs. 250.80 cr.), working capital (Rs. 39.40 cr.), capital expenditure for the largest display centre (Rs. 37.23 cr.) and general corporate purposes (Rs. 94.75 cr.), AGIL is coming out with its second RI just within a year. This time it is offering RI in the ratio of 37 for 30 and will issue up to 69993682 equity shares of Rs. 10 each at a fixed price of Rs. 63.00 per share to eligible shareholders as of the record date of April 12, 2022. AGL aims to mobilize Rs. 440.96 cr. from this second RI and will spend Rs. 18.78 cr. for the issue process. The issue opens for subscription on April 25 2022 and will close on May 10, 2022. 

Post this second RI, AGIL's current paid-up equity capital of Rs. 56.75 cr. (56751634 shares) will stand enhanced to Rs. 126.75 cr. (126745316 shares). Based on the RI pricing, the company is looking for a market cap of Rs. 798.49 cr. 

This issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar. For the previous RI, the company gave a mandate to two merchant bankers i.e. Holani Consultants Pvt. Ltd. and BOI Merchant Bankers Ltd. 

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, AGIL has posted a turnover and net profit of Rs. 1232.27 cr. / Rs. 43.51 cr. (FY20) and Rs. 1293.64 cr. with a net profit of Rs. 55.67 cr. for FY21. For the 9M of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 80.02 cr. on a turnover of Rs. 1125.90 cr. Based on this performance, if we annualize FY22 super results and attribute it to fully diluted post-RI equity, then the asking price is at a P/E of 7.48. Based on FY21 earnings, the asking price is at a P/E of 14.35. Its top line has been static for the last four fiscals and has posted inconsistency in bottom lines with super-profits in the pre-RI periods.

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 532888:
The scrip last closed on cum-right basis at Rs. 116.10 on April 08, 2022, and opened on an ex-rights basis at Rs. 89.95 on April 11, 2022. Since then it has marked high/low of Rs. 104.10 / Rs. 79.00. The scrip last closed at Rs. 83.05 as of April 22, 2022. Based on this quote, its post-RI market cap stands at Rs. 1052.62 cr. The scrip has posted the last 52 weeks high/low of Rs. 131.47 / Rs. 71.94. Promoters' holding was at 29% for December 2021 ending quarter against 26.12% as of October 16, 2021. It appears promoters have hiked their stake marginally by creping activities to maintain the rates to pave the way for this mega RI. The counter is also well operated by vested interests around RI timings.

DIVIDEND POLICY:
The company gave dividends of 13% for FY17 and 18, 6% for FY19, 7% for FY20 and 5% for FY21. Thus it has pruned the dividends for the last few fiscals despite the rising bottom line. This may be due to ploughs back of funds for expansion needs. It will adopt a prudent dividend policy post listing of RI based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, AGIL has shown Kajaria Ceramics, Somany Ceramics, Orient Bell and Exxaro Tiles as its listed peers. They are currently trading at a P/E of 43.62, 25.48, 32.39 and 34.97 (as of April 21, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORDS:
Pantomath Capital has been known for SME segment IPOs till recently and has handled very few SME IPOs in the last two-three fiscals. For the first time, it has taken a mandate for such a big fund mobilization exercise replacing Holani Consultants which did RI for this company in September/October 2021. Marketman eyeing response to this IPO as a litmus test for Pantomath.