Brooks Lab RI August 2023 review - (Avoid)

•    BLL is in the manufacturing and marketing of pharmaceutical products.
•    This is the 2nd RI from the company since February 2020. 
•    For the last two fiscals, it has been reporting losses with a decline in top lines.
•    Though this RI is at a discount of 20.6% to its last traded price, it is a "High Risk/No Return" bet.
•    Investors may skip this pricey RI offer. 

PREFACE:
BLL came with its maiden IPO of Rs. 63 cr. at a price of Rs. 100 per share and then with its first RI in February 2020. The first RI was in the ratio of 9 for 20, at a price of Rs. 20 per share to mobilize Rs. 15.33 cr. And now it is coming out with its second RI to mobilize Rs. 11.58 cr. 

ABOUT COMPANY:
Brooks Laboratories Ltd. (BLL) is in the manufacturing and marketing of pharmaceuticals nationally & internationally. It has its own manufacturing Unit at Baddi, Himachal Pradesh. BLL is a Pharmaceutical Contract Research and Manufacturing Services company with a wide range of products catering to the critical care segment in the Parental Section like Beta Lactam, General Dry powder Injectables, Ampoules and Liquid vials, Dry Syrups and Tablets etc.

It is a Research and development-driven Pharmaceutical manufacturing company. The company has a joint venture with Steriscience Specialities Private Limited at Vadodara for the manufacture of carbapenem Injectables. The capacity of Vadodara plant is 25 million vials per annum. BLL has launched approx. 70 brands since 2019 dealing with high-end antibiotics (oral and injectables), and pain management medicines, apart from others.

During the quarter that ended December 31, 2022, the Company lost control over its subsidiary company Brooks Steriscience Limited (BSL), and the Company now jointly controls the entity along with its JV partner and has accounted accordingly subsequent to the loss of control. The Company has, consequently, derecognized the assets and liabilities of the former subsidiary from the consolidated balance sheet and has recognized retained investment at fair value when control is lost. Gain on loss of control over BSL amounting to Rs 0.36 cr. has been credited to the profit and loss account under exceptional item. As of the date of this Letter of Offer, the company had 290 employees on its payroll. 

ISSUE DETAILS:
After the first rights issue in February 2020, the company is coming out with its second Rights Issue (RI) of 1543926 equity shares of Rs. 10 each at a fixed price of Rs. 75 per share to mobilize Rs. 11.58 cr. The issue opens for subscription on August 07, 2023, and will close on August 14, 2023. The company is offering RI in the ratio of 1 for 16 to eligible stakeholders as of the record date of July 28, 2023. The full amount is to be paid on the application for the number of shares applied. Post allotment, shares will be listed on BSE and NSE. BLL is spending Rs. 0.50 cr. for this RI process and from the net proceeds, it will utilize Rs. 9.18 cr. for working capital, and Rs. 1.90 cr. for general corporate purposes. 

The issue is self-managed by the company and Link Intime India Pvt. Ltd. is the registrar of the issue. 

Post RI, BLL's current paid-up equity capital of Rs. 24.70 cr. will stand enhanced to Rs. 26.25 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 196.85 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, BLL has (on a consolidated basis) posted a turnover/net profit - (loss) of Rs. 91.99 cr. / Rs. - (19.31) cr. for FY22, and Rs. 63.41 cr. / Rs. - (31.05 cr.) for FY23. Thus for the last two fiscals, it has not only marked a decline in the top line but reported a higher deficit in the bottom line. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listings of RI shares based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 533543 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 89.80 on July 27, 2023, and opened on an ex-right basis at Rs. 87.41 on July 28, 2023. Since then, it has marked a high/low of Rs. 105.75 / Rs. 84.22. The scrip last closed at Rs. 94.46 as of August 03, 2023, for the last 52 weeks it has posted a high/low of Rs. 140.38 / Rs. 56.48. Though the company is incurring losses, the counter is well operated by vested interests, keeping it above the RI price to tempt stakeholders. 

The promoters' holding has been constant at 66.41% for the last three quarters ended on June 30, 2023. The counter is well-managed above the RI price to lure investors. 

The counter is under ESM Stage 1 at present.