California Soft RI review - (Avoid)

•    The company is engaged in providing IT related software development and other services.
•    It posted minuscule financial performance so far for the reported periods.
•    Four-fold rise in post-RI equity raises concern over its servicing going forward.
•    Though the RI is at par value and has staggered payment facility, its carried forward loss raises alert.
•    There is no harm in skipping this at par offer as it’s a “High Risk/Low Return” bet.

PREFACE:
The RI is opening on January 24, 2025, and its offer document dated January 07, 2025, it was uploaded on designated exchange BSE only on this noon (i.e. January 23, 2025). This point is just mentioned to express the ongoing practices that does not augur well for the market dynamics. 

ABOUT COMPANY:

California Software Co. Ltd. (CSCL) is engaged in the business of Business Analytics and Software Development Information Technology (IT). It specializes in offering software as a service (SaaS), which is fastest-growing segments in the IT industry.

It is focused on providing end-to-end capabilities at scale across the full spectrum of professional services—spanning strategy, consulting, digital, block chain, gaming, technology and operations. Its services is segmented by business applications type including business intelligence and analytics, e- commerce, Point of Sale (PoS), Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Human Capital Management (HCM), Supply Chain Management (SCM), Unified Communication & Collaboration (UC&C), finance and accounting, Enterprise Content Management (ECM), collaboration, and other enterprise applications such as Risk & compliance management, Product Lifecycle Management (PLM) and Enterprise Performance Management (EPM). The company offers services across various industries Retail, Banking, Manufacturing, etc.

Its market is also segmented by large enterprises as well as small and medium businesses (SMBs) based on the adoption of SaaS delivery model in different size organizations in various verticals. Its customers are spread across the globe, regional wise includes North America, Europe, Asia-Pacific, Middle East & Africa, and Latin America, as geographies. CSCL assists customers by turning data into information, harnessing information, and transforming ideas into action. In the year 2022, it has launched secured commerce platforms dSpeedUp, dUltima and dInspira which is based on digital transformation of e-commerce solutions by AI Integration for B2B and B2C segments.

Its services are segmented by verticals includes Retail, Banking Financial Services and Insurance (BFSI), Telecom Media and Technology (TMT), healthcare, discrete manufacturing, travel and hospitality, utilities (energy and power, oil and gas, water management, etc.) and others, including education. Its applications include e commerce, point of sale, virtualization software, middleware, application integration, content delivery solutions and more. As of June 30, 2024, it had 50 employees on its payroll.

ISSUE DETAILS:
The company is coming out with Rights Issue (RI) of 46371318 equity shares of Rs. 10 each at par value to mobilize Rs. 46.37 cr. The RI is opening for subscription on January 24, 2025, and will close on January 31, 2025. The company is offering RI in the ratio of 3 for 1 to its eligible stakeholders as of the record date of January 15, 2025. The company is asking for Rs. 2.50 per share on application and the rest by one or more calls from time to time as decided by the company. Post allotment, shares will be listed on BSE and NSE. The company is spending Rs. 0.75 cr. for this RI process, and from the net proceeds, it will utilize Rs. 9.00 cr.  the promoter’s unsecured loan adjustment, Rs. 30.00 cr. for working capital, and Rs. 6.62 cr. for general corporate purposes.

The RI is self-managed by the company, and Integrated Registry Management Services Pvt. Ltd. is the registrar to the issue.

Post-RI, company’s current paid-up equity capital of Rs. 15.46 cr. will stand enhanced to Rs. 61.83 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 61.83 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has (on a consolidated basis) posted minuscule numbers for its total income/net profit of Rs. 2.76 cr. / Rs. 0.22 cr. (FY23), and Rs. 4.28 cr. / Rs. 0.63 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 0.2 cr. on a total income of Rs. 2.02 cr.

There appears to be some mismatch in its financial performance for H1 of FY25 and H1 of FY24 on page no. 108 and 111 of the offer document, that needs clarifications.

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. In fact, the offer document is silent on its dividend policy.

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 532386 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 22.41 on January 14, 2025, and opened on an ex-right basis at Rs. 13.74 on January 15, 2025. Since then, it has marked a high/low of Rs. 16.70 / Rs. 13.74. The scrip last closed at Rs. 14.70 as of January 23, 2025. For the last 52 weeks’ it has posted a high/low of Rs. 16.70 / Rs. 7.79. The counter is currently under ASM LT: Stage 1.

The promoters’ holding has been constant at 35.73% for the last three quarters ended with December 31, 2024. The counter is well operated by vested interest parties above the RI price to tempt investors.