Davangere Sugar RI review - (May apply)

•  DSCL is in the business of Sugar along with ethanol play and power generation.
•  It has posted super performance for FY22.
•  Its large paid-up equity capital remains a major concern for service.
•  Higher promoter holding is a plus point.
•  Investment may be considered from a long term perspective. 

ABOUT COMPANY: 
Davangere Sugar Co. Ltd. (DSCL) was incorporated in the year 1970 as a Joint Sector Company by Karnataka Agro Industries Corporation Limited, Karnataka State Small Industries Development Corporation Limited, IDBI, ICICI, IFCI and local farmers with an initial equity capital base of Rs. 1.60 cr. DSCL commenced commercial production of Sugar in the year 1974, with a capacity of 1250TCD. The Government of Karnataka was managing the affairs of the company till the year 1995. Shamanur group acquired the shares owned by the Government of Karnataka & took over the management of the company during the FY 1995-96. During the post-acquisition, the new management continuously expanded sugar crushing operations of the company.

During fiscal 2020-21, the company had a sugarcane growing area of 8580 acres which is being scaled up to 15000 acres in the coming few years to ensure the availability of 600000 MTs of sugarcane every year. 

Further, in order to explore the opportunity created by the Central Government by announcing a new Ethanol Policy in the year 2018, as amended from time to time, the Company decided to set up a 65 KLPD Ethanol Plant along with Zero Liquid Discharge (ZLD) System. As of the date of filing of the RI offer document, it had 338 employees on its payroll. 

ISSUE DETAILS:
To part finance its needs for part repayment/prepayment of the loan (Rs. 36.00 cr.) from one of the promoters and general corporate purposes (Rs. 11.00 cr.), DSCL is coming out with a rights issue (RI) of 38400000 equity shares of Rs. 10 each at a fixed price of Rs. 12.50 per share to mobilize Rs. 48.00 cr. The company is offering rights shares in the ratio of 69 for every 100 shares held as of the record date of May 27, 2022. The issue opens for subscription on June 16, 2022, and will close on June 30, 2022. Post allotment, shares will be listed on BSE. The full amount is payable with the submission of the application. DSCL is spending Rs. 0.50 cr. for this RI process. 

The issue is solely lead managed by Saffron Capital Advisors Pvt. Ltd. and Integrated Registry Management Services Pvt. Ltd. is the registrar to the issue.  

Post RI, DSCL's current paid-up equity capital of Rs. 55.68 cr. (55684462 shares) will stand enhanced to Rs. 94.08 cr. (94084462 shares). Based on the RI pricing, the company is looking for a market cap of Rs. 117.61 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, DSCL has posted a turnover/net profit of Rs. 203.06 cr. / Rs. 2.07 cr. (FY20), Rs. 147.81 cr. / Rs. 2.50 cr. (FY21) and for the nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 2.17 cr. on a turnover of Rs. 76.93 cr. 

As per audited results submitted by the company to BSE, for FY22 it has earned a net profit of Rs. 5.68 cr. on a turnover of Rs. 124.47 cr. The surge in the bottom line on declining top-line raises eyebrows. 

DIVIDEND POLICY: 
The company declared dividends in the past, but for the reported periods of offer documents, it has not declared any dividend. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 543267:
The scrip last closed on cum-right basis at Rs. 17.00 on May 25, 2022, and opened on the ex-rights basis at Rs. 15.90 on June 03, 2022. Since then it has marked high/low of Rs. 15.90 / Rs. 15.90. The scrip last closed at Rs. 15.90 as of June 03, 2022. Based on this quote, its post-RI market cap stands at Rs. 149.59 cr. The scrip has posted last 52 weeks high/low of Rs. 15.90 / Rs. 14.45. Promoters holding is at 74.07% for the last three quarters. The counter is well operated around RI timings despite poor liquidity as the counter is thinly traded.