Earum Pharma RI review - (Avoid)

•    EPL is in the business of trading and marketing pharmaceutical products.
•    Its financial data is showing inconsistency in its top and bottom lines. 
•    Five-fold rise in its paid-up equity may pose servicing issue. 
•    There is no promoter's holding in this company. 
•    Though RI is at a par value, there is no harm in skipping it. 

PREFACE:
EPL went public in June 19 with a Rs. 6.65 cr. IPO at a price of Rs. 36 per share having a face value of Rs. 10. It issued bonus shares in the ratio of 1 for 1 in August 2021 and also opted for a stock split of Rs. 10 to Rs. 2 in December 2021. Now it is coming out with a RI at par value while there is no promoter's holding and vested interests managing the counter above the RI price to lure investors. With this RI its equity gets enhanced fivefold and may pose an issue in servicing it. 

ABOUT COMPANY:
Earum Pharmaceuticals Ltd. (EPL) is engaged in the pharmaceutical business involving marketing, trading and distribution of a wide range of pharmaceutical formulation products such as anti-biotic drugs, anti-malarial drugs, anti-allergic & anti-cold drugs, analgesic/antipyretic & anti-inflammatory drugs, dermatology products, cerebral activator drugs, neurological drugs, gastrointestinal drugs, steroids, gynaecology drugs, calcium, multivitamins, anti-oxidants and injections. 

EPL is in a highly competitive and fragmented segment with many big and small players including MNCs. The offer document is silent on its employee's strengths. 

ISSUE DETAILS:
The company is coming out with a Rights Issue (RI) of 246716400 equity shares of Rs.2 each at par value to mobilize Rs. 49.34 cr. The issue opens for subscription on May 02, 2023, and will close on May 31, 2023. The company is offering RI in the ratio of 4 for 1 to eligible stakeholders as of the record date of April 10, 2023. The full amount is to be paid on an application for the number of shares applied. Post allotment, shares will be listed on BSE. EPL is spending Rs. 1.50 cr. for this RI process and from the net proceeds, it will utilize Rs. 28.63 cr. for working capital, Rs. 6.88 cr. for repayment of loan and Rs. 12.33 cr. for general corporate purposes.  

The issue is self-managed by the company and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Post-RI, EPL's current paid-up equity capital of Rs. 12.34 cr. will stand enhanced to Rs. 61.68 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 61.68 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, EPL has posted a turnover/net profit of Rs. 50.02 cr. / Rs. 0.09 cr. (FY21), and Rs. 28.74 cr. / Rs. 2.22 cr. (FY22). For the 9M period of FY23 ended on December 31, 2022, it earned a net profit of Rs. 1.77 cr. on a turnover of Rs. 14.82 cr. Thus it has posted inconsistency in its top and bottom lines. Perhaps due to the Pandemic, it managed to scale up the top line, but being primarily in a trading business it failed to maintain margins. 

DIVIDEND POLICY:
The offer document is silent on the company's dividend policy. 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: 542724 (FV Rs. 2).
The scrip last closed on cum-right basis at Rs. 2.48 on April 06, 2023, and opened on an ex-right basis at Rs. 2.42 on April 10, 2023. Since then, it has marked a high/low of Rs. 2.52 / Rs. 2.15. The scrip last closed at Rs. 2.18 as of April 28, 2023. For the last 52 weeks, it has posted a high/low of Rs. 4.99 / Rs. 1.64. 

Surprisingly there is no promoter's holding in this company and some vested interest parties are keeping this counter afloat above the RI price to lure investors.