EIH Ltd rights issue review (Others)

•    EIH is primarily engaged in the hotel and travel industry.
•    Ongoing pandemic has adversely affected the company's business.
•    EIH has suffered a severe setback for Q1 of FY21.
•    This is the second rights issue from the company after 2011.
•    Issue is priced at a minus P/E based on negative earnings for the first quarter.

ABOUT COMPANY:
EIH Ltd. (EIH) {Erstwhile known as East India Hotels Ltd.) is a flagship company of Oberoi group which has received some stake from Reliance group as well. Its primary business is the ownership and management of hotels, and therefore is subject to the general risks encountered in the hotel and travel industry.

Currently, the company is engaged in the business of ownership and management of hotels, within and outside India. It also provides airline and airport services, car rentals and charter flights services.

As of June 30, 2020, the Company has 10 Subsidiaries, three Associates and two Joint Ventures. It does not have a holding company.

The ongoing COVID-19 pandemic has had an adverse impact on company's business, cash flows, results of operations and financial condition and the extent to which it may continue to do so in the future, is uncertain and cannot be predicted.

ISSUE DETAILS:
EIH is issuing 53794768 equity shares of Rs. 2 each at a fixed price of Rs. 65 per share by way of a rights issue to mobilize Rs. 349.67 cr. The company is issuing 8 shares for every 85 shares held as on September 23, 2020. Full money is to be paid on application.

EIH will utilize the net proceeds of rights issue for repayment/prepayment of full or in part borrowings by the company (Rs. 280.00 cr.), and general corpus fund (Rs. 65.98 cr.). The company will be spending Rs. 3.68 cr. for the entire rights issue process.

The issue opens for subscription on September 29, 2020, and will close on October 13, 2020. Post allotment, shares will be listed on BSE and NSE. The issue is solely lead managed by Ambit Capital Pvt. Ltd. and KFin Technologies Pvt. Ltd. is the registrar to the issue.

Company's current paid-up equity capital of Rs. 114.31 cr. will stand enhanced to Rs. 125.07 cr. post this issue. EIH is looking for a market cap of Rs.4064.87 cr. on the basis of post rights issue paid-up equity capital.

FINANCIAL PERFORMANCE:
For the last two fiscals, on a consolidated basis, EIH has posted turnover/net profits of Rs. 1879.61 cr. / Rs. 148.96 cr. (FY19) and Rs. 1674.69 cr. / Rs. 165.14 cr. (FY20).

For Q1 of FY21, it has marked a loss of Rs. -152.06 cr. on revenue of Rs. 44.62 cr. Thus the issue is priced at a negative P/E based on loss for the first quarter of FY21. As of June 30, 2020, it's paid-up equity capital of Rs. 114.31 cr. was supported by free reserves of Rs. 2870 cr.

Its equity capital of post rights of Rs. 125.07 cr. will be supported by free reserves of Rs. 3361 cr. As on June 30, 2020 promoters were holding 35.25% equity shares of the company.

SCRIP PRICE MOVEMENTS:
The scrip quoted at Rs. 83.7 on cum-right (on September 21, 2020) and opened at Rs. 82.10 and closed at Rs. 78.35 ex-right (on September 22, 2020). On Friday, September 25, 2020, it closed at Rs. 78.05 indicating market cap of Rs. 4880.97 cr. Last 52 week, scrip has marked a high/low of Rs. 184.43/53.66.


Conclusion / Investment Strategy

EIH is one of the well-known hotel chains. It has come to market with second rights issue after 2011. However, considering its negative performance for Q1 of FY21 and prevalent uncertainty following pandemic, cash surplus risk savvy investors may consider investment for long term at their own risk.

Review By Dilip Davda on Sep 25, 2020

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The EIH Ltd Rights Issue Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if EIH Ltd Rights Issue worth investing. The EIH Ltd Rights Issue Note sets the Rights Issue expectations in systematic way which tells you if EIH Ltd Rights Issue good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in EIH Ltd Rights Issue by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.

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