G G Engg RI review - (Avoid)

•    GGEL is in the sheet mater and heavy steel products. 
•    It has posted dismal financial performance so far. 
•    In the last three-quarters promoters' holding has declined from 43.88% to 1.88%.
•    The issue is greedily priced considering the loss posted for Q1 of FY23.
•    There is no harm in ignoring this pricy RI. 

ABOUT COMPANY:
G G Engineering Ltd. (GGEL) is in the business of manufacturing/marketing quality sheet metal and heavy steel products. The company specializes in custom-built enclosure generator sets for both stationary and mobile applications. It also supplies steel pipes, industrial engines for various applications, marine engines, and spare parts for diesel Genset to the local and international markets. 

GGEL launched India's first fully automated and smart Reverse Vending Machines to enable environment-friendly disposal of plastic and other waste. It recently launched pathogen-protection products to fight the pandemic. As of the date of filing this offer document, it had 6 employees on its payroll. 

ISSUE DETAILS:
To part finance its plans for working capital (Rs. 36.90 cr.) and general corporate purposes (Rs. 12.31 cr.), GGEL is coming out with a right issue (RI) of 277578135 equity shares of Re. 1 at a fixed price of Rs. 1.80 per share to mobilize Rs. 49.96 cr. The company is offering the right issue in the ratio of 35 shares for every 13 shares held by the stakeholders as of the record date of August 10, 2022. The full amount is to be paid along with the application. The issue opens for subscription on August 22, 2022, and will close on September 07, 2022. Post allotment, shares will be listed on BSE. GGEL is spending Rs. 0.75 cr. for this RI process. 

There is no merchant banker and the issue is handled by the company itself. KFin Technologies Pvt. Ltd. is the registrar to the issue. 

The company issued bonus shares in the ratio of 2 for 3 in June 2019 and also split its shares from Rs. 10 FV to Re. 1 FV in the last two fiscals. 

Post-RI, GGEL's current paid-up equity capital of Rs. 10.31 cr. will stand enhanced to Rs. 38.07 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 68.52 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last two fiscals, GGEL has (on a consolidated basis) posted turnover/net profits - (loss) of Rs. 37.51 cr. / Rs. - (0.82) cr. (FY21) and Rs. 22.97 cr. / Rs. 0.44 cr. (FY22).

As per BSE filing, the company has (on a consolidated basis) posted a net profit of Rs. 0.59 cr. on a turnover of Rs. 12.41 cr. However, it has posted losses for FY22 and Q1 of FY23 on a standalone basis. It appears that the company has done window dressing in its consolidated performance. 

DIVIDEND POLICY:
The offer documents are silent on the company's dividend policy. It will adopt a prudent dividend policy post listing of RI, based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 540614:
The scrip last closed on cum-right basis at Rs. 3.09 on August 05, 2022, and opened on an ex-right basis at Rs. 2.36 on August 08, 2022. Since then it has marked a high/low of Rs. 3.27 / Rs. 2.36. The scrip last closed at Rs. 3.27 as of August 18, 2022. Based on this quote, its post-RI market cap stands at Rs. 124.48 cr. The scrip has posted the last 52 weeks high/low of Rs. 8.79 / Rs. 1.55 (post adjustment of Ex-RI impact). Promoters' holding has declined from 43.28% as of December 31, 2021, to 1.88% as of June 30, 2022. Thus, promoters' holding below 2% raises concern. The counter is well managed by vested interests to lure investors to this RI.