Gautam Gems RI review - (Avoid)

•    GGL is a manufacturer/trader of rough and polished diamonds.
•    It has posted inconsistency in its financial performance since listing.
•    Post RI, a four-fold jump in paid-up equity capital will have servicing issues.
•    Promoters' holding has declined to 21.41% as of June 2022 quarter. 
•    There is no harm in skipping this RI.

ABOUT COMPANY:
Gautam Gems Ltd. (GGL) has been principally incorporated as a Manufacturer and Trader of rough and polished diamonds. Its registered and corporate office is located in Surat, which is the diamond hub of India. The company sells diamonds of multiple categories, shapes, cuts, sizes, and colours. 

The range of diamonds it manufactures and trades in purely depends on the demand and supply of diamonds in the local markets. Primarily, Round Brilliant and All Fancy shape, 0.18 cts up to 15.00 cts Size and D to N colour with all type of Fancy colour kind of diamonds are demanded by customers. Since its business is strongly driven by customer demand, GGL maintains a high/low stock at the office or factory. As of March 31, 2022, a total of 11 employees were on the payroll of GGL.

ISSUE DETAILS:
To part finance its needs for repayment of certain borrowings (Rs. 4.75 cr.), working capital (Rs. 38.35 cr.), and general corporate purposes (Rs. 0.50 cr.), GGL is offering a rights issue (RI) of 40268236 equity shares of Rs. 10 each at a price of Rs. 11 per share to mobilize Rs. 44.30 cr. The company is offering the right shares in the ratio of 4 shares for every 1 share held as of the record date of September 01, 2022. The issue opens for subscription on September 15, 2022, and will close on September 30, 2022. The company is asking for Rs. 2.75 per share on application and the balance by one or more calls by it subsequently. Post allotment, shares will be listed on BSE. GGL is spending Rs. 0.70 cr. for this RI process. 

The issue is solely lead managed by the company itself and KFin Technologies Ltd. is the registrar to the issue.

The company came with its maiden SME IPO for Rs. 7.56 cr. in January 2018 at a price of Rs. 36 per share. It issued bonus shares in the ratio of 5 for 6 in September 2020. 

Post RI, GGL's current paid-up equity capital of Rs. 10.07 cr. will stand enhanced to Rs. 50.34 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 55.37 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, GGL has posted turnover/net profits of Rs. 43.73 cr. / Rs. 0.18 cr. (FY19), Rs. 328.78 cr. / Rs. 0.57 cr. (FY20), Rs. 93.82 cr. / Rs. 0.34 cr. (FY21), and Rs. 180.20 cr. / Rs. 0.52 cr. (FY22). Thus it has marked inconsistency in its top and bottom lines for all these years. 

As per unaudited results filed with the exchange, GGL has earned a net profit of Rs. 0.42 cr. on a turnover of Rs. 30.48 cr. for Q1 of FY23. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer documents to date.  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: 540936:
The scrip last closed on cum-right basis at Rs. 14.04 on August 30, 2022, and opened on an ex-right basis at Rs. 11.97 on September 01, 2022. Since then it has marked a high/low of Rs. 13.88 / Rs. 11.31. The scrip last closed at Rs. 12.12 as of September 09, 2022. Based on this quote, its post-RI market cap stands at Rs. 61.01 cr. This counter is having thin trades occasionally and is currently under ASM ST - stage 1. 

The scrip has posted the last 52 weeks high/low of Rs. 16.62 / Rs. 7.53 (post adjustment of Ex-RI impact). Promoter holding has declined from 36.86% for December 21 quarter to 21.41% for June 22 quarter. This raises concern.

The counter is maintained above the RI price with the last cum-right quote, indicating some wasted interest game and missing transparency.