GI Engg RI review - (Avoid)

•    GIESL is in the business of trading of materials for constructions/infrastructures.
•    It marked a minuscule top line with losses from FY20 to FY22.
•    Bumper 9m of FY23 performance raise eyebrows.
•    There is no harm in skipping this at-par issue that can be termed as a "High Risk-Low Return" bet. 

ABOUT COMPANY:
GI Engineering Solutions Ltd. (GIESL) though incorporated in August 2006, is now the new entity after the takeover and amalgamation of a division of Genesys International Corporation Ltd.  The main objects of GIESL are providing information technology based Engineering Services, development of software and software programmes, distribution and supply of and generally deal in all forms of electrical power/energy, trading of materials for construction and infrastructure development such as steel products comprising of TMT bars, girders, and hollow sections; Pipes & Tubes; pipes & plumbing systems; electrical conduits, switches, circuit breakers etc.; irrigation pipes and sprinkler systems, drip irrigation systems and hybrid irrigation systems, bore well pumps etc.; and rainwater harvesting systems, trading of commodities.

Presently, it is engaged in the business of trading in materials for construction and infrastructure development such as steel products comprising of TMT bars, girders, and hollow sections; Pipes & Tubes; pipes & plumbing systems; electrical conduits, switches, circuit breakers etc.; irrigation pipes and sprinkler systems, drip irrigation systems and hybrid irrigation systems, bore well pumps etc.; and rainwater harvesting systems, though revenues from information technology based Engineering Services, development of software and software programmes, distribution and supply of and to generally deal in all forms of electrical power/energy are not encouraging.

As a long-term business strategy, pursuant to the amended object clause of the Company's Memorandum of Association, the management of the Company is focusing more on trading activities these days. In Engineering and Energy business segments, the Management of the Company cautiously evaluates available options for increasing the revenue going forward. As of December 31, 2022, it had a workforce of < 15 (fifteen), which may increase further as the Company's business is under expansion.

ISSUE DETAILS:
The company is coming out with a Rights Issue (RI) of 49860082 equity shares of Rs. 10 each at par value to mobilize Rs. 49.86 cr. The issue opens for subscription on April 27, 2023, and will close on May 09, 2023. GIESL is offering RI in the ratio of 11 for 8 to eligible stakeholders as of the record date of April 18, 2023. The full amount is to be paid along with the application for the number of shares applied. Post allotment, shares will be listed on BSE and NSE. GIESL is spending Rs. 0.50 cr. for this RI process, and from the net proceeds, it will utilize Rs. 37.02 cr. for working capital, and Rs. 12.34 cr. for general corporate purposes.

While the issue is self-managed by the company itself, Hexaxis Advisors Ltd. is the advisor and Bigshare Services Pvt. Ltd. is the registrar of the issue.  

Post RI, GIESL's current paid-up equity capital of Rs. 36.26 cr. will stand enhanced to Rs. 86.12 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 86.12 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, GIESL has for the last three fiscals, reported a turnover/net profit - (loss) of Rs. 0.12 cr. / Rs. - (0.04) cr. (FY20), Rs. 0.20 cr. / Rs. - (2.52) cr. (FY21), and Rs. 0.11 cr. / Rs. 0.01 cr. (FY22). 

For 9M of FY23 ended on December 31, 2022, it earned a net profit of Rs. 1.45 cr. on a turnover of Rs. 465.39 cr. It still has some carried forward losses (Rs. 3.17 cr.), and debt of Rs. 1.03 cr. as of December 31, 2022. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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: 533048 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 20.49 on April 17, 2023, and opened on an ex-right basis at Rs. 13.70 on April 18, 2023. Since then, it has marked a high/low of Rs. 17.26 / Rs. 13.70. The scrip last closed at Rs. 16.93 as of April 21, 2023, and for the last 52 weeks, it has posted a high/low of Rs. 17.77/ Rs. 3.58. 

The promoters' holding has increased to 40.89% as of March 31, 2023, against 39.78% as of September 30, 2022. The counter is well-operated above the par value to lure investors.