Harshil Agro BSE RI review - (Avoid)

•    The company is engaged in the business of agri commodities trading and depending on a third party supply.
•    It is operating in a highly competitive and fragmented segment. 
•    Based on its recent set of financial performance, the issue appears aggressively priced.
•    There is no harm in skipping this “High Risk/Low Return” pricey bet. 

ABOUT COMPANY:
Harshil Agrotech Ltd. (HAL) erstwhile known as Mirch Technologies India Ltd., is engaged in the business of trading of agricultural commodities such as wheat, rice, maize, vegetables including capsicum, tomato, Green Chilly, Onion, Potato etc, Fruits including Apple, Red Dragon, Sweet Lime, Pomegranate and other agricultural products. The company is also engaged in contract manufacturing for agricultural products such as Potato, Cucumber and Onion.

The company sources the agricultural products from the manufacturers by paying an advance payment and as per the agreed terms and then these products are sold to its network of distributors. Owing to presence in the market, it has built strong relationships with both the farmers as well as with the wholesaler/retailers’ community. 

The company depends on third party supply and heavily depending on them. The RI is opening on February 18, 2025, but the offer document was uploaded on designated exchange only on February 17, 2025, indicating deliberate delay as the offer document is dated February 05, 2025.

It operates within a highly competitive sector that lacks significant barriers to entry, rendering it susceptible to competition from new market entrants. The industry boasts numerous active participants, comprising a substantial proportion of unorganized entities and a minority of organized players, intensifying the competitive landscape. Its primary objective is to deliver consistently high-quality, branded products to customers at cost-effective prices. Surprisingly as of the date of this offer document, it had just 8 employees on its payroll.

ISSUE DETAILS:
The company is coming out with Rights Issue (RI) of 203200000 equity shares of Re. 1 each at a fixed price of Rs. 2.43 per shares to mobilize Rs. 49.38 cr. The RI is opening for subscription on February 18, 2025, and will close on March 17, 2025. The company is offering RI in the ratio of 2 for 5 to its eligible stakeholders as of the record date of February 05, 2025. The company is asking for full money on application for the number of shares applied. Post allotment, shares will be listed on BSE. The company is spending Rs. 0.28 cr. for this RI process, and from the net proceeds, it will utilize Rs. 36.94 cr. for working capital, and Rs. 12.16 cr. for general corporate purposes.

The RI is self- managed by the company itself, and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue as well as to the company. 

Post-RI, company’s current paid-up equity capital of Rs. 50.80 cr. will stand enhanced to Rs. 71.12 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 172.82 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has posted total revenue/net profit of Rs. 3.88 cr. / Rs. 0.54 cr. (FY23), Rs. 13.02 cr. / Rs. 0.80 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it posted a profit of Rs. 5.70 cr. on a total revenue of Rs. 35.50 cr. Thus the sudden boost in its top and bottom lines ahead of RI issue raises eyebrows and concern over its sustainability. 

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. However, the offer document is silent on its dividend policy.

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 505336 (FV Re.1)
The scrip last closed on cum-right basis at Rs. 4.67 on February 04, 2025, and opened on an ex-right basis at Rs. 3.95 on February 05, 2025. Since then, it has marked a high/low of Rs. 4.27 / Rs. 3.69. The scrip last closed at Rs. 4.07 as of February 17 2025. For the last 52 weeks’ it has posted a high/low of Rs. 11.79 / Rs. 0.48. The counter is currently under ESM: Stage 1.

The promoters’ holding has been constant at NIL% for the last three quarters ended with December 31, 2024. The counter is well maintained above the RI price by vested interest operators to tempt investors. The counter is jacked up with average volumes.