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HKG Ltd RI review (May apply)

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•    After the change in management, the company has turned aggressive for digital platforms. 
•    It has posted wild fluctuations in its top and bottom lines. 
•    For Q1 of FY22 it has posted a minuscule top line with losses.
•    For H1 FY22, it has posted a net profit of Rs. 0.63 cr. on a turnover of Rs. 1.93 cr.
•    RI pricing appears lucrative against its last 52-week price movements.

PREFACE:
This company was earlier known as Yogya Enterprises Ltd. and came with its maiden IPO of Rs. 1.50 cr. in March 2015 at a price of Rs. 15 per share of Rs. 10 each. Later on, it was acquired by HKG Money Tech Pvt. Ltd. (earlier known as IG Financial Services Pvt. Ltd.) group. Now it is coming out with a rights issue under the new name of HKG Ltd. For maiden IPO it gave a mandate to First Overseas Capital Ltd. Now for RI, it has given a mandate to Khambatta Securities Ltd. In September 2020, HKG split its face value from Rs. 10 to Rs. 2 per share. Since then the new management is up to turn the table and is on a fast forward mode as indicated by its H1 FY22 performance. (Refer BSE WEB filings from the company).

ABOUT COMPANY: 
HKG Ltd. (HKG) is involved in the business of trading of shares and securities and the majority of revenue has been from the trading in shares and securities. After the above acquisition, it also started taking a keen interest in the business of creating and managing various web portals in order to foray into the e-commerce industry. The company aspires to connect small businesses and empower them to grow through the use of its web interfaces and services. HKG's vision is to make web interface services accessible to every small business and enable them to grow manifold.

Currently, HKG is developing HKG Money and Mera Style web portals and has acquired marketing rights for web portals called Area Online, My RERA, My Locker. With this, the company is trying to be a part of the Digital India movement.

ISSUE DETAILS: 
The company is coming out with a rights issue (RI) of 17500000 equity shares of Rs. 2 each at a fixed price of Rs. 8 per share to mobilize Rs. 14 cr. The company is offering 1 right share for every 1 share held to shareholders holding shares as on the record date of November 15, 2021. The issue opens for subscription on November 25, 2021, and will close on December 10, 2021. Post allotment, shares will be listed on BSE SME. The company will be spending Rs. 0.30 cr. for this RI process. From the residual portion, it will utilize Rs. 10.80 cr. for working capital and Rs. 2.90 cr. for general corporate purposes. 

This rights shares trading will take place in a market lot of 2500 shares and in multiples thereon. 

The issue is solely lead managed by Khambatta Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. 

Post RI, HKG's current paid-up equity capital of Rs. 3.50 cr. will stand enhanced to Rs. 7.00 cr. Based on RI pricing, the company is looking for a market cap of Rs. 28 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, the company has posted turnover/net profits (loss) of Rs. 7.21 cr. / Rs. - (0.90) cr. (FY19), Rs. 0.94 cr. / Rs. - (1.89 cr.) (FY20) and Rs. 6.63 cr. / Rs. 0.71 cr. (FY21). For the first three months of FY22 ended on June 30, 2021, it has posted a loss of Rs. - (0.10) cr. on a turnover of Rs. 0.49 cr. As of June 30, 2021, its NAV stood at Rs. 1.53 against face value of Rs. 2 per share. 

As of September 30, 2021, the promoter's holding was 29.66%. As per the filing of information, the company has earned a net profit of Rs. 0.63 cr. on a turnover of Rs. 1.93 cr. for H1-FY22 and it is on a fast forward mode with turning the table from FY21. As of September 30, 2021, its shareholder tally stood at 639.

SCRIP PERFORMANCE: Based on BSE Website (Scrip Code: 539097):
The scrip last closed on cum-right basis at Rs. 46.95 on November 11, 2021, and opened on the ex-rights basis at Rs. 31.90 on November 12, 2021. Since then it has marked high/low of Rs. 32.65 / Rs. 26.80. It last closed at Rs. 30.60 on November 18, 2021. Based on this closing, its market cap stands at Rs. 107.10 cr. The scrip has posted the last 52 weeks high/low of Rs. 41.04 / Rs. 17.55. 

As per market price information is given on page no. 98 of the offer document, its price has seen high/low of Rs. 70.15/ Rs. 10.85 between FY19 to FY22 so far. 

Looking at this price movement, this RI is lucratively priced at a heavy discount. This appears to be an operator driven counter as the promoter's holding is just below 30%.


Conclusion / Investment Strategy

The company's financial performance has seen wild fluctuations in the top and bottom lines. It has posted a loss for the quarter ended June 30, 2021 thus it has a negative P/E and following carried forward losses, it has a negative NAV as of September 30, 2021. Considering just 29.66% promoters holding, the counter appears operator driven with wild fluctuations and erratic volumes. As of June 30, 2021, it had a paid-up equity capital of Rs. 3.50 cr. and negative reserves of Rs. - (0.83) cr. However, based on its last 52 weeks price movements, or even for the last three fiscals, RI pricing appears lucrative. Its financial data submitted to BSE for H1 FY22 shows a net profit of Rs. 0.63 cr. on a turnover of Rs. 1.93 cr. Thus the company is on track with profits for since last four quarters. This issue will help in migration to the mainboard in the near term. Considering these aspects, risk seeker/cash surplus investors may opt for investment in this RI.

Reviewer recommends Subscribing to the issue for Long Term.

Review By Dilip Davda on Nov 20, 2021

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. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

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

More HKG Limited RI Views / Analysis / Recommendations ...

The HKG 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 HKG Rights Issue worth investing. The HKG Rights Issue Note sets the Rights Issue expectations in systematic way which tells you if HKG Rights Issue good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in HKG Rights Issue by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.


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