Kallam Textiles RI review - (May apply)

•    KTL is engaged in the cotton textile segment and power generation.
•    After incurring losses for FY20 and FY21, it has turned the corner. 
•    Based on its financial data, RI is fully priced.
•    Cash surplus/risk seekers may consider it for the long term.

ABOUT COMPANY: 
Kallam Textiles Ltd. (KTL) is primarily engaged in the business of Ginning cotton, manufacturing Cotton and Dyed yarn and weaving grey and dyed fabrics. It produces cotton yarn through both Ring Spinning and Open End Spinning (with 59,280 spindles and 2,912 rotors respectively). The Company also have facilities for yarn dyeing with a capacity of around 3000 Kgs per day and for woven fabric capacity of 80,000 meters per day. 

Its manufacturing facilities comprising Ginning, Spinning, Weaving and Dyeing Plants, are located in the state of Andhra Pradesh. The company also have three Hydel Power Plants with a total capacity of 4 MW located in the state of Telangana. Further, it also generates Solar Power for internal consumption with 2.0 MW capacity at the spinning unit, Chowdavaram and 1.0 MW capacity at the weaving unit, Kunkupadu, Addanki.

Its products include Ring Spun combed yarn (from Ne.30s to Ne.80s combed warp/compact), TFO (Two for one twisted yarn) ring-spun yarn (from Ne.30/2 to Ne 80/2 combed warp/compact), Open End yarn from Ne10s to Ne20s, TFO open-end yarn Ne OE 20s/2, BCI (Better Cotton Initiative) certified yarn and woven fabric such as yarn-dyed shirting and bottom weight fabric.

KTL plans to further expand operations by increasing the number of looms and yarn dyeing capacity substantially and also plans to set up dye cloth and printing process to one Lakh meters per day. The Company also intends to increase captive power generation by setting up windmills. Along with the expansion of its operations, KTL is continuously focusing on improving process operations, equipment and quality-related issues for higher yield. It seeks to achieve this through periodical installations of spindles and woven fabric machines. As a part of this strategy, the company is also in the process of exploring further expansion opportunities, to enhance manufacturing capabilities for product diversification and manufacturing of value-added products; and in this regard, it has sufficient land of 130.29 acres at Kunkupadu at its Weaving and Dyeing plants to accommodate future expansion.

Though KTL got a BSE nod for this RI in May 2019, it differed the issue till this time under the pretext of uncertain market conditions. This is really surprising. The offer document is silent on its total labour strength as on the date of filing or even at any previous specific date. It also has no mention of its dividend policy. 

ISSUE DETAILS: 
To part finance its need for part payment of bank loans (Rs. 8.00 cr.), general corporate purposes (Rs. 1.57 cr.), KTL is offering rights issue (RI) of 9991187 equity shares of Rs. 2 each at a fixed price of Rs. 10 per share to mobilize Rs. 9.99 cr. The company is offering RI in the ratio of 7 for 30 to shareholders whose names appeared on its register on the record date of June 03, 2022. The issue opens for subscription on June 23, 2022, and will close on July 07, 2022. The full amount is to be paid along with the application. Post allotment, shares will be listed on BSE. KTL is spending Rs. 0.42 cr. for this RI process. 

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

Post RI, KTL's current paid-up equity capital of Rs. 8.56 cr. will stand enhanced to Rs. 10.56 cr. Based on the RI pricing, the company is looking for a market cap of Rs.52.81 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, KTL has reported a turnover/net profit (loss) of Rs. 293.33 cr. / Rs. - (12.09) cr. (FY20), Rs. 242.27 cr. / Rs. - (7.90) cr. (FY21). For the first three-quarters of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 8.06 cr. on a turnover of Rs. 329.41 cr. Thus it has turned the corner. That's the positive sign for now. It has some buffer from previous periods' surpluses. 

As per BSE filing, KTL has posted a net profit of Rs. 11.81 cr. on a turnover of Rs. 450.90 cr. for FY22. It has also announced a dividend of 10%. It appears that this performance in a pre-RI year is perhaps to lure investors.  

DIVIDEND POLICY:
The offer document is silent on the dividend policy aspect. I presume it will follow 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: 530201:
The scrip last closed on cum-right basis at Rs. 16.50 on June 01, 2022, and opened on the ex-rights basis at Rs. 15.50 on June 02, 2022. Since then it has marked high/low of Rs. 15.60 / Rs. 10.75. The scrip last closed at Rs. 11.40 as of June 17, 2022. Based on this quote, its post-RI market cap stands at Rs. 60.20 cr. The scrip has posted the last 52 weeks high/low of Rs. 23.31 / Rs. 9.86. Promoters' holding is around 52.69% for the last three quarters. The counter is operated around RI timings despite poor liquidity as the counter is thinly traded.