Patel Engineering RI review - (May apply)

•    This is the 2nd RI from PEL since September 2019. 
•    It suffered a severe setback for FY21. 
•    The company is back on track and has a good order book. 
•    Well-informed investors may consider an investment with a long-term perspective. 

PREFACE:
This is the 2nd Rights Issue from PEL in the last four years. The last RI was in September 2019 in the ratio of 7 for 5 at a fixed price of Rs. 9.00 per share and it mobilized Rs. 206.95 cr. e. Now it is again coming out with RI as detailed here under. 

ABOUT COMPANY:
Patel Engineering Ltd. (PEL) is engaged in construction activities specializing in the hydropower generation and irrigation segments. It is engaged in the construction of dams, bridges, tunnels, roads, piling works, industrial structures and other kinds of heavy civil engineering works and has executed a variety of infrastructure projects in the hydropower, irrigation and water supply, urban infrastructure and transportation segments primarily as civil contractors. 

As of September 30, 2022, it has an order book of Rs. 17598.51 cr. comprising most of the contracts in the Government / Semi-government undertakings. The lion's share of contracts pertains to hydro power-related activities. As of the said date, it had 3936 employees on its payroll (including 74.4% technical staff). 

ISSUE DETAILS:
The company is coming out with a rights issue of 257872409 shares of Re. 1 each at a fixed price of Rs. 12.60 per share to mobilize Rs. 32.49 cr. It is issuing RI in the ratio of 1 for 2 to eligible stakeholders as of the record date of February 06, 2023. The RI opens for subscription on February 14, 2023, and will close on February 27, 2023. The full amount is to be paid on an application for the number of shares applied for. Post allotment, shares will be listed on BSE and NSE. PEL is spending Rs. 1.16 cr. for the RI process and from the net proceedings, it will utilize Rs. 23.24 cr. for repayment/prepayment of certain borrowings, and Rs. 8.09 cr. for general corporate purposes. 

The Joint Lead Managers of this issue are BOB Capital Markets Ltd. and IDBI Capital Markets & Securities Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Post-RI, PEL's current paid-up equity capital of Rs. 51.57 cr. will stand enhanced to Rs. 77.36 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 974.76 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has (on a consolidated basis) posted a turnover/net profit - (loss) of Rs. 2103.93 cr. / Rs. - (272.93) cr. (FY21) and Rs. 3496.51 cr. / Rs. 68.87 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 58.01 cr. on a turnover of Rs. 1932.38 cr. 

DIVIDEND POLICY:
The offer document is silent on its dividend policy. As per the BSE website, the company last paid a dividend of 30% in October 2012. 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: 531120 (FV Re. 1).
The scrip last closed on cum-right basis at Rs. 17.25 on February 03, 2023, and opened on an ex-right basis at Rs. 15.00 on February 06, 2023. Since then, it has marked a high/low of Rs. 16.85 / Rs. 14.30. The scrip last closed at Rs. 14.55 as of February 10, 2023. For the last 52 weeks, it has posted a high/low of Rs. 28.67 / Rs. 14.30. The promoters' holding has declined from 50.50% as of September 09, 2022, to 39.12% as of December 31, 2022. This remains a concern for the investors. The counter is well maintained above the RI price to lure investors. 

NOTE: My family has a small long-term holding in this company and hence, we may consider an application for the possible quantity in this RI.