Rajapalayam Mills Rights issue review - (Apply)

•    The company is a part of a well-known Ramco group.
•    It has posted steady growth in its performance amidst all odds.
•    The rights offer is at lucrative pricing.
•    After the expansion, it will mark speedy growth.
•    A good offer for medium to long term rewards.

ABOUT COMPANY:
Rajapalayam Mills Ltd. (RML) is a part of the South India-based Ramco Group, incorporated in 1936 and founded by P. A. C. Ramasamy Raja. It is engaged in the business of manufacturing of cotton yarn ranging from 4s to 355s (single/double yarn) and fabrics. Presently, it has four manufacturing facilities of cotton yarn and one manufacturing facility of fabric. Its spinning units are located at Rajapalayam in Virudhunagar district and Perumalpatti in Thirunelvelli district of Tamil Nadu. The company has also established a fabric unit based at Rajapalayam in Virudhunagar District of Tamil Nadu in which it began commercial production in March 2020. At present, the Company has an installed capacity of 1,33,616 spindles in Ring Spinning and 5,480 rotors in Open End Spinning. Further, its fabric unit has a capacity of 122 looms.

The Company manufactures a wide range of products like Open End yarn, Ring yarn, Compact yarn, TFO yarn, Gassed yarn, Mercerised yarn, Slub yarn, Multi Count yarn, Melange yarn. Dyed High Twist yarn, Core Spun yarn and Elitwist yarn. RML's products are tailor-made to cater to specific customer needs and it sells products in domestic as well as international markets. The company is also engaged in the generation of electricity from windmills. It has an aggregate installed capacity of 35.15 megawatts (MW) wind power facilities which it uses for captive consumption and this helps it to control power costs. RML's wind mills are located in Dhanakkarkulam, Irukkanthurai, Uthumalai, Aralvoimozhy, Chinnaputhur, Kolumakondan, Melkaraipatti, Muthunayakkanpatti district of Tamil Nadu

ISSUE DETAILS:
To part finance its plans for modernization of existing plant (Rs. 38.82 cr.), setting up of new mercerising machine (Rs. 16.32 cr.) and general corpus fund needs (Rs. 14.11 cr.), RML is coming out with a rights issue in the ratio of 1 for every 6 shares held as of record date of March 05, 2021. The company will be issuing 1229360 shares of Rs. 10 each at a fixed price of Rs. 569 per share to mobilize Rs. 69.95 cr. The issue opens for subscription on March 15, 2021, and will close on March 30, 2021. Post allotment, shares will be listed on BSE.

The issue is solely lead managed by Vivro Financial Services Pvt. Ltd., and Cameo Corporate Services Ltd. Is the registrar to the issue Post this issue, RML's current paid-up equity capital of Rs. 7.38 cr., will stand enhanced to Rs. 8.61 cr. With the rights offer pricing, the company is looking for a market cap of Rs. 489.65 cr., whereas on the basis of its last traded price of Rs. 730.25 (as of March 12, 2021) market cap stands at Rs. 628.42 cr. RML will be spending Rs. 0.70 cr., for this rights issue process.

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, RML has posted turnover/net profits of Rs. 156.60 cr. / Rs. 104.47 cr. (FY19) and Rs. 146.69 cr. / Rs. 92.07 cr. (FY20). For the first nine months of the current fiscal ended on December 31, 2020, it has earned net profit of Rs. 68.79 cr., on a turnover of Rs. 123.15 cr.    

SCRIP MOVEMENTS:
The scrip last quoted cum-right at Rs. 796.00 on March 03, 2021, and then closed ex-right on March 04, 2021, at Rs. 739.65 per share. Since then, it has moved between Rs. 788.40 and Rs. 725.05 with last closing price of Rs.730.60 on March 12, 2021. It has posted the last 52 week high/low of Rs. 790.22/Rs. 374.01 (on ex-rights basis).