Samor Reality May 23 RI review - (Avoid)

•    SRL is in the reality segment and depends on outsourcing teams to execute contracts.
•    Its financial performance so far indicates minuscule earnings. 
•    This is the 2nd RI from this company. 
•    The counter is not having regular trades. 
•    There appears to be some mismatch of paid-up capital in the offer document.
•    Though this RI is at par, it's a high-risk bet and one may avoid it. 

PREFACE:
SRL came with its maiden IPO in Sept/Oct 21 to mobilize Rs. 8.06 cr. at Rs. 62 per share. It offered its first Rights issue (RI) in November 2022 at a price of Rs. 25 per share to mobilize Rs. 16.13 cr. It has been faring poorly and is now coming out with a RI at a par value that indicates that the IPO was at a hefty premium. Its doubling paid-up equity capital post-listing of RI may pose servicing issue. Its offer price has declined during these two RI offers. The counter is currently under ASM LT - Stage 1. On all these parameters, this is highly risky at par bet. 

ABOUT COMPANY:
Samor Reality Ltd. (SRL) is a flagship company of the Samor group. It is an integrated construction and real estate development company, focused primarily on the construction and development of residential and commercial projects, in and around Ahmedabad, Gujarat. It believes that the company has established a successful track record in the real estate industry in Ahmedabad, Gujarat by developing versatile projects through its focus on innovative architecture, strong project execution and quality construction.

SRL outsources the architectural and designing team which coordinates the entire process of delivering a project from its conceptualization to completion. While conceptualizing a project, it relies on a research-based approach for layout planning, unit size, fittings and interiors, and determining sales and marketing strategies. Depending on the level of competition, regulatory practices and consumer preferences, it alters the development mix and product design to ensure that SRL's products cater to customers across all income groups. As of April 25, 2023, it had 15 employees on its payroll. 

ISSUE DETAILS:
The company is coming out with a Rights Issue (RI) of 10750000 equity shares of Rs. 10 each at par value to mobilize Rs. 10.75 cr. It is offering RI in the ratio of 1 for 1 to eligible stakeholders as of the record date of May 02, 2023. The issue opens for subscription on May 15, 2023, and will close on June 02, 2023. The full amount is to be paid along with the application for the number of shares applied. Post allotment, shares will be listed on BSE SME. SRL is spending Rs. 0.25 cr. for this RI process and from the net proceeds, it will utilize Rs. 8.00 cr. for working capital and Rs. 2.50 cr. for general corporate purposes. 

The issue is self-managed by the company itself and KFin Technologies Ltd. is the registrar of the issue. GYR Capital Advisor is the advisor to the issue. 

Post-RI, SRL's current paid-up equity capital of Rs. 10.75 cr. will stand enhanced to Rs. 21.50 cr.  Based on the RI pricing, the company is looking for a market cap of Rs. 21.50 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, it has posted a turnover/net profit of Rs. 9.64 cr. / Rs. 0.10 cr. (FY21), Rs. 17.38 cr. / Rs. 0.11 cr. (FY22). For the first half of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.13 cr. on a turnover of Rs. 11.35 cr. Thus its financial performance so far indicates lower earnings. Doubling the equity base post-RI may pose an issue with servicing it. 

Though before RI, its current paid-up equity capital is Rs. 10.75 cr. its financial statements show a paid-up equity capital of Rs. 4.30 cr. which is very surprising and raises eyebrows. There appears to be some mismatch. 

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. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 543376 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 72 on April 28, 2023, and opened on an ex-right basis at Rs. 45 on May 03, 2023. Since then, it has marked a high/low of Rs. 45.00 / Rs. 45.00. The scrip last closed at Rs. 45.00 as of May 03, 2023. For the last 52 weeks, it has posted a high/low of Rs. 45.00 / Rs. 15.05. The promoters' holding has been at 57.65% for the quarter ended March 31, 2023, against 56.77% as of September 30, 2022. Despite the poor performance, this counter is perhaps witnessing a vested interest game of maintaining its price level to pave the way for public money raising.