• The company that primarily was in scrap trading has expanded its portfolio with metal, perfumery oil, cotton etc.
• The financial performance is of a minuscule nature and raises concern.
• Fivefold increase in its paid-up equity post-RI may face servicing issues.
• There is no harm in skipping this "High Risk/No Return" bet.
ABOUT COMPANY:
Sawaca Business Machines Ltd. (SBML) that started Scrap trading business a couple years back and has created a niche in the scrap trading industry within a couple of years of establishment and has met client expectations in terms of premium grade of metal scrap. Currently, the Company is involved in two distinct segments. The first segment is the Trading segment, where it engages in wholesale trading of various finished goods. In this segment, the Company operates primarily on a bill-to-ship basis, ensuring the procurement of orders and guaranteeing timely delivery to customers.
The Trading segment focuses on efficiently managing the supply chain to meet customer demands and provide a seamless trading experience. SBML is expanding its business activities into the Metal Trading and Cotton Trading sectors. This strategic move allows the company to diversify its portfolio and seize opportunities within these industries. In Metal Trading, it is engaged in buying and selling various metals, including iron, steel, aluminium, copper, and other base metals. By entering the Metal Trading market, the Company aims to leverage industry knowledge and capitalize on the demand for these essential materials.
To meet the growing requirements of perfumery compounds and essential oils, the Company has started trading business of Mixture of Aromatic Chemicals, Base Industrial Perfumery Compounds and Essential Oil. The Perfumery Industrial Products that are mixture of Aromatic Chemicals, base industrial perfumery compounds are mainly used in Incense sticks, Toiletries, Soaps, Perfumes etc. Its product range mainly includes Aromatic Chemical like Geraniol, Arsinon, D Lemonene, Musk 101 etc. It also deals in Essential Oil such Orange oil, Patcholi oil and various Industrial Perfumery Compounds.
As of May 31, 2023, it had 7 employees on its payroll.
ISSUE DETAILS:
The company is coming out with a Rights Issue (RI) of 457639600 equity shares of Re. 1 each at par value to mobilize Rs. 45.76 cr. The RI opens for subscription on April 02, 2024, and will close on April 12, 2024. The company is offering RI in the ratio of 4 for 1 to its eligible stakeholders as of the record date of March 07, 2024. The full amount it to be paid on application for the number of shares applied. Post allotment, shares will be listed on BSE. The company is spending Rs. 1.25 cr. for this RI process, and from the net proceeds, it will utilize Rs. 37.00 cr. for working capital, and Rs. 7.51 cr. for general corporate purposes.
The issue is self-managed by the company and Bigshare Services Pvt. Ltd. is the registrar to the issue.
Post-RI, company's current paid-up equity capital of Rs. 11.44 cr. will stand enhanced to Rs. 57.21 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 57.21 cr. (The offer document is missing post-RI equity outstanding data (see page 38 of the offer document).
FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has posted a total income/net profit pf Rs. 3.82 cr. / Rs. 0.41 cr. (FY22), and Rs. 3.65 cr. / Rs. 0.55 cr. (FY23). The offer document is missing FY24 (i.e. just concluded fiscal) financial data, which is very surprising. Prima Facie the offer document is not in line with the compliances.
However, as per the stock exchange filing, for the 9M of FY24 ended on December 31, 2023, it has earned a net profit of Rs. 0.46 cr. on a total income of Rs. 1.28 cr. (m-FAY24 working indicates declining trends for its top and bottom lines. Thus, in short, its financial performance is on a minuscule level. The fivefold jump in its post-RI equity capital may face servicing issue.
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: 531893 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 1.40 on March 06, 2024, and opened on an ex-right basis at Rs. 1.10 March 07, 2024. Since then, it has marked a high/low of Rs. 1.36 / Rs. 1.10. The scrip last closed at Rs. 1.18 as of March 28, 2024. For the last 52 weeks' it has posted a high/low of Rs. 1.37 / Rs. 0.55. Currently the counter is under ESM Stage-1.
The promoters' holding has been constant at 4.11% for the last three quarters ended with December 31, 2023. Low promoter holding indicates the vested interest play on the counter.
The counter is well managed above the par value to lure investors.
Review By Dilip Davda on March 29, 2024
Dilip Davda is a veteran financial journalist associated with the Indian stock market since 1978. He has been contributing to print and electronic media on capital markets, insurance, and finance since 1985.
He is widely recognized for reviewing public issues and non-convertible debentures (NCDs) in the primary market. Drawing on over three decades of market experience and close interaction with merchant bankers, his reviews focus on detailed fundamental and financial analysis of companies, with a special emphasis on SME public issues.
Dilip Davda
SEBI Registered Research Analyst – Mumbai
Registration No.: INH000003127 (Perpetual)
Email: dilip_davda@rediffmail.com
Disclaimer: The information provided herein is solely for educational and informational purposes and does not constitute an offer, solicitation, or recommendation to buy or sell any securities. Readers are advised to consult a qualified financial advisor before making any investment decisions. Investments in the securities market are subject to market risks. The author does not intend to invest in the securities discussed.
