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Sawaca Business RI review (Avoid)

Sawaca Business Machines Ltd. Logo

•    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. 

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.

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).

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. 

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. 

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. 

Conclusion / Investment Strategy

Though this RI is at par, its financial performance and the low promoters’ holding raise concern over its future trends. This RI may be considered as a “High Risk/No Return” bet and can be skipped.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on March 29, 2024

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

More Sawaca Business Machines Ltd. RI Views / Analysis / Recommendations ...

The Sawaca Business Machines Rights Issue 2024 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered Rights Issue Analysts tells you if Sawaca Business Machines Rights Issue 2024 worth investing. The Sawaca Business Machines Rights Issue 2024 Note sets the Rights Issue expectations in systematic way which tells you if Sawaca Business Machines Rights Issue 2024 good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Sawaca Business Machines Rights Issue 2024 by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.