Shree Ajit Pulp RI (BSE) review - (Apply)

•    SAPPL is engaged in the manufacturing and marketing of variety of Kraft papers.
•    It posted declining trends for its top and bottom lines from FY23 onwards, that raise concern.
•    RI is priced in an investor friendly gesture with around 65% discount.
•    Investors should not miss this lucrative RI, as the sector is fancied by all. 

ABOUT COMPANY:
Shree Ajit Pulp and Paper Ltd. (SAPPL) is primarily engaged in the business of manufacturing, marketing and selling of machine glazed Kraft paper- Test liner (single wire) and multi-layer Test liner (triple wire) from waste recycled papers with wide range from 80-330 grams per square meter ("GSM") and varying from 18-35 bursting factor ("BF") in ("Manufacturing Unit - I"). 

It is also venturing in light weight 40-120 GSM with high tensile performance Kraft paper in ("Manufacturing Unit - II"). Company's products have a variety of applications and are used in industry such as FMCG, textiles, automobiles, e-commerce, pharmaceuticals, perishable, other packaging items for industrial and household purpose, paper bags, etc. The company sells its products in domestic as well as in international markets.

SAPPL's Manufacturing Unit - I and II are located at Survey No. 239, village salvav, 106, 107, 108P and 105P, Morai, Near Morai Railway Crossing, Vapi 396191, Valsad, Gujarat, India with an installed capacity of 1,20,000 MTPA and Plot No. 1 and 1/B, Phase I, GIDC, Vapi - 396195, Gujarat with an installed capacity of 82,500 MTPA, respectively. Manufacturing Unit - II is newly set up and has commenced the commercial production w.e.f. July 17, 2023.

The company has been recognized as a 'One Star Export House' by Ministry of Commerce and Industry, Government of India for its performance in export of products. It is also engaged in the generation of electricity from windmills. It has an aggregate installed capacity of ~1.50 and ~1.25 megawatts (MW) for wind power facilities located at Rajkot and Dwarika which SAPPL uses for captive consumption, which in turn helps it reduce the cost of power. As of November 30, 2023, it had 213 employees on its payroll. 

ISSUE DETAILS:
The company is coming out with a Rights Issue (RI) of 3571133 equity shares of Rs. 10 each at a fixed price of Rs. 80 per share to mobilize Rs. 28.57 cr. The RI opens for subscription on January 30, 2024, and will close on February 20, 2024. The company is asking Rs. 48 per share on application and the balance by one or more calls from time to time. The company is offering RI in the ratio of 2 for 3 to its eligible stakeholders as of the record date of January 18, 2024. Post allotment, shares will be listed on BSE. The company is spending Rs. 0.45 cr. for this RI process and from the net proceeds, it will utilize Rs. 25.00 cr. for working capital, and Rs. 3.12 cr. for general corporate purposes. 

The issue is solely lead managed by Vivro Financial Services Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar of the issue. 

Post RI, company's current paid-up equity capital of Rs. 5.36 cr. will stand enhanced to Rs. 8.93 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 71.42 cr. 

The company marked de-growth in its RoNW from 11.52% for FY22 to 1.84% for H1 of FY24. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has posted total income/net profit of Rs. 419.21 cr. / Rs. 21.62 cr. (FY22), and Rs. 372.29 cr. / Rs. 20.70 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned net profit of Rs. 3.81 cr. on a total income of Rs. 145.04 cr. It has posted declining trends for the last 18 months' period. 

DIVIDEND POLICY:
The company has declared 10% dividend for the last three fiscals. 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: 538795 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 419.20 on January 17, 2024, and opened on an ex-right basis at Rs. 255.10 on January 18, 2024. Since then, it has marked a high/low of Rs. 275.00 / Rs. 221.05. The scrip last closed at Rs. 228.80 as of January 25, 2024. For the last 52 weeks' it has posted a high/low of Rs. 297.10 / Rs. 158.86. Thus this RI is attractively priced.

The promoters' holding has been constant at 56.84% for the last three quarters ended with December 31, 2023. The counter is marking trades above RI price and thus this RI is at a hefty discount of around 65% based on its last traded price.