Shree Ganesh Remedies RI review (May apply)

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•    SGRL is in the business of pharma intermediate manufacturing and marketing. 
•    It has also ventured into the speciality chemicals business. 
•    It posted inconsistency in its top line but the bottom line reported growth.
•    Higher margins for the last 21 months' working raises eyebrows.
•    Well-informed/cash surplus investors may consider investment for long-term rewards. 

Shree Ganesh Remedies Ltd. (SGRL) was started with a core focus as a pharmaceutical intermediate manufacturing company in India, which is involved in the development of Basic as well as Advanced intermediates for the API active pharmaceutical ingredients ("APIs"), for the generic and regulated market. The Company has also recently entered into a new chemical entity ("NCE"), the synthesis of which is the first step in the process of drug development. Pharmaceutical intermediates are the chemical compounds that are the building blocks used in the production of APIs or are produced during the process of manufacturing or synthesis of APIs and further undergo molecular changes and processing before final transformation into an API, which is then used in a finished formulation of the pharmaceutical product. 

The Company was originally listed on the SME platform of BSE Limited on October 13, 2017, and subsequently migrated to the Main Board platform of BSE Limited vide their notice dated November 23, 2020. SGRL's majority of products belong to chemical families such as Chloroalkyl amines Salts, Friedel Craft's derivatives, Esters and Acid chlorides. The majority of its Pharmaceutical products belong to Anti-psychotic and Anti-parasitic Drug family accounting for 60-70% of its turnover while a few intermediates go into anti-diabetic, anti-viral and anti-arrhythmic. The Company is also actively engaged in catering to the Specialty fine chemicals and polymer industry using its core chemical expertise whose contribution to the turnover ranges from 10-20%.

The manufacturing process is supported by Total Quality Management techniques and is supervised through various quality control equipment and qualified personnel. The Products are manufactured for the export market and also for domestic and foreign markets. The company entered the international market in the year 2006 and is on regular basis exporting products to various countries. Since its inception in 2004, SGRL has developed and manufactured approximately fifty (50) pharmaceutical intermediates for APIs such as Amitriptyline, Nortriptyline, Haloperidol etc. Its strategic selection of products and early investments in Research and Development ("R&D") has enabled it to become a supplier of pharmaceutical intermediates for APIs in almost eleven (11) therapeutic areas to multi-national pharmaceutical formulation companies all over the world while catering majorly to fast-growing markets of Europe followed up by UK, Japan, Singapore, Korea and the USA.

A major part of the business of around 70% constitutes manufacturing and commercialization of the pharma intermediates for the latest branded API in India and overseas. 10-15% of business comes from the manufacturing of fine chemicals and speciality chemicals and the remaining 10-15% of business comes from contract manufacturing projects. As of November 30, 2022, it had 165 personnel including 113 permanent employees. 

The company is coming out with a rights issue of 840471 equity shares of Rs. 10 each at a fixed price of Rs. 225 per share to mobilize Rs. 18.91 cr. The company is issuing RI in the ratio of 7 shares for every 100 shares held as of the record date of February 03, 2023, to eligible stakeholders. The issue opens for subscription on February 13, 2023, and will close on February 21, 2023. On application, Rs. 135 is to be paid (including a face value of Rs. 6 per share) and the rest by way of one or more subsequent calls as determined by the company from time to time. Post allotment, shares will be listed on BSE. SGRL is spending Rs. 0.55 cr. for this RI process and from the net proceeds, it will utilize Rs. 9.97 cr. for repayment/prepayment of unsecured loans, Rs. 4.00 cr. for working capital, and Rs. 4.39 cr. for general corporate purposes.

Fedex Securities Pvt. Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Post-RI, SGRL's current paid-up equity capital of Rs. 12.01 cr. will stand enhanced to Rs. 12.85 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 289.06 cr. 

On the financial performance front, for the last three fiscals, the company has posted a turnover/net profit of Rs. 62.60 cr. / Rs. 9.62 cr. (FY20), Rs. 51.18 cr. / Rs. 9.75 cr. (FY21), and Rs. 74.86 cr. / Rs. 13.40 cr. (FY22). 

As per the unaudited results submitted to the exchange, for 3Qs of FY23, it earned a net profit of Rs. 11.15 cr. on a turnover of Rs. 63.67 cr. Thus while its top line marked inconsistency, its bottom line marked growth. Super margins enjoyed by the company raise eyebrows.

The company has paid a dividend of 17.5% for FY21 and 5% for FY22. 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. 252.35 on February 02, 2023, and opened on an ex-right basis at Rs. 247.25 on February 03, 2023. Since then, it has marked a high/low of Rs. 252.90 / Rs. 238.00. The scrip last closed at Rs. 243.00 as of February 10, 2023. For the last 52 weeks, it has posted a high/low of Rs. 346.56 / Rs. 211.71. The promoters' holding has declined a bit from 69.12% (June 22 Q) to 68.27% (Dec 22 Q). The counter is well managed above the RI price to lure investors for the RI.

The company has issued bonus shares twice since listing. It gave a bonus in the ratio of 3 for 26 in October 2020 and 1 for 5 in November 211. 

Conclusion / Investment Strategy

The company is in the pharma segment and has already migrated to the mainboard on BSE. However, its RI is fully priced based on its market trade data. The surge in its bottom lines for the last 21 months working raises eyebrows. Well-informed cash surplus investors may consider parking funds for long-term rewards.

Review By Dilip Davda on Feb 10, 2023

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 information published here. Any reader taking decisions based on any information published here does so entirely at its 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.

(SEBI registered Research Analyst-Mumbai).

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.

Email: dilip_davda@rediffmail.com

More Shree Ganesh Remedies Limited RI Views / Analysis / Recommendations ...

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