Som Distilleries RI review - (May apply)

•    The company is in the production of beer and IMFL.
•    This segment has fancy from the market.
•    The company has been faring poorly for the past 18 months.
•    It has skipped dividends since FY20.
•    Investment may be considered with a long term perspective.

ABOUT COMPANY:
Som Distilleries and Breweries Ltd. (SDBL) is primarily engaged in the production of beer and blending and bottling of Indian Made Foreign Liquor (IMFL). It offers a broad portfolio of products at different price points to cater to the varied preferences of consumers. SDBL's product portfolio consists of various options across beer, rum, brandy, vodka, and whisky categories. The company's flagships brands include Hunter, Black Fort, Power Cool and Woodpecker in the Beer segment and Milestone 100 whisky and White Fox vodka in the IMFL segment. 

Other popular IMFL brands of SDBL includes Legend, Genius, Sunny, Gypsy and Blue Chip. With around 90% of its revenues coming from beer, it has three key brands (with sales of more than 1 million cases per annum) i.e. Hunter, Black Fort and Power Cool. Hunter and Woodpecker brands are supplied as draught beer to all major hotels in Madhya Pradesh and Chhattisgarh. It has recently launched 'Woodpecker' Wheat Beer, India's first filtered wheat beer.

SDBL's manufacturing unit is located at Bhopal (Madhya Pradesh). As of September 30, 2021, it has a total installed capacity of 1,52,00,000 cases of beer per annum and 6,00,000 cases per annum of IMFL (excluding its subsidiaries) which is sold to domestic and international customers such as end-users, merchants, distributors, and exporters. Alongside, the company has 100% subsidiary companies, Woodpecker Distilleries & Breweries Private Limited located at Hasan in the state of Karnataka and Som Distilleries & Breweries Odisha Private Limited located at Barpada, Odisha. As of September 30, 2021, the company had 167 full-time employees on its payroll.

ISSUE DETAILS:
To part finance its needs for working capital (Rs. 17.05 cr.) and general corporate purpose (Rs. 0.10 cr.), SDBL is offering rights issue (RI) of equity shares having a face value of Rs. 5 per share at a fixed price of Rs. 35 per share to mobilize Rs. 17.50 cr. The company is issuing 4999058 shares in the ratio of 1 share for every 13 shares held as on the record date of January 03, 2022. The issue opens for subscription on January 17, 2022, and will close on January 31, 2022. Post allotment, shares will be listed on BSE and NSE. SDBL is spending Rs. 0.35 cr. for this RI process. As of December 31, 2021, promoters holding was 24.48%. 

The issue is solely lead managed by Saffron Capital Advisors Pvt. Ltd. and MAS Services Ltd. is the registrar to the issue. 

Post RI, SDBL's current paid-up capital of Rs. 32.49 cr. will stand enhanced to Rs. 34.99 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 244.95 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, SDBL has been incurring losses for the reported periods in the offer documents. For FY21, it has (on a consolidated basis) marked loss of Rs. 39.03 cr. on a turnover of Rs. 509.66 cr., whereas for the first half of FY22 ended on September 30, 2021, it has posted a loss of Rs. 15.10 cr. on a turnover of Rs. 234.10 cr. For FY20 it earned a net profit of Rs. 15.10 cr. on a turnover of Rs. 715.21 cr. Due to the pandemic, it has suffered a setback in the last one and half year's performance it appears. Its losses are now declining with the revival of the economy but the third wave of the corona is likely to impact its current performance once again. The issue is priced at a negative P/E following loss for the last 18 months. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE:507514
The scrip closed on cum-rights basis at Rs. 41.10 as of December 30, 2021, and opened on the ex-rights basis at Rs. 41.00 on December 31, 2021. Since then it has posted a high/low of Rs. 50.95 / Rs. 39.40. For the last 52 weeks, it has marked a high/low of Rs. 58.85/ Rs. 26.26. It last closed at Rs. 47.20 as of January 14, 2022, and based on this closing, its market cap amounts to Rs. 330.34 cr. 

DIVIDEND POLICY:
The company paid a constant dividend of 15% per year from FY 13 to FY19 and thereafter skipped. It will follow a prudent dividend policy based on its financial performance and future prospects.