Sparc Electrex RI review (Avoid)

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•    SEL is engaged in the power tools/machinery and related spares business. 
•    It has some carried forward losses.
•    The issue is at a bit premium to its last traded price. 
•    Four-fold rise in its paid-up equity may cause its servicing issue. 
•    There is no harm in skipping this "High-risk / No-return" bet.

Sparc Electrex Ltd. (SEL) - (erstwhile known as Sparc Systems Ltd.) was initially in the business of Video Security Systems and Electronic Document Storage Systems. However, after the takeover of the Company in October 2021 by the new management, it has discontinued its original business activities and diversified into the manufacture, imports, exports, trading and dealing in various kinds of Power Tools, Garden Tools, Cordless Tools, Hand Tools, Machinery, Spares & Accessories, trading in Prime Steel Products, Hot Rolled (HR) / Cold Rolled Coils, Sheets & Pipes, Mild & Stainless Steel and all kinds of Metals. The offer documents are silent on the human resources details. 

The company is coming out with a rights issue (RI) of 14667000 equity shares of Rs. 10 each at a fixed price of Rs. 19 per share to mobilize Rs. 27.87 cr. The company is offering RI in the ratio of 3 shares for every 1 share held to eligible stakeholders as of the record date of February 28, 2023. The issue is opening for subscription on March 14, 2023, and will close on April 12, 2023. The company is asking only 25% i.e. Rs.4.75 per share on application and the balance 75% i.e. Rs. 14.25 to be paid on one or more subsequent calls as determined by the company from time to time. Post allotment, shares will be listed on BSE. SEL is spending Rs. 0.73 cr. for this RI process and from the net proceeds, it will utilize Rs. 22.50 cr. for working capital, Rs. 2.16 cr. towards adjustment of unsecured loans from the corporate promoter, and Rs. 2.48 cr. for general corporate purposes.  

The issue is self-managed by the company itself and Link Intime India Pvt. Ltd. is the registrar of the issue.   

Post-RI, SEL's current paid-up equity capital of Rs. 4.8 cr. will stand enhanced by 4 times to Rs. 19.56 cr. Based on RI pricing, the company is looking for a market cap of Rs. 37.16 cr. 

On the financial performance front, for the last three fiscals, the company has posted a turnover/net profit - (loss) of Rs. 0.09 cr. / Rs. - (0.01) cr. (FY20), Rs. 0.05 cr. / Rs. - (2.00) cr. (FY21), and Rs. 15.07 cr. / Rs. 2.12 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.58 cr. on a turnover of Rs. 3.74 cr. As of September 30, 2022, its current paid-up equity capital of Rs. 4.97 cr. has a negative reserve of Rs.  - (0.84) cr. 

As per the exchange filing, SEL has reported a net profit of Rs. 0.68 cr. on a turnover of Rs. 4.96 cr. for 3Qs of FY23. 

The company has not declared any dividends since incorporation. 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. 22.20 on February 27, 2023, and opened on an ex-right basis at Rs. 19.20 on February 28, 2023. Since then, it has marked a high/low of Rs. 20.50 / Rs. 17.29. The scrip last closed at Rs. 18.74 as of March 13, 2023. For the last 52 weeks, it has posted a high/low of Rs. 42.41/ Rs. 11.21. The promoters' holding has been constant at 27.12% for the last three quarters ended on December 31, 2022. It appears that the counter is trying to hold quotes around RI pricing.


Conclusion / Investment Strategy

This RI is at a bit discount to its last traded price. It has some carried forward losses. A four-fold rise in its paid-up equity capital post-RI may have servicing issue of a higher equity base. The segment is highly competitive. There is no harm in skipping this RI as it is a “High-risk / No-return” bet.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Mar 13, 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 Sparc Electrex Limited RI Views / Analysis / Recommendations ...

The Sparc Electrex Rights Issue 2023 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 Sparc Electrex Rights Issue 2023 worth investing. The Sparc Electrex Rights Issue 2023 Note sets the Rights Issue expectations in systematic way which tells you if Sparc Electrex Rights Issue 2023 good to buy (good or bad / yes or no). The Rights Issue Forecast tells you weather to invest in Sparc Electrex Rights Issue 2023 by providing Rights Issue recommendations i.e. subscribe, avoid and neutral.


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