Swiss Military RI review - (Avoid)

•    The company is primarily engaged in promoting, marketing and selling third party products.
•    It kept diversifying in many unrelated avenues and products.
•    Last three fiscals top line remained almost static.
•    Sudden boost in the top and bottom line for FY22 appears as window dressing.
•    The counter is under GSM penal action on BSE with trade restrictions. 

PREFACE:
It is really surprising that how BSE has approved rights issue from this company which posted over 4 times volume (i.e. 7655 shares) to mark upper circuit of Rs. 5.33 on November 15, 2021. Due to GSM, the scrip is restricted from trade from the same date and there have been no trades on this counter. When the company is facing penal action, how this RI is being allowed is a million-dollar question. 

ABOUT COMPANY:
Swiss Military Consumer Goods Ltd. (SMCGL) - (erstwhile known as Network Ltd.) is involved in promoting, marketing and selling the products under the brand Swiss Military. The product category includes travel gear, bags, watches of all kinds, key chains, mugs, jewellery, pearls, decorative products, batteries, golf accessories, musical instruments, electric and electronic products, gift items, antiques etc. 

Off late it has included Men's innerwear and brown goods/home appliances in its products categories. It is also doing stock market trading and mulling RFID (Radio Frequency Identification) logistics and GIS (Geographic Information System) products and solutions. 

ISSUE DETAILS:
The company is coming out with a rights issue (RI) of 49148498 equity share of Rs. 2 each at par i.e. at Rs. 2 to mobilize Rs. 9.83 cr. from the markets. The company is offering 1 right share against 1 share held as of the record date of November 09, 2021. The issue opens for subscription on November 24, 2021, and will close on December 08, 2021. Post allotment, shares will be listed on BSE. The company will be spending Rs. 0.30 cr. for this RI process. From the residual portion, it will utilize Rs. 7.20 cr. for adjustment of loans against the entitlement of promoters and Rs. 2.33 cr. for general corporate purposes. 

All these activities are carried out on third party sources basis and thus the company does not have any plants and machinery of its own. As on the filing of this offer documents, it had just 13 employees on its payroll. 

The issue is solely lead managed by Turnaround Corporate Advisors Pvt. Ltd. and Alankit Assignments Ltd. is the registrar to the issue. 

Post RI, SMCGL's current paid-up equity capital of Rs. 9.83 cr. will stand enhanced to Rs. 19.66 cr. Based on RI pricing, the company is looking for a market cap of Rs.19.66 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted turnover/net profit (loss) of Rs. 5.04 cr. / Rs. - (0.42) cr. (FY19), Rs.4.06 cr. / Rs. - (0.20) cr. (FY20), Rs. 5.24 cr. / Rs. 0.03 cr. (FY21). For the first quarter of FY22 ended on June 30, 2021, it has posted a net profit of Rs. 0.18 cr. on a turnover of Rs. 7.39 cr. 

Thus turnover and profits of more than the previous full-year in just one-quarter of the current fiscal indicate window dressing of performance before RI. In fact, as of June 30, 2021, its equity share capital of Rs. 9.83 cr. is having negative reserves i.e. carried forward losses of Rs. - (5.58 cr.). 

As per BSE Website, the company has posted a turnover of Rs. 8.45 cr. with a net profit of Rs. 0.31 cr. which too raises eyebrows. As of September 30, 2021, promoters holding was 72.31%.

SCRIP PERFORMANCE: Based on BSE Website (Scrip code 523558).
The scrip last closed at Rs. 8.16 on cum-right basis as of November 01, 2021, it opened at Rs. 5.08 on the ex-rights basis on November 08, 2021. Since then it has posted a high/low of Rs. 5.33/ Rs. 5.08 and from November 15, 2021, trades on this counter is restricted under GSM. Based on its last quote of Rs. 5.33 as of November 15, 2021, its market cap stands at Rs. 52.39 cr. The counter has marked the last 52 weeks high/low of Rs. 5.33/ Rs. 3.24.