Udaipur Cement RI review - (Apply)

•    UCWL is a JK group's cement arm promoted by JK Lakshmi Cement Ltd.
•    For the last two fiscals its top line grew, but the bottom line marked a decline. 
•    RI is priced justifiably and it is traded well above the offer price.
•    Investors may consider parking funds for medium to long-term rewards.

ABOUT COMPANY:
Udaipur Cement Works Ltd. (UCWL) is a part of the JK Organization and is promoted by JK Lakshmi Cement Ltd. The company is engaged in manufacturing cement and clinker with its integrated cement manufacturing facility situated at Udaipur, Rajasthan ("Udaipur Manufacturing Plant") which has an installed manufacturing capacity of 1.50 million tonnes per annum ("MTPA") of clinker and 2.20 MTPA of cement grinding. 

During FY23 and FY22 the company manufactured an aggregate quantity of 1.469 MTPA and 1.305 MTPA of cement respectively. Its Udaipur Manufacturing Plant is strategically located in close proximity to the Captive Limestone Mines from which it procures limestone, which is required for operations. Limestone is mined from its Limestone Mine - 1 and Mine - 2, for which it has two long-term mining leases, situated within 12 kilometres of the Udaipur Manufacturing Plant and these mines allow it to extract sufficient quantities of limestone for its current clinker production requirements. 

The company meets energy requirements from the state power grid network, waste heat recovery system-based power generation units and captive solar power plants. UCWL manufactures two types of cement - (a) OPC, which is marketed and sold under the brand 'Platinum Heavy Duty Cement', and (b) PPC, its premium cement, which is also marketed and sold under the brand 'Platinum Heavy Duty Cement'. In addition to supplying cement through its network of dealers to retail customers the company also directly markets and sells cement to institutional and bulk customers from its dumps (which are referred to as "Non-trade Customers"). The company had an extensive distribution network, spanning 56 dumps and 453 dealers as of March 31, 2023, through which it markets and sells cement primarily in the Indian states of Rajasthan, Gujarat and Madhya Pradesh. It also manufactures and sells clinker to its Promoter, JK Lakshmi Cement Limited.

As of March 31, 2023, it had 340 employees on its payroll and additionally, it had 738 contract labourers. Its borrowing stood at Rs. 1145.46 cr. as of the said date.

ISSUE DETAILS:
The company is coming out with a Rights Issue (RI) of 249127853 equity shares of Rs. 4 each at a fixed price of Rs. 18 per share to mobilize Rs. 448.43 cr. The issue opens for subscription on June 21, 2023, and will close on July 05, 2023. The company is offering RI in the ratio of 4 for 5 to eligible stakeholders as of the record date of June 14, 2023. The full amount is to be paid on the application for the number of shares applied. Post allotment, shares will be listed on BSE. UCWL is spending Rs. 4.74 cr. for this RI process and from the net proceeds, it will utilize Rs. 443.69 cr. for part financing of the expansion and development of the Udaipur manufacturing unit. 

JM Financial Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. 

Post-RI, UCWL's current paid-up equity capital of Rs. 124.56 cr. will stand enhanced to Rs. 224.22 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 1008.97 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, UCWL has posted a turnover/net profit of Rs. 881.10 cr. / Rs. 48.66 cr. (FY22) and Rs. 1032.26 cr. / Rs. 35.86 cr. (FY23). Its PAT margin reduced from 5.53% to 3.40% for the reported periods respectively. This remains a major concern.

Considering the ongoing infra projects in private and public sectors, the cement industry is poised for bright prospects ahead. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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: 530131 (FV Rs. 4).
The scrip last closed on cum-right basis at Rs. 35.53 on June 13, 2023, and opened on an ex-right basis at Rs. 28.25 on June 14, 2023. Since then, it has marked a high/low of Rs. 28.25 / Rs. 26.30. The scrip last closed at Rs. 26.42 as of June 16, 2023. For the last 52 weeks, it has posted a high/low of Rs. 29.99 / Rs. 18.91. 

The promoters' holding has been constant at 72.54% for the last three quarters ended on March 31, 2023. The counter is well managed above the RI price.