Vaxtex Cotfab NSE RI review - (Avoid)

•    VCL is in the business of trading and processing of all types of fabrics.
•    The company is operating in a highly competitive and fragmented segment.  
•    Its last two years' financial performance is non-encouraging. 
•    The RI is fully priced and is a "High Risk/Low Return" bet. 
•    Investors may skip this RI. 

ABOUT COMPANY:
Vaxtex Cotfab Ltd. (VCL) was originally incorporated as "Foolproof Vyapaar Pvt. Ltd. in December 2005. After taking over this company, new management shifted its office to Gujarat in 2009. It started trading in all types of fabrics in 2014-15, and in 2017-18 it started processing fabrics. For processing work, it took over an existing plant at Rakhiyal - Ahmedabad on rentals. Currently, the company is engaged in textile processing of fabrics as job work and trading. Its installed capacity for processing of fabrics is 12 lakh meters per month. The offer document is silent on its employees' strength. 

ISSUE DETAILS:
The company is coming out with a Rights Issue (RI) of 63145050 equity shares of Re. 1 each at a fixed price of Rs. 2 per share to mobilize Rs. 12.63 cr. The issue opens for subscription on August 07, 2023, and will close on August 18, 2023. It is offering RI in the ratio of 1 for 2 to eligible stakeholders as of the record date of July 24, 2023. The full amount is to be paid on the application for the number of shares applied. Post allotment, shares will be listed on NSE. VCL is spending Rs. 0.55 cr. for this RI process and from the net proceeds, it will utilize Rs. 1.58 cr. for the purchase of plant and machinery and Rs. 10.50 cr. for working capital. 

The issue is self-managed by the company itself and Cameo Corporate Services Ltd. is the registrar of the issue. Perhaps for the first time, we are seeing the name of the Banker to the Issue on the front page of the offer document. This appears to be an eyewash. 

Post-RI, VSL's current paid-up equity capital of Rs. 12.63 cr. will stand enhanced to Rs. 18.94 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 37.89 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has posted a turnover/net profit of Rs. 62.28 cr. / Rs. 1.49 cr. (FY22), and Rs. 76.51 cr. / Rs. 1.13 cr. It marked pressure on margins as expressed in these two years' financial data. 

DIVIDEND POLICY:
The company has not declared any dividends for the last three fiscals. It has adopted a prudent dividend policy based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON NSE WEBSITE DATA: SCRIP CODE: VCL (FV Re. 1).
The scrip last closed on cum-right basis at Rs. 2.35 on July 21, 2023, and opened on an ex-right basis at Rs. 2.30 on July 24, 2023. Since then, it has marked a high/low of Rs. 2.40 / Rs. 2.20. The scrip last closed at Rs. 2.30 as of August 04, 2023. For the last 52 weeks, it has posted a high/low of Rs. 12.40 / Rs. 2.00. The counter is witnessing thin trades. The counter is also well maintained above the RI pricing by the vested interests to tempt investors. 

The promoters' holding has declined to 26.14% as of June 30, 2023, against 36.28% as of December 31, 2022. This raises a concern. 

The counter is currently under ESM-1 (34), as per NSE website.