Yarn Syndicate RI review - (Avoid)

•    YSL is currently under the new management. 
•    It has posted dismal financial performance so far. 
•    For the last three fiscals, it has no business operation income.
•    RI issue calculations and adjustment needs more clarification.
•    There is no harm in skipping this pricey bet. 

PREFACE:
This is old company in yarn segment is now under new management and though it is issuing 18000000 shares of Rs. 10 each, it is considering its value at Rs. 5 only and accordingly showing only Rs. 9.00 addition to its equity capital and the balance in security premium. However, its confusing and needs more clarification. Post-RI why only Rs. 5 per share is credited to capital? In its business, it has all claims but when we see its financials, it does not have any income from its original business for FY22 and FY23, it just marked small business for the first half and posted loss.  

ABOUT COMPANY:
Yarn Syndicate Ltd. (YSL) is dealing in all types of yarn. The Company is a Merchant Exporter and trader and is fully involved in the export and trading of various types of yarn, raw cotton and fabrics and is committed to the further growth of its business operations in competitive international and domestic markets while always maintaining strong business relations with its existing clients. Being in the export and domestic trading business for many decades it has gathered many business contacts in this highly competitive line of business. At the same time, it continues to add new products to its export and domestic portfolio and to explore new markets for the export and trading of its products.

The Company became one of the pioneers to export all types of yarn, viz. cotton yarn, polyester cotton yarn, polyester viscose yarn, flax yarn, jute yarn, bamboo yarn, organic yarn etc. from India and in the more than four decades since, has become one of the leading exporters of cotton and other varieties of yarn in the country. The Company has become one of the largest merchant exporters of cotton and other varieties of yarn and during the quota regime was one of the biggest quota holders of EEC countries. 

In the past many decades, the Company has constantly strived to get new customers while strengthening its business relations with existing customers/manufacturers. The Company is committed to strictly maintaining the highest standards with respect to quality of products and delivery schedules to our customers. The products the Company is exporting are 100% cotton yarn, 100% polyester yarn, 100% viscose yarn, polyester textured yarn, jute yarn, and other types of yarn like flax yarn and raw cotton etc. However, for the reported periods of this offer document, it has no business income, but only other income till FY23. It appears that its real activities on old lines of business has just started in first half of FY2 on a token level. 

ISSUE DETAILS:
The company is coming out with a Right Issue (RI) of 18000000 equity shares of Rs. 10 each (with a paid up value of Rs. 5 per share). at a fixed price of Rs. 27 per share to mobilize Rs.  48.60 cr. The issue opens for subscription on February 06, 2024, and will close on February 21, 2024. The company is offering RI in the ratio of 24 for 5 to its eligible stakeholders as of the record date of January 24, 2024. The company is asking 50% i.e. Rs. 13.50 per share on application and the balance by 1st and final call as and when decided by the company. The company is spending Rs. 1.75 cr. for this RI process and from the net proceeds, it will utilize Rs. 25.35 cr. for acquisition of equity shares in Stitched Textiles Ltd., Rs. 13.50 cr. for working capital, and Rs. 8.00 cr. for general corporate purposes.  

The issue is self-managed by the company and Cameo Corporate Services Ltd. is the registrar of the issue. 

Post RI, company's current paid-up equity capital of Rs. 3.75 cr. (3750000 shares) will stand enhanced to Rs. 12.75 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 34.43 cr. (The company is showing 18000000 shares with Rs. 5 paid up value only in its offer document and adding only Rs. 9.00 cr. against Rs. 18.00 cr. in its paid up capital). 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total income/net profit/ - (loss) of Rs. 0.60 cr. / Rs. 0.40 cr. (FY22), and Rs. 0.03 cr. / Rs. - (0.16) cr. (FY23). All income reported so far is non business i.e. other income. For H1 of FY24 ended on September 30, 2023, it marked net loss of Rs. - (0.02) on a total income of Rs. 0.52 cr. Thus it has minuscule financial performances for the reported periods.  

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy (on a voluntary basis) based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 514378 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 28.17 on January 23, 2024, and opened on an ex-right basis at Rs. 28.00 on January 24, 2024. Since then, it has marked a high/low of Rs. 31.00 / Rs. 26.17. The scrip last closed at Rs. 30.60 as of February 02, 2024. For the last 52 weeks' it has posted a high/low of Rs. 44.00 / Rs. 20.07. The counter is well operated by vested interests to pave the way for pricey RI.

The promoters' holding has been constant around 35.03% for the last three quarters ended with December 31, 2023.