Lava holds up IPO, raising funds via rights issue at 30% premium

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Lava holds up IPO, raising funds via rights issue at 30% premium



Skipping a primary market offering, phonemaker Lava International is trying to raise funds via a rights issue, as it seeks to capitalise on the incentives being offered by the government to boost local manufacturing of electronics.

"The company's board of directors in their meeting held on April 30, 2021 has accorded approval to the issue and allotment of equity shares by way of rights issues to the existing equity shareholders of the company as on April 23, 2021, the record dates, pursuant to 62(1)(a) and other applicable provisions of the Companies Act 2013, if any, read with the rules framed thereunder," the company wrote to its equity shareholders.

The rights issue opened on May 4, and the company is issuing equity shares of face value of Rs 10 at Rs 533 apiece each, at a premium of Rs 523 per share, to its shareholders as on the record date.

The company is offering one equity share against every 87 shares held. Accordingly, it will be issuing 1.15 per cent or 14.35 lakh of total outstanding equity shares 12.48 crore under the right issue to raise up to Rs 77 crore via the rights issue. The 15-day issue can be subscribed till May 18, 2021.

Lava shares have been trading in the Rs 400-425 price range in the unofficial market for unlisted shares. At the right issue price, the company is valued at Rs 6,650 crore, just 1.27 times its annual revenue.

The phone maker is likely to soon join the list of homegrown firms that are racing to hit the primary market with their initial public offerings (IPO). Lava has plans to raise around Rs 1,400 crore via the primary issue, which is apparently being held up for the time being.

The company's plans signal the comeback of Indian phone manufacturing years after domestic producers were edged out of India's large market by Chinese rivals offering cheaper phones with better specs.

Smartphone shipments in India hit a record 50 million in the September quarter, according to a report by market research firm Canalys.

"Lava is all set to grab the opportunity created by the PLI (production-linked incentive) scheme for mobile manufacturing in India, a space currently ruled by Chinese and Korean players," said Umesh Paliwal, co-founder of Delhi based boutique firm Unlistedzone. Already a dominant force in the feature phone market, Lava is now eyeing a market share of 5 per cent in the smartphone segment.

Phonemakers are expected to benefit a lot from the PLI scheme, which offers 4-6% incentive for mobile manufacturers. Lava is one of five domestic manufacturers that have got approvals under the scheme.

Paliwal from Unlistedzonde said, "Dixon Technologies is reaping the benefits of the PLI scheme and it is already evident in the share price. Lava is pushing hard on similar lines. At the current valuation, it is available at m-cap/sales of 1.3 times," he said.

The company reported Rs 5,264 crore revenue for the year ended on March 31, 2020, compared with Rs 5,108 crore reported for the year ago. Net profit stood at Rs 107 crore on that revenue, compared with Rs 73 crore in the previous year.

The Noida-headquartered Lava International is eyeing expansion with exports in focus. It has submitted proposals to make low-cost phones for top telcom players in the US too. The company has overseas operations in 11 countries, including Thailand, Nepal, Bangladesh, Sri Lanka, Indonesia, Mexico and some West Asian countries.

Lava's comeback strategy is to replicate the success of Chinese smartphone makers by offering phones with top-notch specifications at lower price points. Lava's share of the smartphone market stood at 6 per cent in 2015, and then fell below 1 per cent in 2020, Counterpoint Research said.

However, not everyone is gung ho over the stock. Sambhav Aggarwal of Arms Securities, another firm dealing in unlisted space, expects the company to post losses for the last financial year.

"We are not very much bullish on lava. Despite the rights issue at a higher price, there are sellers at Rs 450-460 levels. Market share of their products is decreasing every year. Users are shunning Lava mobile phones in other countries as well," he claimed.

Source: https://telecom.economictimes.indiatimes.com/news/lava-holds-up-ipo-raising-funds-via-rights-issue-at-30-premium/82403690