Manoj Vaibhav Gems IPO review (May apply)
• MVGJL is a southern region-centric jewellery brand having 13 stores.
• The company posted growth in its top and bottom lines for the reported periods.
• Based on FY23 earnings, the issue appears fully priced.
• The company is adding 8 new stores in Tier-2, Tier-3 cities.
• Well-informed investors may park moderate funds for medium to long-term rewards.
ABOUT COMPANY:
Manoj Vaibhav Gems N Jewellers Ltd. (MVGJL) is a leading regional jewellery brand in South India led by a first-generation woman entrepreneur Mrs. Bharata Mallika Ratna Kumari Grandhi along with her daughter Grandhi Sai Keerthana (Source: Technopak Report). It is a hyperlocal jewellery retail chain with a presence in the micro markets of Andhra Pradesh and Telangana with 13 showrooms (inclusive of two franchisee showrooms) across 8 towns and 2 cities.
It has a market share of ~4% of the overall Andhra Pradesh and Telangana jewellery market and ~10% of the organized market in these two states in FY2023, as per the Technopak Report. MVGJL is one of the earlier entrants in the organized jewellery retail market of Andhra Pradesh and continues to focus on regional expansion into the high-growth untapped regions within the micro-markets of Andhra Pradesh and Telangana thereby creating a market for branded jewellery in the area of its operations.
In FY 2023, the total market size of Andhra Pradesh and Telangana was USD 3.3 Bn and USD 2.8 Bn respectively. While the Andhra Pradesh jewellery market is expected to grow to USD 6.3 Bn by FY 2027 at a CAGR of ~18%, the Telangana market is expected to grow to USD 5.3 Bn during the same period at a CAGR of ~18% (Source: Technopak Report). MVGJL cater to all economic segments of the micro markets of Andhra Pradesh and Telangana through dedicated branded showrooms and has a strong rural market focus and a dedicated urban focus. It has positioned itself as a retailer focused on ‘Relationships, by Design’ where the company focuses on offering designs, high quality, transparency and customer service to customers.
The company connects with target groups through exhibitions to understand the tastes and preferences of the customers through its “Go to Marketing Strategy”. Rural markets have a larger pie of the retail jewellery market and the inelasticity of rural demand for gold offers large potential for growth. 77% of its retail showrooms are in Tier 2 and Tier 3 cities catering to the semi-urban and rural demand of Andhra Pradesh and Telangana. The remaining 15% of retail showrooms are located in the Mini Metro city of Hyderabad and 8% of the showroom is located in the Tier 1 city of Visakhapatnam catering to the urban consumers. MVGJL follows a hub and spoke model with small-sized showrooms operating peripheral to the larger showrooms. This allows it to offer new products to semi-urban and rural customers on a continuous basis and capture a share of that market. The rural market in the states of Andhra Pradesh and Telangana contributed 50-52% of the total jewellery market in FY 2023 in these two states (Source: Technopak Report). As of August 15, 2023, it had 895 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book building route IPO of fresh equity shares issue worth Rs. 210 cr. (approx. 9767433 shares at the upper cap) and an Offer for Sale (OFS) of 2800000 equity shares (worth Rs. 60.20 cr. at the upper cap). Thus the overall size of the IPO will be 12567433 shares worth Rs. 270.20 cr. at the upper cap. The company has announced a price band of Rs. 204 – Rs. 215 per share of Rs. 10 each. The issue opens for subscription on September 22, 2023, and will close on September 26, 2023. The minimum application to be made is for 69 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25.73% of the post-IPO paid-up capital of the company.
From the net proceeds of the fresh equity shares issue, the company will utilize Rs. 12.00 cr. for capex on 8 new showrooms, Rs. 160.02 cr. for inventory for new showrooms, and the rest for general corporate purposes.
The company has allocated not more than 50% for QIBs, not less than 15% for HNIs, and not less than 35% for Retail investors.
Bajaj Capital Ltd., and Elara Capital (India) Pvt. Ltd., are the joint Book Running Lead Managers (BRLMs), and Bigshare Services Pvt. Ltd. is the registrar of the issue.
Having issued/converted initial equity shares at par value, the company issued further equity shares in the price range of Rs. 50 – Rs. 85 per share (based on Rs. 10 FV) between March 2009 and March 2012. It has issued bonus shares in the ratio of 3 for 1 in August 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 2.35, and Rs. 9.71 per share.
Post-IPO, MVGJL’s current paid-up equity capital of Rs. 39.08 cr. will stand enhanced to Rs. 48.85 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 1050.22 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MVGJL has posted a total income/net profit of Rs. 1443.18 cr. / Rs. 20.74 cr. (FY21), Rs. 1697.70 cr. / Rs. 43.68 cr. (FY22), and Rs. 2031.30 cr. / Rs. 71.60 cr. (FY23). For Q1 of FAY24 ended on June 30, 2023, it earned a net profit of Rs. 19.24 cr. on a total income of Rs. 510.21 cr. Thus the company has posted steady growth in its top and bottom lines for the reported periods. Since the company is targeting Tier-2 and Tier-3 cities, it aims to maintain the tempo of growth with the addition of 8 more stores.
For the last three fiscals, MVGJL has reported an average EPS of Rs. 13.77 and an average RoNW of 17.24%. The issue is priced at a P/BV of 2.31 based on its NAV of Rs. 93.05 as of June 30, 2023, and at a P/BV of 1.83 based on its post-IPO NAV of Rs. 117.44 per share (at the upper cap).
If we attribute annualized Q1-FY24 earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 13.65. Thus the issue appears fully priced.
For the last three fiscals, MVGJL has posted PAT margins of 1.45% (FY21), 2.58% (FY22), 3.53% (FY23), and 3.78% for Q1 – FY24, and RoE of 9.49%, 17.41%, 23.19%, and 5.43% for the corresponding previous periods, respectively.
DIVIDEND POLICY:
The company has not declared any dividends for the financial years reported in the offer document. It adopted a prudent dividend policy in August 2022, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, MVGJL has shown Titan Co., Thangamayil Jewellery, Kalyan Jewellers, and TBZ as their listed peers. They are trading at a P/E of 86.94, 14.15, 55.64, and 15.96 (as of September 15, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
While this is the first mandate from Bajaj Capital Ltd., it has no track records. This is the 2nd mandate from Elara Capital in the last two fiscals (including the ongoing one). The only mandate that was listed so far has closed above the offer price on the listing date.
Conclusion / Investment Strategy
The company is a south-centric retailer in jewellery and has 13 stores as of now. It has planned to add 8 more stores. With target customers from Tier-2 and Tier-3 regions, the company hopes to maintain the tempo of growth. Based on annualized FY24 earnings, the issue appears fully priced. Well-informed investors may plan moderate investments for the medium to long term.
Review By Dilip Davda on September 17, 2023
Review Author
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
Email: dilip_davda@rediffmail.com
Courtesy: https://www.chittorgarh.com/