IPO Analysis: Manoj Vaibhav Gems 'N' Jewellers Ltd

IPO Rating: Apply for the long-term

About the Issue 

Vaibhav Jewellers Ltd operates a hyperlocal jewellery retail chain, strategically covering the micro markets of Andhra Pradesh and Telangana, offering a diverse range of products in gold, diamond, and silver categories. The company is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 10. The IPO price range is set between Rs 204 and Rs 215 per equity share, resulting in a total issue size of Rs 270.20 crore at the upper price band. 

The IPO is scheduled to commence on September 22, 2023, and will conclude on September 26, 2023. The anticipated listing on the exchange is set for October 06, 2023. The market lot size for the IPO is 69 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 897 shares or a total investment of Rs 1,92,855 assuming the upper price band. 

Objects of the Issue 

The company plans to allocate the net proceeds raised from the issue for the following purposes: 

1. To finance establishment of the proposed 8 new showrooms, i.e. 

(a) Capital expenditure cost for the proposed eight new showrooms, 

(b) Inventory cost for the proposed eight new showrooms 

2. General corporate purposes. 

Promoter holding 

Grandhi Bharata Mallika Ratna Kumari (HUF), Bharata Mallika Ratna Kumari Grandhi and Grandhi Sai Keerthana are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 100 per cent in the company. 

Company profile 

With a strong regional presence in South India, Vaibhav Jewellers Ltd operates a hyperlocal jewellery retail chain, spanning across the micro markets of Andhra Pradesh and Telangana, boasting a total of 13 showrooms. Each showroom of the company displays an extensive and diverse inventory of designs, encompassing a wide range of segments, including Gold, Diamond, Gems, Platinum, Silver Jewellery, and more. The company offers a variety of products in gold, diamond, and silver categories, including bangles, lockets, chains, rings, necklaces, earrings, pendants, mangalsutra, dinner sets, silver coins, and pooja articles. 

The company has established itself as a retailer with a strong focus on 'Relationships, by Design.' It prioritizes offering meticulously crafted designs, uncompromising quality, transparency, and exceptional customer service to its valued customers. The company’s 'Go to Marketing Strategy' involves actively engaging with target audiences through exhibitions to gain insights into their tastes and preferences. 

Financials 

Outlook and Valuation 

Rural markets constitute a significant share of the retail jewellery market, and the steadfast demand for gold in these areas presents substantial growth opportunities. Impressively, 77 per cent of the company’s retail showrooms are strategically located in Tier 2 and Tier 3 cities, catering specifically to the semi-urban and rural gold demand in Andhra Pradesh and Telangana. In terms of market presence, the company currently holds a 5 per cent share of the expansive jewellery market in Andhra Pradesh and Telangana, and it commands an impressive 14 per cent share within the organized jewellery segment in these two states. 

The company was among the pioneers in entering the organized jewellery retail market of Andhra Pradesh and remains committed to its strategy of regional expansion into untapped markets. Its ongoing efforts involve expanding its presence within Andhra Pradesh, with strategically located showrooms poised to cater to the demand of local customers. 

Analysing the financials, the company has delivered robust revenue and net profit growth over the past few years. Furthermore, it boasts an impressive RoE of 23 for the financial year 2023, showcasing its capacity to provide attractive returns to investors. The issue is priced with a P/BV ratio of 2.31 times, calculated using its Net Asset Value (NAV) of Rs 93.05 as of June 30, 2023. At the upper price cap, it is priced at a P/BV ratio of 1.83, considering its post-IPO NAV of Rs 117.44 per share.  

When we compute the PE ratio for the company by considering annualized Q1FY24 earnings to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at around 13. In its documents, the company cited Titan Company Ltd, Thangamayil Jewellery, and Kalyan Jewellers India Ltd as its listed peers, with respective PE ratios of 106, 40, and 38. Hence, it appears that the issue is reasonably valued. Therefore, we recommend that investors consider subscribing to the issue with a medium to long-term perspective.