Dev Labtech BSE SME IPO review (May apply)

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Review By Dilip Davda on March 15, 2023

•    DLVL is in the business of manufacturing and marketing natural/lab-grown diamonds.
•    From 2022, it ventured into lab-grown diamonds with MPCVD technology in the B2B segment.
•    Based on FY23 earnings, the issue is aggressively priced. 
•    It has posted growth in its PAT margins for the last two fiscals.
•    Well-informed/cash-surplus/risk seekers may consider parking funds. Others may ignore it.

ABOUT COMPANY:
Dev Labtech Venture Ltd. (DLVL) is in the business of manufacturing, marketing and sourcing diamonds - natural and lab-grown having wide application in Jewellery. It is equipped with all facilities to execute all types of manufacturing activities from rough natural stone to finished polished diamonds and from Seed to finished lab-grown diamonds with various sizes, shapes, clarity and colours.

The Company has recently started manufacturing lab-grown diamonds before that it was engaged in the processing of natural diamonds only. It has adopted the latest MPCVD technology for the new products. The technology known as - Microwave Plasma Chemical Vapour Disposition (MPCVD) makes lab-grown Diamonds from Diamond Seed. This technology is well-tested and used on large scale in China. MPCVD is a pure and fast diamond deposition process, hence best suited for commercial uses. DLVL has developed regular clients for the supply of diamonds in Bhavnagar, Surat, and Mumbai, and for exports. Its products are primarily targeted to customers engaged in natural and lab-grown diamond jewellery manufacturers. 

According to the management, the company that was only in natural diamonds production has diversified into lab-grown diamonds that have been well accepted and the demand is growing globally. This product is mainly for the B2B segment and hence fetches good margins. Considering the demand growth for lab-grown diamonds, it is adding more machinery for this product to meet the demand. As of September 30, 2022, it had 24 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2200000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 11.22 cr. The issue opens for subscription on March 17, 2023, and will close on March 21, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.60% of the post-issue paid-up capital of the company. DLVL is spending Rs. 0.40 cr. for this IPO process and from the net proceedings, it will utilize Rs. 1.54 cr. for capex, Rs. 7.50 cr. for working capital and Rs. 1.78 cr. for general corporate purposes.

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 45 - Rs. 100 between March 2010 and July 2022. It has also issued bonus shares in the ratio of 1 for 2 in March 2022, 3 for 2 in July 2022 and 1 for 2 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 4.86, Rs. 6.20, and Rs. 6.58 per share. 

Post-IPO, DLVL's current paid-up equity capital of Rs. 6.07 cr. will stand enhanced to Rs. 8.27 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 42.18 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a turnover/net profit of Rs. 11.79 cr. / Rs. 0.0001 cr. (FY20), Rs. 12.28 cr. / Rs. 0.04 cr. (FY21), and Rs. 26.98 cr. / Rs. 0.44 cr. (FY22). For the H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.64 cr. on a turnover of Rs. 9.66 cr. Thus, after the static performance for FY20 and FY21, it marked robust growth in its top line and bottom line for FY22 and for H1 of FY23 it marked boosted the bottom line. 

For the last three fiscals, DLVL has reported an average EPS of Rs. 0.44 and an average RoNW of 12.18%. The issue is priced at a P/BV of 3.60 based on its NAV of Rs. 14.18 as of September 30, 2022, and at a P/BV of 2.34 based on its post-IPO NAV of Rs. 21.76 per share. 

DLVL's PAT margins have improved from 0.30% for FY21 to 6.82% for H1 of FY23 and the management is confident of maintaining this trend. 

If we annualize FY23 earnings and attribute it to post-IPO dully diluted paid-up equity capital, then the asking price is at a P/E of around 32.90. Thus the issue appears aggressively priced mirroring near-term positives. 

According to management, as per historical data, the second half of the fiscal always brings higher growth as during this period, many festivals, social events, gifting, etc. take place that boosts the demand that also results in higher margins. 

DIVIDEND POLICY:
The company has not declared any dividends in the last five years. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Beeline Capital in the last three fiscals (including the ongoing one). Out of the last 10 listings, 2 got listed at par and the rest at premiums ranging from 3.96% to 63.64% on the listing date. 

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