Utssav Cz NSE SME IPO review (Avoid)

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Review By Dilip Davda on July 27, 2024

•    The company is operating in a highly competitive and fragmented segment of gold jewelleries.
•    The sudden boost in its bottom lines from FY23 onwards raises eyebrows and concern over its sustainability.
•    Based on FY24 annualized super earnings, the issue appears fully priced discounting all near term positives. 
•    While recent SME IPOs are going public with March 24 numbers, while this company is going public with January 31, 2024 numbers.
•    The company did a placement at Rs. 82.50 per share in April 2024.
•    Now, it is asking Rs. 110 at the upper cap from public.
•    There is no harm in skipping this "High Risk/Low Return" pricey issue. 

ABOUT COMPANY:
Utssav Cz Gold Jewels Ltd. (UCGJL) is in the business of designing, manufacturing, wholesaling and exporting of 18Karat 20Karat and 22Karat CZ Gold jewellery. The Company specializes in light weight production of cubic zirconia (CZ) gold and rose gold casting jewellery. It manufactures and offers wide collection of products such as Rings, Earrings, Pendants, Bracelets Necklaces, Watches and Broaches etc. 

Its forte lies in crafting exquisite CZ CZ) is a synthetic gemstone known for its similarity to diamonds. Composed of zirconium dioxide, CZ is renowned for its clarity and can be crafted into various shapes and sizes, such as round, emerald, and pear cuts. These stones are popularly known as 'American Diamonds'. While it is much more affordable than diamonds, it still offers impressive durability and a sparkling appearance, making it a popular choice for jewellery. 

The Company specializes in Gold jewellery studded with CZ stones, combining the elegance of gold with the dazzling beauty of cubic zirconia. It customizes designs to accommodate diverse regional preferences, ensuring that the company meets the unique needs of clientele in every market it serve. The company's key strengths lie in its focus on design and innovation, deep understanding of consumer preferences and market dynamics, and the quality of products. It caters to a wide range of customers by offering high-end, medium-range and affordable CZ gold jewellery, all hallmarked by the Bureau of Indian Standards (BIS).

With a team of 15 CAD designers on its payroll, the company develops approximately 400 designs per month on a regular basis to stay ahead of market trends and customer demands. As of date, it has an installed manufacturing capacity of 1,500 kg per annum. The company has long standing relationships with jewellery retailers such as D.P. Abhushan Limited, Kalamandir Jewellers Limited, and numerous other esteemed clients. Its customers are spread across seventeen (17) states and two (2) union territories in India and two (2) countries abroad. As of March 31, 2024, it had 69 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6318000 equity shares of Rs. 10 each to mobilize Rs. 69.50 cr. at the upper cap. It has announced a price band of Rs. 104 - Rs. 110 per share. The issue opens for subscription on July 31, 2024, and will close on August 02, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.53% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 60.50 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Choice Capital Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Choice Group's Choice Equity Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 82.50 in April 2024. The company also issued bonus shares in the ratio of 3 for 1 in March 2024.The average cost of acquisition of shares by the promoters is Rs. 2.50, and Rs.2.91 per share. The company did a private placement of 700000 shares in the month of April 2024 at Rs. 82.50 per share. But from public it is asking for Rs. 110 per share at the upper cap.

Post-IPO, company's current paid-up equity capital of Rs. 17.50 cr. will stand enhanced to Rs. 23.82 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 262.00 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 120.31 cr. / Rs. 1.62 cr. (FY21), Rs. 123.43 cr. / Rs. 3.34 cr. (FY22), Rs. 239.72 cr. / Rs. 7.15 cr. (FY23). For 11M of FY24 ended on January 31, 2024, it earned a net profit of Rs. 10.74 cr. on a total income of Rs. 277.33 cr. 

It is surprising to note that this company is going public with a set of financial results up to January 31, 2024, while most of the other SME IPOs that are around has financial data for full FY24. 

For the last three fiscals, it has reported an average EPS of Rs. 2.95, and an average RoNW of 29.84%. The issue is priced at a P/BV of 8.26 based on its NAV of Rs. 13.32 as of March 31, 2023, and at a P/BV of 2.77 based on its post-IPO NAV of Rs. 39.74 per share (at the upper cap). It is shocking that though the company is going public with a set of FY24 financial results ending with January 31, 2024, it has missed NAV data as of the said date in the offer document.

If we attribute FY24 super annualized earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 20.33, and on the basis of FY23 earnings, the P/E stands at 36.67. 

For the reported periods, the company has posted PAT margins of 1.35% (FY21), 2.71% (FY22), 3.00% (FY23), 3.89% (10M-FY24), and RoCE margins of 9.93%, 13.34%, 21.72%, 20.43% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Ashapuri Gold, Sky Gold, Swarnasarita Jewels, and Uday Jewellery, as their listed peers. They are trading at a P/E of 26.7, 75.2, 12.9 and 33.4 (as of July 26, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Choice Capital in the last two fiscals (including the ongoing one), out of the last 2 listings, all listed with premiums ranging from 31.77% to 66.67% on the date of listing. 

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