Veerkrupa Jewellers BSE SME IPO review (Avoid)

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Review By Dilip Davda on June 22, 2022

•    VJL is engaged in the jewellery business with two showrooms.
•    It posted minuscule profits for the last three fiscals. 
•    Higher IPO expenses indicate a fully structured IPO.
•    Based on FY22-9M super results, the issue is priced exorbitantly.
•    Investors may skip this highly-priced offer. 

ABOUT COMPANY:
Veerkrupa Jewellers Ltd. (VJL) is engaged in the jewellery business. It currently has two showrooms in Ahmedabad. Its jewellery business includes the sale of jewellery made of gold, silver, studded and other jewellery products that include diamond, platinum and other precious and semi-precious stones. 

VJL's product profile includes designer, traditional, modern and combined designs of jewellery at the best prices. The variety of jewellery offered enhances its efficiency and enables the company to attract and retain the ever-growing customer base and relationships. VJL's aim and focus on design and innovation, ability to recognize consumer preferences and market trends, the intricacy of designs and the quality of products are the key strengths. Currently, the company has 13 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 6.68 cr.) and general corporate purposes (Rs. 0.82 cr.), VJL is coming out with a maiden IPO of 3000000 equity shares of Rs. 10 each at a fixed price of Rs. 27 per share to mobilize Rs. 8.10 cr. The issue opens for subscription on June 29, 2022, and will close on July 05, 2022. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 38.15% of the post-issue paid-up capital of the company. VJL is spending Rs. 0.60 cr. for this IPO process. Higher spending indicates funding arrangements are fully structured by the company for its IPO.

The issue is solely lead managed by First Overseas Capital Ltd. and KFin Technologies Ltd. is the registrar to the issue. Beeline Broking Ltd. is the market maker for this IPO. 

After issuing initial equity at par, VJL issued further equity at a fixed price of Rs. 27 and Rs. 215 per share in December 2019.  It has issued bonus shares in the ratio of 7 for 1 in December 2019 and 10 for 16 in February 2022. The average cost of acquisition of shares by the promoters is Rs. 9.26 and Rs. 10.13 per share. 

Post-IPO, VJL's current paid-up equity capital of Rs. 4.86 cr. will stand enhanced to Rs. 7.86 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 21.23 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, VJL has posted turnover/net profits of Rs. 1.65 cr. / Rs. 0.08 cr. (FY19), Rs. 10.95 cr. / Rs. 0.01 cr. (FY20) and Rs. 4.63 cr. / Rs. 0.01 cr. (FY21). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 0.21 cr. on a turnover of Rs.10.03 cr. After reporting minuscule profits for the previous three fiscals, it has posted super-profits for 9M-FY22 which raises eyebrows. It appears that in the pre-IPO period some window dressing is done. 

For the last two fiscals, the company has posted an average EPS of Rs. 0.52 and an average RoNW of 0.58%. The issue is priced at a P/BV of 0.99 based on its NAV of 27.39 as of December 31, 2021 (non-annualized and on a pre-bonus basis) and at a P/BV of 1.31 based on its post-IPO NAV of Rs. 20.62 per share. 

If we annualize FY22-9M results and attribute it to fully diluted post IPO equity capital, then the asking price is at a P/E of 75. Thus the issue is greedily priced at a very high level. 

DIVIDEND POLICY:
The company has not declared any dividend since incorporation. 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, VJL has shown Vaibhav Global, Goldiam Intl, Swarnasarita Jewels, Kalyan Jewellers as its listed peers. They are currently trading at a P/E of 38.81, 23.83, 4.65 and 27.88 (as of June 22, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 9th mandate from First Overseas in the last four fiscals (including the ongoing one). Out of the last 8 listings, 1 opened at discount, 2 at par and the rest with premiums ranging from 1.40% to 120% on the day of listings. 

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