Manoj Vaibhav Gems ‘N’ Jewellers, operating primarily as Vaibhav Jewellers, is raising ₹270.2 crore, consisting of ₹210 crore in fresh issue and ₹60.2 crore in Offer for Sale (OFS) by the promoter. Post the issue, the promoter’s stake will stand at 74.3 per cent.

The company intends to deploy the funds raised predominantly for expanding into eight new locations, all in Andhra/Telangana.

At the price band of ₹204 to ₹215, the company is valued at a price-to-earnings (PE) ratio of 14.7 times its FY23 earnings. Although the valuation appears cheap, the company’s presence, predominantly in Andhra alone poses geographic risk. Also, the considerable dependence on one store for a major chunk of revenue is another concern.. Besides, the margins, which have seen an increase in the last two years, need to be monitored for sustainability.

So, we suggest a wait and watch approach for Manoj Vaibhav Gems ‘N’ Jewellers IPO.

Focus on AP & Telangana

Manoj Vaibhav Gems ‘N’ Jewellers primarily operates as a hyperlocal jeweller, with 13 outlets — 11 in Andhra Pradesh and 2 in Telangana. Of these, three-fourths are situated in Tier 2 and 3 cities, aligning with the fact that 58 per cent of India’s total jewellery demand comes from rural areas. Notably, the company boasts an average store size of 7,400 sq. ft, one of the largest among its competitors. For comparison, GRT Jewellers leads with 8,500 sq. ft., while stores of Titan Company measure 4,200 sq. ft.

The company derives nearly 90 per cent of its total revenue from gold jewellery sales, with diamond and silver segments contributing 4 per cent each. Manoj Vaibhav Gems ‘N’ Jewellers focuses on unique jewellery designs and employs a Go To Market (GTM) strategy to adapt to changing consumer preferences effectively. Through GTM model, the company strives to build long-lasting relationship with customers to ensure repeat business. This model, according to the company, also involves studying varied characteristics of the market they operate in and then reach out to the right customer base.

In FY23, the jewellery markets of Andhra Pradesh and Telangana reached $3.3 billion and $2.8 billion, respectively. The combined market size of $6.1 billion in FY23 is projected to grow to $10.2 billion by FY27. The company currently holds approximately 4 per cent of this total market and 10 per cent of the organised segment.

Apart from the growth potential in these two States, other factors contributing to increased sales include demographics, India’s cultural affinity for gold, and gold’s unique status as both a consumer product and an investment vehicle. Furthermore, regulatory developments such as Hallmark Unique Identification (HUID) and the implementation of GST have favoured organised players, with their market share expected to rise from 37 per cent in FY23 to 42 per cent in FY27 in India.

Financials

In FY23, the company recorded revenues of ₹2,027 crore, representing a nearly 19 per cent compounded annual growth rate (CAGR) from FY21 to FY23. Margins have also improved, with the EBITDA margin growing from 4.9 per cent in FY21 to 7.1 per cent in FY23. In the first quarter of FY24, the company achieved a margin of 7.3 per cent.

It reported a profit after tax of ₹71.6 crore in FY23, translating to an 86 per cent CAGR over the last three fiscal years. The net profit margin increased from 1.5 per cent in FY21 to 3.5 per cent in FY23. It further expanded to 3.8 per cent in Q1FY24.

Return on Equity and Return on Capital Employed stood at a healthy 23.2 per cent and 17.7 per cent, respectively. However, the inventory turnover ratio remains relatively low at 1.9, compared to competitors.

Risks

A significant risk factor for Manoj Vaibhav Gems ‘N’ Jewellers is that 62 per cent of its revenue comes from its flagship store, V Square, in Visakhapatnam. Additionally, the heavy reliance on gold jewellery, which contributes around 90 per cent of revenue, exposes the company to concentration risk.

The jewellery industry is extremely competitive with thin profit margins, and price fluctuations, particularly in gold prices, can impact profitability significantly. Moreover, the business requires substantial working capital due to the high-value nature of gold as its raw material.

Presently, 11 out of the company’s 13 stores are located in Andhra Pradesh, particularly in the northern part of the State.

Given its small size and concentration in Andhra Pradesh, geographic risk is a significant concern, along with other industry-related risks.

Hence, from a long-term investment perspective, we recommend adopting a cautious “wait and watch” approach despite relatively cheaper valuation being asked in the IPO. It is crucial to closely monitor the company’s expansion efforts and revenue growth. If Manoj Vaibhav Gems ‘N’ Jewellers can efficiently expand, a reassessment in the future may be warranted.

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