IPO: Manoj Vaibhav Gems 'N' Jewellers

Manoj Vaibhav Gems 'N' Jewellers, a leading regional jewellery brand in South India, has come out with its IPO (initial public offering). Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

• Quality : The three-year average ROE and ROCE of Manoj Vaibhav Gems are 16.7 and 14 per cent, respectively. For FY23, the company's ROE and ROCE were 23.2 and 17.7 per cent, respectively.
  
• Growth : Its topline and PAT has grown at 19 and 86 per cent per annum, respectively between FY21-23.
  
• Valuation : The stock will be priced at a P/E and P/B of 14.7 and 1.8 times, respectively, as compared to its peer's median and average of 28.1 and 8.1 times, respectively.
  
• Overview : The company is poised to benefit from the overall shift from unorganised to organised segment in the jewellery market. Other than that, government reforms for the rural sector, especially agriculture, are going to benefit it as it has a strong rural market focus.

About Manoj Vaibhav Gems

Manoj Vaibhav Gems (commonly known as Vaibhav Jewellers) is a leading regional jewellery brand in South India. It is a hyperlocal jewellery retail chain present in in the micro markets of Andhra Pradesh and Telangana with 13 showrooms (inclusive of two franchisee showrooms) across eight towns and two cities. According to the Technopak Report for FY2023, Manoj Vaibhav Gems holds approximately 4 per cent of the total jewellery market in Andhra Pradesh and Telangana, and 10 per cent share in the organised sector within these states.

Strengths of Manoj Vaibhav Gems

• Leading jewellery player in Andhra Pradesh and Telangana: As mentioned above, Manoj Vaibhav Gems has a market share of about 4 per cent of the overall Andhra Pradesh and Telangana jewellery market, and around 10 per cent of the organised market in these two states in FY23, as per the Technopak Report.

Weaknesses of Manoj Vaibhav Gems

• High revenue concentration from a single store, which accounts for 62 per cent of the total revenue for the company.
  
• Lower regional diversification: Its current and proposed showrooms are spread across states of Andhra Pradesh and Telangana only. The company's concentration of sales in these two states increases its exposure to adverse developments related to competition, economic downturn, demographic changes and any force majeure event in these states.

Risk report

Company and business

• Are earnings before tax of Manoj Vaibhav Gems more than Rs 50 crore in the last 12 months?
  Yes. The company's profit before tax for FY23 was Rs 96 crore.
• Will Manoj Vaibhav Gems be able to scale up its business?
  Yes. According to a report by Technopak, Andhra Pradesh and Telangana jewellery market is expected to grow at 18 per cent per annum till FY27. Being a leading player in the organised market, it is poised to benefit from this trend.
• Does Manoj Vaibhav Gems have recognisable brands with client stickiness?
  Yes. The company's market share of 10 per cent in the organised segment indicates that it has a recognisable brand.
• Does the company have a credible moat?
  No. It is present in a highly competitive market with many much larger players.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Post-IPO, promoters' stake will be 74.3 per cent.
• Do the top three managers have more than 15 years of combined leadership at Manoj Vaibhav Gems?
  Yes. Chairperson and Managing Director Bharata Mallika Ratna Kumari Grandhi has been with the company since its incorporation in 2003.
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. No information to suggest otherwise.
• Is the company's accounting policy stable?
  Yes. No information to suggest otherwise.
• Is Manoj Vaibhav Gems free of promoter pledging of its shares?
  Yes. No shares have been pledged.

Financials

• Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
  No. The company's three-year average ROE and ROCE are 16.7 and 14 per cent, respectively. In FY23, the company's ROE and ROCE were 23.2 and 17.7 per cent, respectively.
• Was the company's operating cash flow positive during the last three years?
  No. The company reported negative cash flows from operation in FY21.
• Is the company's net debt-to-equity ratio less than one?
  No. The company's net debt-to-equity ratio stood at 1.29 times as of June 2023.
• Is Manoj Vaibhav Gems free from reliance on huge working capital for day-to-day affairs?
  No. The company's business affairs are working capital intensive. They rely on short-term loans to fund these requirements. Inventory constitutes around 85 per cent of the total assets.
• Can the company run its business without relying on external funding in the next three years?
  Yes. Although the company's net debt-to-equity is slightly greater than one, the company should not require external funding in the near future because of capital raised through IPO.
• Is Manoj Vaibhav Gems free from meaningful contingent liabilities?
  Yes. Contingent liabilities as a percentage of equity stood at around 2 per cent.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  Yes. The stock will offer a 9 per cent operating earnings yield on its enterprise value.
• Is the stock's price-to-earnings less than its peers' median level?
  Yes. The company will trade at a price-to-earnings ratio of 14.7 times compared to peers' median level of 28.1 times.
• Is the stock's price-to-book value less than its peers' average level?
  Yes. The company will trade at a price-to-book ratio of 1.8 times compared to peers' average of 8.1 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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