Divine Hira NSE SME IPO review (Avoid)

•    The company is engaged in the marketing of 22 Karat gold jewellery with third party job works.
•    It marked inconsistency in its top lines for the reported periods, but the sudden boost in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability.
•    The company is operating in a highly competitive and fragmented segment.
•    Based on its recent financial performance, the issue appears aggressively priced.
•    There is no harm in skipping this pricey and” High Risk/Low Return” bet.

ABOUT COMPANY:
Divine Hira Jewellers Ltd. (DHJL) is engaged in the business of designing and marketing of gold jewelleries. It mainly deals in 22 Karat gold jewellery, offering a wide variety of designs to suit preferences of the end customer. It has the ability to create localised product design mixes to suit various regional tastes. The company caters to customers’ unique preferences, through understanding of the local and regional market. It provides an extensive range of designs. DHJL is engaged in wholesale of gold jewellery, silver articles, bullions and coins at Mumbai, Maharashtra. 

Recently it has also curating and offering exquisite antique gold jewellery that transcends time, bringing the charm of historical artistry into the modern era. Currently, it caters to a large number of wholesalers, showrooms and retailers who buy its products in bulk quantities. It procures the required gold from bullion dealers and importers. Recently it is in the process to start importing gold directly. It does not have own manufacturing facility and outsource the work of making jewellery and ornaments to various artisans with whom it has developed relationships. The company offers a large variety of handcrafted jewellery, which are designed by in-house designers in close collaboration with skilled local craftsman located across the country. Due to diversity of clients and the varied regions each of its clients cater to, it has developed an ability to design jewellery products as per latest trends, fashion and demographic preference of the end customers. It offers a wide range of products from gold jewellery for special occasions such as weddings and festivals to daily wear jewellery for all ages, genders and across various price points. 

The company caters to a variety of customers across mid-market and value market segments and products are designed by in-house team of creative designers and also certain freelance designers, allowing it to manage a large and diverse portfolio of designs. It primarily sells gold jewellery and product range includes machine made, handmade & plain gold jewellery like necklace, mangalsutra, chains, malas, rings, pendants, bracelets, bangles, kada, coins and other wedding jewelleries. The designing and job work of products is done either in house or by third parties on job work basis. Its primary focus has been on purity and commitment. As of October 31, 2024, it had just 9 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3537600 equity shares of Rs. 10 each at a fixed price of Rs. 90 per share to mobilize Rs. 31.84 cr. The issue opens for subscription on March 17, 2025, and will close on March 19, 2025. The minimum number of shares to be applied is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.11% of the post-IPO paid-up capital of the company. The company is spending Rs. 3.65 cr. for this IPO process, and from the net proceeds, the company will utilize Rs. 19.00 cr. for working capital, Rs. 3.00 cr. for repayment/prepayment of certain loans, and Rs. 6.19 cr. for general corporate purposes. 

The IPO is solely lead managed by Horizon Management Pvt. Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker for the company. The issue is underwritten up to 15.06% by Horizon Management and 84.94% by Giriraj Stock Broking.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 40 per share in November 2022, and January 2023. It has also issued bonus shares in the ratio of 14 for 5 in January 2023, and 3 for 10 in June 2024. The average cost of acquisition of shares by the promoters is Rs. 7.79, Rs. 7.86, Rs. 7.99, and Rs. 8.10 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 9.51 cr. will stand enhanced to Rs. 13.05 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 117.42 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 142.40 cr. / Rs. 0.28 cr. (FY22), Rs. 246.45 cr. / Rs. 0.91 cr. (FY23- two half yearly periods), and Rs. 183.41 cr. / Rs. 1.48 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 2.50 cr. on a total income of Rs. 136.03 cr. The quantum jump in bottom lines from of FY23 not only raises eyebrows, but concern over its sustainability going forward. 

For the last three fiscals, the company has reported an average EPS of Rs. 1.26 and an average RoNW of 15.11%. The issue is priced at a P/BV of 6.96 based on its NAV of Rs. 12.93 as of September 30, 2024, and at a P/BV of 2.66 based on its post-IPO NAV of Rs. 33.83 per share. 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 23.50. Based on FY24 earnings, the P/E stands at 78.95. The issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of 0.20% (FY22), 0.12% (H1- FY23), 0.62% (H2 – FY23), 0.81%, (FY24), 1.84% (H1-FY25), and RoCE margins of 8.18%, 4.29%, 8.34%, 13.54%, 15313% for the referred periods, respectively. 

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Sky Gold, as its listed peer. It is trading at a P/E of 47.4 (as of March 12, 2025). However, they are not truly comparable on an apple-to-apple basis. Peer compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 15th mandate from Horizon Management in the last two fiscals.  From the last 13 listings so far, 3 listed at discount, 3 at par and the rest listed with a premium ranging from 8.47% to 141.23% on the listing date.