Eighty Jewellers BSE SME IPO review (Avoid)

•    EJL is primarily engaged as a master franchisee of a group company. 
•    It has posted inconsistency in its financial performance. 
•    The segment is highly competitive and fragmented. 
•    There is no harm in skipping this aggressively priced issue. 

ABOUT COMPANY: 
Eighty Jewellers Ltd. (EJL) is a part of the Anopchand Tilokchand group which is a well-known name and established brand in the Jewellery sector for many decades in and around Chhattisgarh. It is currently engaged as a master franchisee of Anopchand Tilokchand Jewellers Private Limited ("ATJPL") and involved in the trading of various jewellery, ornaments, watches and luxury articles made out of gold, silver, diamonds and platinum studded with precious and semi-precious stones under the B2B model in the name "Anopchand Tilokchand Jewellers". 

EJL's product portfolio includes rings, earrings, armlets, pendants, gajrahs, nose rings, bracelets, chains, necklaces, bangles, watches, luxury items and other wedding jewellery. It has entered into a master franchise agreement dated November 30, 2021, with Anopchand Tilokchand Jewellers Private Limited wherein EJL has been given rights to open stores in the Brand name of Anopchand Tilokchand Jewellers either directly or through sub-franchise arrangements. Currently, it sells all jewellery and related products to (i) a sub-franchisee store at Korba, Chhattisgarh and (ii) a retail store at Bilaspur, Chhattisgarh. 

EJL is currently operating on a B2B business Model and offer customers a broad variety of jewellery, ornaments, watches and luxury articles made out of gold, silver, diamonds and platinum studded with precious and semi-precious stones in order to cater to both regional and modern tastes. It also deals in diamond and silver jewellery and ornaments. 

ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its needs for working capital (Rs. 9.00 cr.), general corporate purpose (Rs. 0.85 cr.), EJL is coming out with a maiden IPO of 2700000 equity shares of Rs. 10 each at a fixed price of Rs. 41 per share to mobilize Rs.11.07 cr. The issue opens for subscription on March 31, 2022, and will close on April 05, 2022. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post issue paid-up equity capital of the company. EJL is spending Rs. 1.22 cr. for this IPO process. 

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par, it issued further equity shares at Rs. 30 per share between March 2014 to September 2014 and has also issued bonus shares in the ratio of 8 for 1 in September 2021. The average cost of acquisition of shares by the promoters is Rs. 3.30, Rs. 3.31 and Rs. 3.33 per share. 

Post-IPO EJL's current paid-up equity capital of Rs. 7.50 cr. will stand enhanced to Rs. 10.20 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 41.82 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, EJL has posted turnover/net profits of Rs. 81.925 cr. / Rs. 1.00 cr. (FY19), Rs. 64.91 cr. / Rs. 1.55 cr. (FY20) and Rs. 78.69 cr. / Rs. 3.77 cr. (FY21). For the first half of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 0.83 cr. on a turnover of Rs. 44.36 cr. Thus it has posted inconsistency in its top and bottom lines for the reported financial periods. 

For the last three fiscals, the company posted an average EPS of Rs. 3.43 and an average RoNW of 33.88%. The issue is priced at a P/BV of 3.04 based on its NAV of Rs. 13.49 and at a P/BV of 1.97 based on post-IPO NAV of Rs. 20.77.

If we annualize FY22 earnings and attribute it on post IPO fully diluted equity capital, then the asking price is at a P/E of 25.15 making it an aggressively priced offer. 

COMPARISON WITH LISTED PEERS: 
As per the offer document, EJL has shown Patdiam Jewellery, Radhika Jeweltech, DP Abhushan, PC Jewellers and Kalyan Jewellers as its listed peers. They are currently trading at a P/E of 11.78, 9.14, 22.45, 00 and 29.19 (as of March 25, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared any dividend for the last five fiscals. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
The merchant banker Hem Securities has handled 14 public issues in the last three fiscals, out of which 2 issues closed below the offer price on the day of listings.