Gautam Gems BSE SME lPO Review (Avoid)

Gautam Gems Ltd. (GGL) has been principally incorporated as a Manufacturer & Trader of rough and polished diamonds. Its registered and corporate office is located in Surat, which is the diamond hub of India. Company sells diamonds of multiple category, shape, cut, size and color. The range of diamonds it manufactures and trades in purely depends on the demand and supply of diamonds in the local markets. Primarily, Round Brilliant and All Fancy shape, 0.18 carats upto15.00 carats Size and D to N color with all type of Fancy color diamonds are demanded by customers. GGL maintains stock of various shaped diamonds depending on the customer demand. The company procures diamonds from suppliers based in the domestic market. It deals with only those suppliers who are reputed. Trust, reliability, quality and authenticity of diamonds is the upmost priority in diamond business. Further, the sales of rough and polished diamonds depend on the kind of customer with whom the company is dealing with. Its polished diamonds are majorly purchased by jewellery manufacturers, jewellery wholesalers, jewellery retailers, jewellery traders, diamond wholesalers, diamond retailers and rough diamonds are majorly purchased by rough diamond traders and diamond manufacturers.

To part finance its working capital and general corpus fund needs, GGL is coming out with a maiden IPO of 2100000 equity shares of Rs. 10 each at a fixed price of Rs. 36 per share to mobilize Rs. 7.56 crore. Issue opens for subscription on 24.01.18 and will close on 30.01.18. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by First Overseas Capital Ltd. and Karvy Computershare Pvt. Ltd. is the registrar to the issue. Issue constitutes 38.24% of the post issue paid up capital of the company. Having issued initial equity at par, it raised further equity at a price of Rs. 450 per share in September 2017 and has also issued bonus shares in the ratio of 27 for 1 in November 2017. Average cost of acquisitions of shares by the promoters is Rs. 0.36 and Rs. 15.52 per share. Post issue, company’s current paid up equity capital of Rs. 3.39 crore will stand enhanced to Rs. 5.49 crore.

On performance front, GGL’s turnover and net profits were in the range of Rs. 0.04 crore and Rs. 0.0001 crore from FY14 to FY17. For first eight months ended on 30.11.17 it has reported net profit of Rs. 0.41 crore on a turnover of Rs. 11.54 crore. For last three fiscals, it has posted an average EPS of Rs. 0.38 and an average RoNW of 3.50% on an equity base of Rs. 0.01 crore. Issue is priced at a P/BV of Rs. 2.15 on the basis of its NAV of Rs. 16.73 as on 30.11.17 and at a P/BV of 1.49 on the basis of its post issue NAV of Rs. 24.10. If we annualize latest earnings and attribute it on fully diluted post issue equity then asking price is at a P/E of 32. Thus issue is fully priced and has very little performance track record. Its peers are trading in the range of 11 to 70 P/Es.

On merchant banker’s front, this is the 16th mandate from its stable in last three fiscals. Out of last 10 listings 5 opened at discount, 1 at par and the rest with a premium ranging from 1% to 13%.