International Gemmological (IGI) IPO review (Apply)

•    IGI is one of the established reputed certifiers in the global market.
•    It holds 50% market share in India in terms of number of certifications of diamonds, studded Jewellery and colored stones. 
•    India is the largest player in diamond related business with over 95% market share.
•    IGI has posted steady growth in its top and bottom lines for the reported periods. 
•    Based on CY24 annualized earnings, it appears fully priced. It is a dividend paying entity.
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
International Gemmological Institute (India) Ltd. (IGIIL) according to the RedSeer Report (see page 144 of "Industry Overview"), IGI India was the first to provide certification and accreditation services among global peers in 1999 and was the first international laboratory for diamonds, studded Jewellery and colored stones certification to be established. It has built customer relationships over the years, by focusing on service quality and full-service offering across all types of diamonds, studded Jewellery and colored stones certification and accreditation. Throughout this journey, it has aimed to provide services with quality, accuracy, and integrity. The Pre-Acquisition Group has a diversified customer base spanning across the value chain of the diamonds, studded Jewellery and colored stones industry. According to the RedSeer Report (see page 144 of "Industry Overview"), as the largest certification services provider for laboratory-grown diamonds in India, IGI India serves more than 5 Indian growers of laboratory-grown diamonds with over Rs. 100 cr. of revenue for FY2023. As per the RedSeer Report (see page 144 of "Industry Overview"), IGI India also served 9 out of the top 10 Jewellery chains in India by revenue for FY2024.

Over the years, it has further strengthened relationships with customers and stakeholders through various initiatives such as introducing co-branded reports, in-factory laboratory set-ups, mobile laboratory set-ups, and continually expanding suite of certification and accreditation services. The Company launched in-factory laboratory set-ups for laboratory-grown diamond growers in India to deliver on-site certification services to customers to provide a more convenient option to fulfil their certification needs.

According to the RedSeer Report (see page 128 of "Industry Overview"), in India, which is the world's largest center for cutting and polishing diamonds accounting for approximately 95% of the world's total polished diamonds in volume terms in CY2023, IGI India is the largest independent certification and accreditation services provider in India, holding approximately 50% market share in terms of number of certifications of diamonds, studded Jewellery and colored stones for CY2023. According to the RedSeer Report (see page 144 of "Industry Overview"), as of September 30, 2024, IGI India has the largest Pan-India laboratory network among its global peers for grading lab-grown diamonds. As of September 30, 2024, the Pre-Acquisition Group has 19 IGI laboratories in India and 1 IGI laboratory in Türkiye which perform certification services.

The Pre-Acquisition Group's primary business is the provision of services related to the certification and accreditation of natural diamonds, laboratory-grown diamonds, studded Jewellery and colored stones as well as the offering of educational programs. The Pre-Acquisition Group is part of the International Gemmological Institute ("IGI") group, and is responsible for the operation of the business under the "IGI" brand exclusively in India and Türkiye. IGI is one of the established reputed certifiers in the global market, according to the RedSeer Report (see page 143 of "Industry Overview").

The key services/offerings of the Pre-Acquisition Group are:
• Comprehensive diamond grading, including issuing reports assessing the 4Cs (cut, color, clarity, and carat weight) of natural and laboratory-grown diamonds, along with additional information such as fluorescence and symmetry. It also provides screening and sorting services, if required by customers.

• Evaluating the quality and authenticity of colored stones, including rubies, sapphires, emeralds, and other precious and semi-precious stones, and issuing grading reports detailing their characteristics.

• Grading and assessment of finished Jewellery pieces, including assessing the quality of diamonds, colored stones, craftsmanship, such as mounting and symmetry, and overall value.

• Conducting educational programs and courses in gemology, diamond grading, Jewellery design, and related subjects for professionals and enthusiasts in the diamonds, studded Jewellery and colored stones industry. Its certification and accreditation business benefits from a foundation in education offered through its gemology education institution, the IGI Schools of Gemology, where it leverages educating the industry on the importance of diamonds, studded Jewellery and colored stones certifications and the terminology used in the industry as a precursor to demand for certification business. As of September 30, 2024, the Pre-Acquisition Group had 843 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO worth Rs. 4225.00 cr. (approx. 101318945 shares at the upper cap). The issue consists of fresh equity shares worth Rs. 1475.00 cr. (approx. 35371703 shares at the upper cap), and an Offer for Sale (OFS) worth Rs. 2750.00 cr. (approx. 65947242 shares at the upper cap). The company has announced a price band of Rs. 397 - Rs. 417 per equity shares of Rs. 2 each. The issue opens for subscription on December 13, 2024, and will close on December 17, 2024. The minimum application to be made is for 35 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 23.45% of the post-IPO paid-up equity capital. From the net proceeds of the IPO, the company will utilize Rs. 1300.00 cr. for acquisition of the IGI Belgium Group and IGI Netherlands Group from promoter, and the rest for general corporate purposes. 

The company has reserved shares worth Rs. 2.00 cr. for its eligible employees and offering them a discount of Rs. 39 per share. From the rest, it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., Kotak Mahindra Capital Co. Ltd., Morgan Stanley India Co. Pvt. Ltd., and SBI Capital Markets Ltd., while KFin Technologies Ltd., is the registrar to the issue. Kotak Securities Ltd., SBICAP Securities Ltd. and Investec Capital Services (India) Pvt. Ltd., are the syndicate members.

The company has issued entire equity shares at par so far, and has issued bonus shares in the ratio of 200 for 1 in June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 81.36 per share. 

Post-IPO, its current paid-up equity capital of Rs. 79.36 cr. will stand enhanced to Rs. 86.43 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 18020.85 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 374.29 cr. / Rs. 171.53 cr. (CY21), Rs. 499.33 cr. / Rs. 241.76 cr. (CY22), and Rs. 648.66 cr. / Rs. 324.74 cr. (CY23). For 9M of CY24 ended on September 2024, it earned a net profit of Rs. 326.06 cr. on a total income of Rs. 619.49 cr. 

For the last three fiscals, the company has posted an average EPS of Rs. 6.84 (basic) and an average RoNW of 78.40 %. The issue is priced at a P/BV of 25.71 based on its NAV of Rs. 16.22 as of September 30, 2024, and at a P/BV of 8.51 based on its post-IPO NAV of Rs. 49.02 (at the upper cap). 

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 82.90, and based on FY24 earnings, the P/E stands at 110.90. Thus the issue appears fully priced. 

The company has posted PAT margins of 47.03% (CY21), 49.24% (CY22), 50.86% (CY23), 54.68% (9M-CY24), however, and RoCE margins of 86.79%, 87.09%, 80.96%, 62.19% respectively for referred periods. 

DIVIDEND POLICY:
The company has paid a dividend of 37500% (CY21), 37000% (CY22), 35390.06% (CY23), and 293.13% (9M-CY24). It has already adopted a dividend policy in August 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with the offer have handled 80 pubic issues in the past three fiscals, out of which 23 issues closed below the offer price on the listing date.