Kabra Jewels NSE SME IPO review (Apply)

•    The company primarily operating in retail jewellery segment with a diverse range of gold/diamond/silver ornaments offerings.
•    It posted steady growth in its top lines for the reported periods. Setback in bottom line for FY23 is attributed to highly volatile gold prices.
•    Based on its recent financial performance, the issue appears reasonably priced. 
•    The management is confident of maintaining the trends going forward with strategic marketing plans. 
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
Kabra Jewels Ltd. (KJL) operates in the retail jewellery sector, offering a diverse range of gold, diamond, and silver ornaments and its other offerings include gold and silver coins, utensils and other artefacts. The Company understands customer preferences and creates designs to meet their needs. Its primary expertise is in designing and it markets exclusive creations under the brand name “KK Jewels”. It has a diverse product portfolio which includes rings, earrings, pendants, bracelets, chains, necklaces, bangles and other wedding jewellery through which the company caters a large number of customers. As on the date of this RHP, it had 6 showrooms under the brand KK Jewels Bridal, KK Jewels Diamond, KK Jewels Silver, KK Jewels Gold, KK Jewels - Atarashi and KK Jewels - Silver Studio, 3 offices and 1 exhibition centre located in the city of Ahmedabad. All of these showrooms are operated and managed by it, and has been taken on rental basis. The gold, diamond and other jewellery inventory in each showroom match customer preferences and designs. KJL’s main strengths are focus on design and innovation, understanding of consumer preferences and market trends, the detail in designs, and the quality of products.

The Company sells its diamond and gold jewellery in the brand name of “KK Jewels” and sells loose solitaire in the brand name of “Only Solitaires”. It designs, gets it manufactured and sell a wide range of gold, studded and other jewellery products across various price points ranging from jewellery for special occasions, such as weddings, which is its highest-selling product category, to daily-wear jewellery. The company engages local artisans to manufacture jewellery (based on its specifications and designs). It works with local artisans to make jewellery based on designs that match local tastes in the markets it serves. This helps it create a product mix and store experience in each showroom. KJL outsources the work of making ornaments to various artisans with whom it has developed relationships. The company offers a large variety of handcrafted jewellery, which are designed by its in-house designers and manufactured in close collaboration with skilled local craftsman. It has a dedicated design team which is focused on developing new products and designs that meet customers’ requirements. It also customizes jewellery for individual needs. As of November 30, 2024, it had 121 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3125000 equity shares of Rs. 10 each to mobilize Rs. 40.00 cr. at the upper cap. It has announced a price band of Rs. 121 – Rs. 128 per share. The issue opens for subscription on January 15, 2025, and will close on January 17, 2025. The minimum number of shares to be applied is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.80% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 10.00 cr. for repayment of certain borrowings, Rs. 22.00 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Marwadi Chandarana Intermediaries Brokers Pvt. Ltd., and Cameo Corporate Services Ltd., is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker for the company. Marwadi Chandarana is also the syndicate member.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 50 per share in September 2011. It has also issued bonus shares in the ratio of 15 for 1 in August 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 2.83 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 7.36 cr. will stand enhanced to Rs. 10.49 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 134.21 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 112.13 cr. / Rs. 5.40 cr. (FY22), Rs. 122.34 cr. / Rs. 4.41 cr. (FY23), and Rs. 164.24 cr. / Rs. 9.40 cr. (FY24). For 8M of FY25 ended on November 30, 2024, it earned a net profit of Rs. 8.81 cr. on a total income of Rs. 125.49 cr. Declined in bottom lines for FY23 is attributed to highly volatile gold prices that dragged their margins a bit. 

For the last three fiscals, the company has reported an average EPS of Rs. 51.09 and an average RoNW of 27.13%. The issue is priced at a P/BV of 2.36 based on its NAV of Rs. 54.17 as of November 30, 2024, and at a P/BV of 1.68 based on its post-IPO NAV of Rs. 76.17 per share (at the upper cap). (Perhaps the company erred in average EPS data for the last three fiscals on page 89 of the offer document as Rs. 51.09 average EPS seems to be on the basis of pre-bonus). 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 10.16. Based on FY24 earnings, the P/E stands at 14.29. The issue relatively appears reasonably priced. 

For the reported periods, the company has posted PAT margins of 4.82% (FY22), 3.60% (FY23), 5.73% (FY24), 7.03% (8M-FY25), and RoCE margins of 18.26%, 13.62%, 18.23%, 14.14%, respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the periods reported in the offer documents. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Motisons Jewellers, DP Abhushan, and RBZ Jewellers, as their listed peer. They are trading at a P/E of 68.6, 40.1, and 31.5 (as of January 10, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 2nd mandate from Marwadi Chandarana in the ongoing fiscal.  The only listing took place so far opened at a premium of 90% on listing date.