Kenrik Ind. BSE SME IPO review (Avoid)

•    The company is engaged in manufacturing and dealing in plain and studded jewelleries.
•    Its major operation is done on job work basis, thus, it depends on third party
•    Though it posted steady growth in its top lines for the reported periods, the sudden boost in bottom lines from FY24 onwards raises eyebrows.
•    It is operating in a highly competitive and fragmented segment.
•    There is no harm in skipping this pricey and “High Risk/Low Return” bet.

PREFACE:
This is the example of price band and the lot size. As per SEBI table the lot is 4000 shares for price band of Rs. 25 – Rs. 35, and lot of 6000 shares for price band of Rs. 18 – Rs. 25. Here considering the important criteria of number of shareholders before migration, if the LM and company could have opted for a lot of 4000, it would have resulted in hire number of allottees, but since they have opted for a lot of 6000 shares, the number of allottees will be reduced to that extent. Its high time for SEBI to rectify this lacuna and revise the table with a higher price for the next slot. In this case, the table should have been starting from Rs. 26 to Rs. 35 and the imbroglio would have been solved to a great extent. Let us hope that the SEBI and Exchanges takes up this matter on ASAP basis.

ABOUT COMPANY:
Kenrik Industries Ltd. (KIL) commenced its business in manufacturing, wholesaling and supplying of plain and studded gold Jewellery and Ornaments. The Company is mainly focused on traditional Indian jewellery. Its products include handmade gold jewellery studded with precious and semi-precious stones such as diamond, ruby, cubic zirconia etc. Its product portfolio includes rings, earrings, armlet, pendants, nose rings, bracelets, chains, necklaces, bangles, watches, luxury items and other wedding jewellery. KIL’s products cater to the customers across high-end, mid-market and value market segments. 

The jewelleries are made as per the specific requirements by the customer and the same are manufactured on job work basis at its manufacturing unit situated in Ahmedabad, Gujarat. Although the Company has several regular suppliers with whom it frequently sources its raw material from, the Company does not have any fixed supplier contracts. The primary reason for not having any long-term supply contracts is the volatility in pricing of the raw material which makes it impossible to have any long-term arrangement. 

The raw material it requires is essentially gold which is a very standardised product and is widely available from a number of suppliers. Availability of raw materials is generally not a big issue in the business. The Company maintains full flexibility in sourcing, ensuring that the Company can take advantage of competitive pricing and better-quality materials from various suppliers in the market.

KIL is currently operating primarily on a B2B business Model and offer its customers a broad variety of jewelleries and ornaments. As it is currently operating under a B2B business Model, it focusses on operations relating to quality control, inventory management and business development. The Company deals only in jewellery certified by BIS Hallmark. The BIS hallmark is a mark of conformity widely accepted by the consumer bestow the additional confidence to the consumer on the purity of gold jewellery. To reach up to the utmost customer satisfaction level, BIL focuses on jewelleries based on the customer preference(s). The company has website as well as mobile application which facilitates in expansion of business. 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 3498000 equity shares of Rs. 10 each at a fixed price of Rs. 25 per share to mobilize Rs. 8.75 cr. The issue opens for subscription on April 29, 2025, and will close on May 06, 2025. The minimum number of shares to be applied is for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.99% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.38 cr. for this IPO process, and from the net proceeds, the company will utilize Rs. 6.56 cr. for working capital, and Rs. 1.80 cr. for general corporate purposes. 

The IPO is solely lead managed by Turnaround Corporate Advisors Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. MnM Stock Broking Pvt. Ltd., is the Market Maker for the company.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 12 per share in August 2021 and September 2021. The average cost of acquisition of shares by the promoters is Rs. 10.00, Rs. 10.75, and Rs. 11.55 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 9.00 cr. will stand enhanced to Rs. 12.50 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 31.24 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 32.69 cr. / Rs. 0.38 cr. (FY22), and Rs. 52.04 cr. / Rs. 0.47 cr. (FY23), and Rs. 70.98 cr. / Rs. 1.09 cr. (FY24). For 7M of FY25 ended on October 31, 2024, it earned a net profit of Rs. 0.78 cr. on a total income of Rs. 42.19 cr. The sudden boost in bottom lines from FY24 onwards raises concern over its sustainability going forward.

For the last three fiscals, the company has reported an average EPS of Rs. 0.86 and an average RoNW of 6.26%. The issue is priced at a P/BV of 1.68 based on its NAV of Rs. 14.85 as of October 31, 2024, and at a P/BV of 1.41 based on its post-IPO NAV of Rs. 17.69 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 23.36. Based on FY24 earnings, the P/E stands at 28.74. The issue relatively appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 1.17% (FY22), 0.91% (FY23), 1.53%, (FY24), 1.85% (7M-FY25), and RoCE margins of 4.61%, 5.39%, 10.85%, 12.51% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. 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 Veerkrupa Jewellers, Motisons Jewellers, and Khazanchi Jewellers, as their listed peers. They are trading at a P/E of 58.7, 41.2, and 50.2 (as of April 25, 2025). However, they are not truly comparable on an apple-to-apple basis. These peers compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 4th mandate from Turnaround Corporate in the last five fiscals.  Out of the last 3 listings, 2 opened at discount and one with a premium of 2% on the date of listing. Thus, it has a poor track record.