Koura Fine BSE SME IPO review (Avoid)

•    The company is engaged into wholesale business of gold and diamond jewelleries.
•    It does B2B model business on third party contract basis.
•    It has posted just 18 months working as a public limited entity.
•    Based on FY24 annualized earnings, the issue is exorbitantly priced. 
•    Tiny equity capital indicates longer duration for migration.
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Koura Fine Diamond Jewelery Ltd. (KFDJL) is engaged into the wholesale business of gold and diamonds jewelleries. The Company sales wide range of jewellery products, including gold jewellery and diamond jewellery. Its business model is B2B. KFDIL deals in two types of jewellery; one is in 22 Karat Gold jewellery and another one is in 18 Karat Diamond jewellery. 

Since the system of hallmarking is legally introduced, the company deals only in jewellery certified by Hallmark; for gold jewellery it gets it certified from the Bureau of Indian Standards (BIS) and 91.6% certifications for 22 Karat and International Gemological Institute, India, and (BIS) 75% certifications for 18 Karat diamond jewellery it gets certified from. Further, in 2018 our Company ventured into 750 certified and BIS-hallmarked diamond jewellery. 

It offers a diverse range of jewellery products and is dedicated to designing, manufacturing, and selling high-quality jewellery that includes necklaces, chains, rings and earrings. The company sources finished jewellery from third-party artisans located across India. Additionally, it also supplies raw material i.e. gold bullion / bars to artisans for making of jewellery on a job-work basis in Ahmedabad, Mumbai, Rajkot, and Surat. Its constant endeavor is to maintain the highest standard and quality of gold, diamonds used in its jewel pieces. As of December 31, 2023, it had 8 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1000000 equity shares of Rs. 10 each at a fixed price of Rs. 55 per share to mobilize Rs. 5.50 cr. The issue opens for subscription on March 06, 2024, and will close on March 11, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.77% of the post-IPO paid-up capital of the company. KFDJL is spending Rs. 0.50 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 4.50 cr. for working capital, and Rs. 0.50 cr. for general corporate purposes.

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd., and KFin Technologies Ltd. is the registrar of the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par, the company issued further equity shares at a fixed price of Rs. 55 per share in March 2023, and has also issued bonus shares in the ratio of 9 for 2 in April 2023. The average cost of acquisition of shares by the promoters is Rs. 9.88 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.60 cr. will stand enhanced to Rs. 3.60 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 19.81 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, the company has posted a total revenue/net profit of Rs. 5.56 cr. / Rs. 0.13 cr. (FY23). For H1 of FY24, it earned a net profit of Rs. 0.17 cr. on a total revenue of Rs. 6.02 cr. 

For the last fiscal, it has reported an EPS of Rs. 0.65, and an average RONW of 6.74%. The issue is priced at a P/BV of 5.00 based on its NAV of Rs. 11.00 as of September 30, 2023, and at a P/BV of 5.01 based on its post-IPO NAV of Rs. 10.99 per share.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 57.90. Thus the IPO appears exorbitantly priced.

For the reported periods, the company has posted PAT margins of 2.83% (FY23), 2.41% (H1-FY24), and RoCE margins of 7.64%, 6.63% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Ashapuri Gold, Vaibhav Global, and Tribhovandas Bhimji, as their listed peers. They are trading at a P/E of 75.2, 54.8, and 15.3 (as of March 02, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 22nd mandate from GYR Capital in the last three fiscals, out of the last 10 listings, all opened at premiums ranging with 4.76% to 366.67% on the listing date. Annexure A in prospectus has some mismatch in mandate data.