Lloyds Luxuries NSE SME IPO review (Avoid)

•    LLL is in the men's beautification segment which is a highly competitive and fragmented one.
•    The company has posted losses for the reported periods of the offer document.
•    It also has carried forward losses. 
•    Based on its financial parameters, the issue is at a negative P/E.
•    Simply stay away from this loss-making company's IPO. 

ABOUT COMPANY:
Lloyds Luxuries Ltd. (LLL) is one of the organized players of salon services and beauty products in India, focused on grooming men to perfection. It owns the exclusive franchisee of Truefitt & Hill, which is an international brand offering a wide range of beauty products and salon services for men through luxury barbershops operating across many countries. The brand is exclusively owned by Truefitt & Hill (Gentlemen's Grooming) Limited, a company registered under the law of England and Wales and has its office in London, United Kingdom.

LLL began a relationship with Truefitt & Hill in 2013 when it commenced operations of a luxury barber store in Mumbai. It subsequently continued to expand operations and as of March 31, 2022, the company operates 14 barber stores under the brand Truefitt & Hill across 7 cities in India. The Company holds the Master Franchise Agreement of "Truefitt & Hill" up to 2043. Under the franchise agreement, it owns exclusive rights to open stores in the brand name of "Truefitt & Hill" either directly or through sub-franchisee arrangements in India, Nepal, Sri Lanka, Bhutan, Vietnam, Myanmar, and Bangladesh. 

As of March 31, 2022, it has assigned the sub-franchisee of Truefitt & Hill to 12 barber stores operating in 11 cities of India, through which it earns royalty and franchisee income. In 2017, LLL was successful in expanding its reach internationally through the opening of its first barber store in Dhaka, Bangladesh as a sub-franchisee store. It provides sub-franchise with a comprehensive system of business training, stylist education, professional marketing, promotion, and advertising programs, and other forms of ongoing support designed to help franchisees build successful businesses.

In addition, LLL obtained an exclusive franchise for MARY COHR in 2019 for 10 years, a French Beauty Salon which has a presence across the Globe. Under the exclusive master franchise agreement, LLL owns exclusive rights to open stores in the brand name of "MARY COHR" either directly or through sub franchisee arrangements in India. Currently, it is operating a MARY COHR store in Santacruz, Mumbai.

As of March 31, 2022, LLL sells men grooming products through 27 stores, of which 14 are run by it directly and 13 through sub-franchisee. As of June 30, 2022, the Company has employed 216 permanent full-time employees other than the managerial personnel.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for opening new stores (Rs. 5.44 cr.), repayment of short-term borrowings (Rs. 9.02 cr.), working capital (Rs. 4.50 cr.), and general corporate purposes (Rs. 3.18 cr.), LLL is coming out with a maiden IPO of 6000000 equity shares of Rs. 10 each at a fixed price of Rs. 40.00 per share to mobilize Rs. 24.00 cr. The issue opens for subscription on September 28, 2022, and will close on September 30, 2022. The minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.67% of the post-issue paid-up capital of the company. LLL is spending Rs. 1.86 cr. for this IPO process. 

The issue is solely lead managed by Hem Securities Ltd and Bigshare Services Pvt. Ltd. is the registrar to the issue. HEM group's Hem Finlease Pvt. Ltd. is the market maker for this IPO.

Having issued initial equity shares at par, the company issued/converted shares at Rs. 40 per share (on the basis of Rs. 10 FV) in March 2022. The average cost of acquisition of shares by the promoters is Rs. 10.00 and Rs. 36.67 per share. 

Post-IPO, LLL's current paid-up equity capital of Rs. 16.50 cr. will stand enhanced to Rs. 22.50 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 90.00 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, LLL has posted a turnover/net profit - (loss) of Rs. 28.02 cr. / Rs. - (3.24) cr. (FY20), Rs. 18.56 cr. / Rs. - (3.03) cr. (FY21), and Rs. 20.86 cr. / Rs. - (9.17) cr. (FY22). Thus the company has been incurring losses for all these years. 

For the last three fiscals, LLL has reported an average negative EPS of Rs. - (25.52) and an average negative RoNW of - (67.86) %. The issue is priced at a P/BV of 4.88 based on its NAV of Rs. 8.19 as of March 31, 2022, and at a P/BV of 2.40 based on its post-IPO NAV of Rs. 16.67 per share. 

As the company has posted losses for the reported periods of the offer document, it is being issued at a negative P/E. 

DIVIDEND POLICY:
The company has not declared/paid any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, LLL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 15th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 1.47% to 104.87% on the day of listing.