PNGS Gargi BSE SME IPO review (May apply)

•    PNGSG is engaged in the business of costume and fashion jewellery.
•    The segment is highly competitive and fragmented.
•    The issue is priced attractively based on its last 18 months' earnings. 
•    The sustainability of such margins going forward raises concern. 
•    Well-informed/cash surplus-risk seekers may consider the investment.

ABOUT COMPANY:
PNGS Gargi Fashion Jewellery Ltd. (PNGSG) is engaged in the retail business of costume and fashion jewellery under the brand name "Gargi by P. N. Gadgil & Sons" launched in 2021 under the artificial jewellery segment. It deals in 92.5% certified sterling silver jewellery and brass jewellery, idols and other silverware and related gift items. The company offers a wide range of products from artificial jewellery segments for special occasions such as weddings and festivals to daily-wear jewellery for all ages, genders and across various price points.

Artificial jewellery is not only affordable, but it is also trendy too, giving the liberty to experiment with changing fashions and flaunt the latest styles. It also, at the same time, allows one to hold a collection which is classy and sophisticated. Another retail trend that has caught on recently is to buy everything, including jewellery, online to match outfits - something that is possible while buying artificial jewellery for the price points that it comes at, as against gold and precious stones like diamonds. 

In keeping with market-changing dynamics in the accessories space, PNGSG decided to enter into this new segment, offering a wide range of fashion jewellery that includes 92.5% sterling silver jewellery and brass jewellery, idols and other silverware and related gift items.

PNGSG primarily sources finished jewellery from third-party manufacturing vendors located across India. These products are mainly marketed using both online as well as offline marketing tools. The company operates through a shop-in-shop model and has entered into an agreement with P.N. Gadgil & Sons Limited and P. N. Gadgil Art & Culture Foundation to have a point of sales (POS) counters at its existing 30 showrooms across the states of Maharashtra, Gujarat and Karnataka. As of October 31, 2022, it has 23 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 5.50 cr.), and for general corporate purposes (Rs. 1.77 cr.), PNGSG is coming out with a maiden IPO of 2600000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 7.80 cr. The issue opens for subscription on December 08, 2022, and will close on December 13, 2022. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27% of the post-issue paid-up capital of the company. PNGSG is spending Rs. 0.53 cr. for this IPO process. 

Shreni Shares Pvt. Ltd. is the sole lead manager for this IPO, while Bigshare Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Pvt. Ltd. is also the market maker for this company. 

Having issued initial equity shares at par, the company issued further equity shares at Rs. 30 per share in September 2022 and has also issued bonus shares in the ratio of 180 for 100 shares in the same month. The average cost of acquisition of shares by the promoters is Rs. 16.67 per share. 

Post issue, PNGSG's current paid-up equity capital of Rs. 7.03 cr. will stand enhanced to Rs. 9.63 cr. Based on the upper band of IPO pricing, the company is looking for a market cap of Rs. 28.88 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PNGSG has posted a turnover/net profit of Rs. NIL / Rs. - (0.001) cr. (FY20), Rs. 0.01 cr. / Rs. 0.01 cr. (FY21), and Rs. 5.94 cr. / Rs. 1.11 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 2.13 cr. on a turnover of Rs. 11.89 cr. Thus the company has posted bumper performance for the last 18 months which appears as window dressing and raises concern over sustainability. 

For the last three fiscals, PNGSG has reported an average EPS of Rs. 197.73 and an average RoNW of 56.28 %. The issue is priced at a P/BV of 1.33 based on its NAV of Rs. 22.53 as of September 30, 2022, and at a P/BV of 2.39 based on its post-IPO NAV of Rs. 12.54 per share. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 6.77. Thus, on the basis of super profits reported, the issue appears lucratively priced, but whether will it maintain such margins going forward is a million-dollar question. 

DIVIDEND POLICY:
PNGSG has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, PNGSG has no listed peers to compare with, which is raising eyebrows.

MERCHANT BANKER'S TRACK RECORD:
This is the 16th mandate from Shreni Shares in the last three fiscals. Out of the last 10 listings, all opened at premiums ranging from 2.45% to 101.18% on the day of listing.