Goenka Diamond & Jewels is entering the capital market on 23^rd March 10, with a public issue of 1 crore equity shares, of Rs. 10 each, in the price band of Rs. 135 to Rs. 145 per share.

The company is a recent entrant in the diamond jewellery segment with respected topline of around Rs. 400 crores and is trying to grow big, with high aspirations. But, financials of the company are really pathetic, which indicates the financial crisis and hardships at the end of the company. For 9 months ending Dec. 09, the total income of the company was at Rs. 410 crores, whereas sundry debtors, as on , stood at Rs. 375 crores, which represents a debtor cycle of over 8 months. This is largely financed by sundry creditors of Rs. 325 crores, which results in further drain on the margins of the company. Even the sanctioned export credit, from 4 banks, are just at Rs. 60 crores, including Rs. 10 crores of ad-hoc limits. This has been utilized upto Rs. 57 crores. On a net worth of Rs. 102 crores, as at Dec. 09, the net block of fixed assets are just at Rs. 8 crores.

Of the present revenue, about 75% comes from exports, while 25% from branded jewellery of the company, from domestic markets. The company claims to be having higher margin on domestic sales, which is not evident or supported by the tax liability of the company, which is just 7 per cent for FY10 and below 5 per cent for FY09, on its PBT.

The company has been trying to work on so many avenues like acquiring a Russian company to procure rough diamonds, opening stores in , as also, setting up new jewellery making and diamond processing units. Of the total fund estimates of Rs. 125 crores, Rs. 85 crore is for working capital requirements, while Rs. 25 crore is for investment in subsidiary. Both of these are not likely to yield much results or any accretion in the bottomline of the company. An amount of just Rs. 15 crores is earmarked for opening stores and setting up new facilities.

Existing diamond jewellery companies like Shrenuj, Su- Raj, Classic and Suashish are ruling at a PE multiple of 6-7 times ,while the company is planning to issue shares at the upper band of Rs. 145 per share, at a PE multiple of 12 times, on FY09 earnings and at a multiple of over 7 times on FY10 earnings.

Shrenuj a comparable peer has much better financials, with promoters' having presence of over 4 generations in the industry, with total income at Rs. 1,278 crores, for first 9 months of FY10, with PAT at Rs. 37 crores, resulting in an EPS of Rs. 5.30 for the period, on a afce value of Rs. 2 , per share. This share is ruling at a PE of about 5.50 times, at its current market price of Rs. 38 and with expected EPS of over Rs. 7, for FY10. Even the board of Shrenuj is quite trustworthy and illumanaries. Even, Su-Raj with expected topline of Rs. 2,900 crores and PAT of Rs. 54 crores, for FY10, which will result in an EPS of Rs. 9, is ruling at Rs. 49, translating in a PE multiple of about 5.50 times.

Considering these, the object of the issue does not justify IPO at all and share even at the lower band of Rs. 135, looks very expensive. It does not deserve a valuation of over Rs. 100 per share, under any circumstances. Hence, advise to just avoid it.