IPO Size: Rs. 4,225 cr

• Rs. 1,475 cr Fresh Issue to fund Rs. 1,300 cr purchase of IGI Belgium and Netherlands from the promoter
• Rs. 2,750 cr Offer for Sale (OFS) by the promoter Blackstone (100% to drop to 77% post IPO), part-selling at 5x return in 20 months

Price band: Rs. 397-417 per share

M cap: Rs. 18,021 cr, implying 23.5% dilution

• Only 10% retail, as cash and equivalents comprise over 50% of net worth in last 2 fiscals

IPO Date: Fri 13^th Dec to Tue 17^th Dec 2024, Listing Fri 20^th Dec 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Gemstone Certification Company

International Gemmological Institute (India) or IGI is world’s #2 certification company for diamonds (mined and lab-grown), gemstones and jewellery, commanding 33% global market share. It has built trust over the past 50 years, which is the biggest entry-barrier in the industry, dominated by a larger not-for-profit peer Gemological Institute of America (GIA). 

Shortest Exit Period?

Blackstone will be clocking ~3.9x return on Rs. 4,674 cr investment in just 20 months. This is not only the highest IRR of 160%, but also probably the fastest ever exit for a PE investor, in India’s IPO history. IGI has indeed turned out to be a ‘Kohinoor’ for Blackstone.

Object of IPO

Company plans to use fresh issue proceeds to buy IGI Netherlands and IGI Belgium for Rs. 1,324 cr from parent Blackstone, who had acquired the same for Rs. 1,446 cr in May 2023. IGI Belgium is a loss making company, while IGI Netherlands’ net margin of 11% is lower than IGI India’s 55%. If related party transactions between India, Belgium and Netherlands companies are aimed to be streamlined via the acquisition, one wonders it was not initiated last year itself, may be via a share-swap?

Through purchase from fresh issue proceeds, it appears that Blackstone is forcing loss-making operations on prospective IPO investors, besides highlighting greed at promoter end (essentially pocketing the entire IPO money of Rs. 4,225 cr). This also makes one wonder, why the rush to cash-out?

Industry Uncertainty

Lab grown diamond prices declined 37% between CY2020-23, after declining 65% between CY2016-20. Since potential supply is unlimited, risk of further decline remains. Future of diamond industry remains highly uncertain, due to this technological disruption.

A few retailers like Titan are talking about installing machines at stores to identify lab-grown diamonds. While this is not possible today, who had ever though that diamonds could ever be man-made?

High-Margin, Growing Business

On a proforma basis, post-consolidation of IGI Netherlands and Belgium, CY23 revenue stood at Rs.898 cr with net margin of 37%. Certification pricing has remained stagnant for the past 4 years. IGI’s growth has been volume driven, due to lab grown diamonds, accounting for 59% of revenue, as natural mined diamonds remained flat.

For 9MCY24, revenue stood at Rs. 788 cr, with 40% net margin, translating into an EPS of Rs. 8, against Rs. 8.3 for CY23.

Attractively Priced

Based on CY24E EPS of Rs. 11, IPO is priced at a PE multiple of 38x on current year basis, which is attractive for the unique duopoly business, with high barriers to entry, 40% net margin and 20% RoE.

Since company’s growth is externally driven and industry prospects are highly uncertain, to one and all, long term outlook remain monitorable.