Manoj Vaibhav
IPO Size: Rs. 270 cr
- Rs. 210 cr fresh issue for opening 8 new stores
- Rs. 60 cr offer for sale (OFS) by the promoter (100% to reduce to 74%)
Price band: Rs. 204-215 per share
M cap: Rs. 1,050 cr, implying 26% dilution
IPO Date: Fri 22nd Sep to Tue 26th Sep 2023, Listing Fri 6th Oct 2023
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
South Indian Jewellery Retailer
Manoj Vaibhav operates 13 jewellery stores in Andhra Pradesh (11 stores) and Telangana (2), under brand ‘Vaibhav Jewellers’ and sub-brand ‘Visesha’, with focus on unpenetrated tier 2 and 3 towns. It follows the hub-and-spoke model, with spokes in tier 2/3 towns generating lower revenue. Company’s 16 year old, 29,946 sq. ft. flagship store at Vishakapatnam, accounted for 62% of revenue of Rs. 2,027 cr in FY23. 2nd highest contribution of 5.6% revenue was from the Gajuwaka store. When a single store gives majority revenue, it will be incorrect to term company as a ‘retail chain’! Also, this increases revenue concentration risk.
Increasing Store Count
From fresh issue proceeds, company plans spends Rs. 172 cr to add 8 new stores / spokes in rural Andhra Pradesh (6 stores) and Telangana (2), as rural market accounts for ~52% of jewellery demand in these two states. However, revenue potential from these new stores may not be significant, as presently, 12 stores of the company located in tier 2/3 markets accounts for just 35% of revenue, with revenue per sq.ft of Rs. 9,000 per month, as against Rs. 36,000 for the flagship store. Also, average size of current stores in tier 2/3 towns is approximately 5,000 sq. ft, while new stores planned are planned to be half the size at an average of about 2,500 sq. ft. Thus, incremental growth from 8 new stores may not be as material, putting severe pressure on RoE which is currently healthy at 23% (FY23) on net worth of Rs. 364 cr.
Decent Margins
Between FY20-23, company’s revenue has grown at 17% CAGR to Rs. 2,027 cr, with 19% CAGR in EBITDA. Non-gold jewellery sales accounted for 11% of revenue, leading to 7.3% EBITDA margin and 3.5% net margin, on Rs. 72 cr PAT in FY23. Q1FY24 revenue stood at Rs. 509 cr, with increasing margins of 7.6% and 3.8% at EBITDA and net level respectively. EPS stood at Rs. 18 and Rs 5 for FY23 and Q1FY24 respectively.
Company’s inventory turnover ratio of 2.2x is just about average: Recently-listed East Indian jeweller Senco Gold operates at 2.5x, while South Indian Thangamayil at industry-leading 3.2x. Post listing, company’s net debt-to-equity ratio will contract to 0.8:1, merely due to equity dilution and no debt repayment is planned.
Pricing Factors In the Concentration Risk
On FY24E EPS of about Rs. 18, shares are being offered at an EV/EBITDA multiple of 9.5x and a PE multiple of 12x, which is comparable to small sized peer like TBZ, a regional player in Western India, with 31 stores and Rs. 2,400 cr topline. TBZ, with 6% EBITDA and 2% net margin, is ruling at FY24E PE multiple of 14x and EV/EBITDA multiple of 9.5x. Mid-sized peers are ruling at higher multiples - Thangamayil, with 50 stores, Rs. 3,300 cr topline and 3.6% net margin is ruling at an EBITDA of 12x and PE multiple of 26x while 125 stored Senco on Rs. 4,100 cr topline and 4% net margin is trading at PE multiple of 21x. Thus, Manoj Vaibhav’s pricing is not expensive, probably factoring in the highly concentrated revenue source.
