IPO Size: Rs. 151 cr  

• Entirely fresh issue for working capital (Rs. 71 cr) and loan repayment (Rs. 58 cr of Rs. 168 cr gross debt

Price band: Rs. 52-55 per share

• Rs. 33 cr Pre-IPO placement undertaken at Rs. 55 per share on 19 Oct 2023

M cap: Rs. 541 cr, implying 28% dilution

IPO Date: Mon 18^th Dec to Wed 20^th Dec 2023, Listing Tue 26^th Dec 2023

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

Jaipur-Based Local Jeweller

Motisons Jewellers has 4 stores, aggregating 25,000 sq. ft in Jaipur alone (huge concentration risk), of which, 2 stores are less than 1,700 sq ft area. FY23 revenue was at Rs. 366 cr, of which, 80% was from flagship store. Gold jewellery contributed 82% of revenue, and higher-margin diamond and silver jewellery 9% and 8% respectively, leading to 18% gross margin and 6% net margin. PAT stood at Rs. 22 cr, with FY23 EPS at Rs. 3.4. Q1FY24 PAT was at Rs. 5.5 cr on Rs. 87 cr revenue.

Poor Inventory Management

Inventory turnover stands at a dismal 1 time, when most peers operate at over 2.25x. This is probably the lowest in the jewellery retailing sector, implying Rs. 320 cr inventory needed (as of 31.3.23) to generate Rs. 366 cr revenue. Inventory turnover ratio is a vital financial parameter and can be a make-or-break for any retailer.

Lower Cost Debt being Repaid

Of the Rs. 168 gross debt, Rs. 58 cr working capital loan from banks is being repaid, which bears 8.5% interest pa. Additionally, company has Rs. 86 cr loan from promoter, bearing 11.6% pa average interest cost, which is not being repaid. Despite a lower cost, bank loan is being repaid over promoter loan, effectively inflating company’s annual interest cost by 10% or Rs. 1.7 cr, which is significant, given Rs. 18 cr interest expense in FY23 and Rs. 22 cr PAT. Inter-corporate debt continuing on books is not only a financial concern, but also raises corporate governance red flag. This hints towards promoter interest superseding that of minority shareholders, post listing too.

Dismal Track Record of Promoters

All of company’s 4 jewellery showrooms and 2 manufacturing facilities are lease from promoters, for Rs. 2.8 cr rent pa. Promoters, engaged in diversified businesses like real estate, stock trading, commodity, hospitality, will hold 66% post IPO, from current 91.6%.

In the past, promoters have been investigated for alleged betting in IPL cricket matches and have also been party to investigation by SEBI, NSE and CBI, involving irregular dealings with listed companies. They have been fined and debarred from accessing capital markets between 2015-18, for violating SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, and one case is as recent as Aug 2022. ‘Tinted’ promoter track record calls for a BIG word of caution.

Pricing

Promoter concerns, industry-weakest inventory management and limited presence calls for low valuation multiples. On FY24E EPS of about Rs. 3, shares are being offered at a PE multiple of 18x, when IRASVA branded jeweller Renaissance Global, with Rs. 2,000 cr topline and 2x inventory turnover, is trading at a PE multiple of just 12x. With market cap less than Rs. 600 cr, Motisons will be a micro-cap stock and may be under additional surveillance mechanism (ASM) by stock exchanges. Post listing, one must be careful of any share price movement, beyond fundamentals.