Laxmi Goldorna SME IPO Financial Analysis (Avoid)

Laxmi Goldorna SME IPO Fundamental Analysis

Laxmi Goldorna House Limited SME IPO Financial Analysis

Amidst the panic in the global financial markets due to rapidly spreading COVID-19, LGHL plans to come up with an issue of 55,20,000 equity shares of face value of Rs 10 each for cash at a price of Rs 15 per share( includes a premium of Rs 5 each) amounting to Rs 8.28 crores. Market maker reservation portion is Rs 0.43 crores (288000 shares) and the rest amounting to Rs 7.84 crores (52,32,000 shares) is available for subscription by public. The net issue will constitute 25.07% of the post issue paid up capital of the company.

The lead manager of the issue is Beeline Broking Limited and the registrar of the issue is KFIN technologies Pvt. Ltd.

Laxmi Goldorna House Limited (LGHL) was incepted in the year 2010, it deals in wholesale and retail trading of gold jewellery and ornaments and has recently diversified in the year 2017 into real estate which includes construction of residential and commercial projects. LGHL is based in Gujarat. Designing and processing is carried out on job work basis by third parties. LGHL has 21 employees and 4 KMP (Key Managerial Personnel). IPO details can be seen at the bottom of the write up.

Laxmi Goldorna House Limited SME IPO Financial Analysis

Key Operational and financial Highlights of LGHL

Limited operational efficiency and lack of experience in real estate which could affect the profitability of LHFL. Real estate also faces project funding and execution risk and the sector is currently under stress.
Strong competition in both the sectors and low EBITDA ratios.
Not geographically diversified, has operational activities only in Gujarat.
Dependency on Key managerial Personnel i.e. the promoters.
Weak Interest coverage ratios.

Financial profile

Total revenue from operations has shown an increasing trend in all the three years 2017-2019. Revenue for FY 2019 has increased to Rs73.45crores from Rs 69.77 crores in FY 2018. Though total revenues show an increasing trend but EBITDA posted against the revenues do not show a rosy picture of the financials. The numbers can be seen from the TABLE 1(financials and ratios) below. Ratio of EBITDA to total revenues has ranged between 2%-4% in the last three years which indicates lower margins in the business. LGHL has weak interest coverage ratio of 1.49 times in FY 2019 and 1.61 times in H1 2020 which shows that LGHL is just earning to pay off its finance cost!

Return on net worth which shows the returns that an investor might receive from the company, has remained low in the range of 2%-3%. In a summary, financial profile of the company appears to be weak and risky.

�

Table 1 - Financials and Ratios			Amount in INR Crores
	H1 FY 2020	FY 2019	FY 2018	FY 2017
Total revenue	38.78	73.45	69.77	52.42
PAT	0.41	0.67	0.44	0.58
EBITDA	1.44	2.75	1.60	1.43
Total Assets	42.94	39.44	38.79	10.29
EBITDA to total revenues(%)	3.71	3.74	2.29	2.73
Interest coverage ratio (times)	1.61	1.49	1.60	3.81

Vaibhav Global Limited and Narbada Gems and Jewellery are shown as peers of LGHL as the Prospectus but they are not exactly comparable due to different business lines and scale of operations. Peer comparision data can be seen in table 2 below.

�

Table 2- Peer Comparison
	LGHL	Vaibhav Global Limited	Narbada Gems and Jewellery Limited
EPS	0.44	45.8	1.2
PE	34.46	15.7	33.4
RoNW (%)	2.93	24.2	11

Summary and Conclusion

LGHL is operating in a highly competitive and low margin business and further its debut in real estate sector which is under stress could result in adverse financial position. Financial ratios of LGHL do not promise a bright future to assure earnings from the investment. Hence, considering a high financial risk, investing in this IPO could be risky. Returns expected might be volatile and hence is not advisable to subscribe.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 20th Mar 2020

Review Author

About CA Priyanka Choudhary

CA Priyanka Choudhary, a freelance chartered accountant

Priyanka Choudhary Jain is a Chartered Accountant and an experienced credit analyst. She has worked with CRISIL as Senior Credit Analyst on ratings assignments including business and financial analysis in Corporates as well as the Public Finance Sector.

Email: [email protected]

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.