RO Jewels SME IPO Financial Analysis (Avoid)

RO Jewels Ltd. (ROJL) is based in Ahmedabad and is engaged in the wholesale business of gold and silver chains. ROJL was incorporated in Dec. 2018 and acquired M/s Ravi Ornaments in December 2019. ROJL has a showroom in Manek Chowk , Ahmedabad and its sales mainly constitutes gold based chains, bracelets, gold/silver bars and necklaces. The Jewellery is widely sold throughout Gujarat through B2B marketing. ROJL purchases only readymade chains and other jewelleries that are hallmarked from BIS (BIS Hallmark is mark of purity of gold) from the jewellery manufacturers or independent jewellery wholesalers located in Ahmedabad and Mumbai. The showroom is on leave and license basis with a lease period of 11 months.

RO Jewels Ltd IPO details

ROJL is coming up with issue of 13, 65,000 equity shares Rs 10/- to be issued at a price of Rs 36/- (including a share premium Of Rs 26/-) to raise Rs 4.91 crores.

69,000 equity shares amounting to Rs 2.5 crores is reserved for subscription by Market Maker. Net Issue of 12,96,000 Equity Shares will be made to public at issue price of Rs36/- aggregating Rs 4.67 crores. The Net Issue will constitute 45.76 %, respectively of the post issue paid up Equity Share Capital of ROJL. The shares are proposed to be listed on the SME Platform of BSE.

Proposed utilisation of proceeds

The net proceeds (Rs 4.66 crores after issue expenses of 0.25 crores) from the issue is proposed to be utilised to finance working capital requirements (Rs 4.6 crores) and towards general corporate expenses (.06 crores).

Lead managers

First overseas is the sole lead manager to the issue and KFin technology Pvt Ltd is the registrar to the issue. The lead manager has not shown very good performance in terms of listing gains with other IPO’s bought by it like UH Zaveri and Gautam gems to name a few.

Highlights of ROJL

Area of operation is limited to Gujarat.
Inconsistent financial performance and unexplained super profits in H1 2020.
Operates in a low margin and very competitive sector.
Lead manager shows poor track record and Banker (Yes Bank) to the company is under stress.

RO Jewels - Financial performance

The key financial numbers can be seen from the table below. The revenue from operations for the FY 2019 is Rs 4.24 crores and PAT is Rs .02 crores. ROJL has posted PAT of Rs .15 crores against revenue from operations of Rs 10.47crores. Increase in revenue from operations in H1 2020 is massive and seems to be overstated by the management.

Banker to the company is Yes bank which is under stress and has been taken over by SBI. Any delay in the disbursal of funds due to the troubles in the bank may affect the operations of ROJL.

.	H1-2020	FY2019	FY2018	FY2017
Revenue from operations	10.47 Cr	4.24 Cr	9.76 Cr	5.74 Cr
Profit after tax	0.15 Cr	0.02 Cr	0.07 Cr	0.06 Cr
Total Assets	5.8 Cr	1.8 Cr	2.3 Cr	1.56 Cr

Amount in INR crores

Please note the financial data for FY 2017-18, 2016-17 is for the proprietary firm- Ravi Ornaments and financial data for September 30, 2019 and FY 2018-19 is for ROJL.

Valuation

As per DRHP, ROJL has posted an EPS of Rs 2.51 and return on net worth of 1.38% for FY2019 and for H1 2020, EPS is 1.03 (not annualized) and return on net worth is 2.91% respectively. If P/E of 14.34 (not annualized) based on H1 2020 is annualized then approximately it comes around 30 which is lower than the market average of 40 P/E which may be an indication that investors are not very confident about the company’s prospects. Further, the fact that ROJL has a limited presence and operates in a very competitive sector, maintaining sustainable performance seems difficult.

Peer comparison

Narbada Gems and Jewellery and Vaibhav Global are shown as its listed peers as per the DRHP. They are operating at a P/E of 13.78 and 76.29 respectively. However, the peers identified are based on different product lines and scale of operations is not also necessarily comparable.

Summary and Conclusion

ROJL’s financial profile does not support consistency, it’s scale of operations seems limited as it operates from one showroom with 8 employees only. Also, it operates in a very competitive industry which has many organised and unorganised players. Future growth is not very much visible from the information provided. Hence, it is not advisable to invest in the IPO.

Reviewer recommends Avoid to the issue.

Review By CA Priyanka Choudhary on 11th 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.