Lamxi Goldorna NSE SME IPO review (May apply)

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Review By Dilip Davda on March 18, 2020

•    LGHL that was primarily in Gold ornament business has now diversified into real estate.
•    Financial data shows inconsistency in bottom lines.
•    Both segments are fragmented and there are many unorganized players.
•    Based on FY20 earnings, the issue is priced aggressively.

ABOUT COMPANY:
Laxmi Goldorna House Ltd. (LGHL) is an ISO 9001:2015 certified Company and has started its journey in the year 2010 with the business of gold jewellery and ornaments which includes wholesale and retail trading of all types of jewellery items. Also, the company processes some of its jewellery through job work. With continuous growth in jewellery and ornaments business, it has diversified its business activity in real estate in the year 2017 which includes the construction of commercial and residential Projects by adding real estate business in its main Object in Memorandum of Association. Thus the company has diversified into the unrelated business that is crippled with many issues that have dented the sentiment for real estate counters.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 7.00 cr.) and general corpus fund (Rs. 0.88 cr.), LGHL is coming out with a maiden IPO of 5520000 shares of Rs. 10 each at a fixed price of Rs. 15 per share to mobilize Rs. 8.28 cr. The issue opens for subscription on 20.03.20 and will close on 26.03.20. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 26.45% of the post issue paid-up capital of the company.

The issue is solely lead managed by Beeline Broking Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue. Beeline Broking Ltd. is also acting as a market maker for this IPO. LGHL is spending Rs. 0.40 cr. for this IPO process. Post issue LGHL's current paid-up equity capital of Rs. 15.35 cr. will stand enhanced to Rs. 20.87  cr. It mulls a market cap of Rs. 31.31 cr. post this issue.

Having issued initial equity at par, LGHL has also issued/converted equity shares in the price range of Rs. 50 to Rs. 65 between March 2010 and September 2017. It has also issued bonus shares in the ratio of 4 shares for every 1 share held in August 2017. The average cost of acquisition of shares by the promoters is Rs. 9.64 and Rs. 15.16 per share.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, LGHL has reported turnover/net profits of Rs. 52.43 cr. / Rs. 0.58 cr. (FY17), Rs. 69.77 cr. / Rs. 0.44 cr. (FY18) and Rs. 73.45 cr. / Rs.  0.67. (FY19). For the first half of FY20, it has earned a net profit of Rs. 0.40 cr. on a turnover of Rs. 38.78 cr. Despite the growth in top lines, the bottom line has shown inconsistency.

For the last three fiscals, LGHL has posted an average EPS of Rs. 1.78 and an average RoNW of 4.33%. The issue is priced at a P/BV of 1.01 based on its NAV of Rs. 15.12 as on 30.09.19 as well as post issue NAV of Rs. 15.09. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 39 making it aggressively priced. LGHL has not declared any dividend in the past five financial years.

COMPARISION WITH LISTED PEERS:
As per offer documents, LGHL has shown Vaibhav Global and Narbada Gems as its listed peers. They are currently trading at a P/Es of around 81 and 9 (as on 18.03.20). However, they are not strictly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 5th mandate from its stable. All the last four listings have opened at premiums ranging from 1.37% to 10% on the day of listings.

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