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Gautam Gems RI review (Avoid)

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•    GGL is a manufacturer/trader of rough and polished diamonds.
•    It has posted inconsistency in its financial performance since listing.
•    Post RI, a four-fold jump in paid-up equity capital will have servicing issues.
•    Promoters' holding has declined to 21.41% as of June 2022 quarter. 
•    There is no harm in skipping this RI.

Gautam Gems Ltd. (GGL) has been principally incorporated as a Manufacturer and Trader of rough and polished diamonds. Its registered and corporate office is located in Surat, which is the diamond hub of India. The company sells diamonds of multiple categories, shapes, cuts, sizes, and colours. 

The range of diamonds it manufactures and trades in purely depends on the demand and supply of diamonds in the local markets. Primarily, Round Brilliant and All Fancy shape, 0.18 cts up to 15.00 cts Size and D to N colour with all type of Fancy colour kind of diamonds are demanded by customers. Since its business is strongly driven by customer demand, GGL maintains a high/low stock at the office or factory. As of March 31, 2022, a total of 11 employees were on the payroll of GGL.

To part finance its needs for repayment of certain borrowings (Rs. 4.75 cr.), working capital (Rs. 38.35 cr.), and general corporate purposes (Rs. 0.50 cr.), GGL is offering a rights issue (RI) of 40268236 equity shares of Rs. 10 each at a price of Rs. 11 per share to mobilize Rs. 44.30 cr. The company is offering the right shares in the ratio of 4 shares for every 1 share held as of the record date of September 01, 2022. The issue opens for subscription on September 15, 2022, and will close on September 30, 2022. The company is asking for Rs. 2.75 per share on application and the balance by one or more calls by it subsequently. Post allotment, shares will be listed on BSE. GGL is spending Rs. 0.70 cr. for this RI process. 

The issue is solely lead managed by the company itself and KFin Technologies Ltd. is the registrar to the issue.

The company came with its maiden SME IPO for Rs. 7.56 cr. in January 2018 at a price of Rs. 36 per share. It issued bonus shares in the ratio of 5 for 6 in September 2020. 

Post RI, GGL's current paid-up equity capital of Rs. 10.07 cr. will stand enhanced to Rs. 50.34 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 55.37 cr.  

On the financial performance front, for the last four fiscals, GGL has posted turnover/net profits of Rs. 43.73 cr. / Rs. 0.18 cr. (FY19), Rs. 328.78 cr. / Rs. 0.57 cr. (FY20), Rs. 93.82 cr. / Rs. 0.34 cr. (FY21), and Rs. 180.20 cr. / Rs. 0.52 cr. (FY22). Thus it has marked inconsistency in its top and bottom lines for all these years. 

As per unaudited results filed with the exchange, GGL has earned a net profit of Rs. 0.42 cr. on a turnover of Rs. 30.48 cr. for Q1 of FY23. 

The company has not declared any dividends for the reported periods of the offer documents to date.  It will adopt a prudent dividend policy post listing of RI, based on its financial performance and future prospects. 

The scrip last closed on cum-right basis at Rs. 14.04 on August 30, 2022, and opened on an ex-right basis at Rs. 11.97 on September 01, 2022. Since then it has marked a high/low of Rs. 13.88 / Rs. 11.31. The scrip last closed at Rs. 12.12 as of September 09, 2022. Based on this quote, its post-RI market cap stands at Rs. 61.01 cr. This counter is having thin trades occasionally and is currently under ASM ST - stage 1. 

The scrip has posted the last 52 weeks high/low of Rs. 16.62 / Rs. 7.53 (post adjustment of Ex-RI impact). Promoter holding has declined from 36.86% for December 21 quarter to 21.41% for June 22 quarter. This raises concern.

The counter is maintained above the RI price with the last cum-right quote, indicating some wasted interest game and missing transparency. 

Conclusion / Investment Strategy

The counter is thinly traded and is under ASM ST – Stage 1 at present. GGL has posted inconsistency in its financial performance. Despite low promoter’s holding, the counter is well managed by vested interest to lure investors for this RI. Post RI, a four-fold jump in paid-up equity will have servicing issues. There is no harm in skipping this issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on September 9, 2022

Review Author

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 before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

More Gautam Gems Limited RI Views / Analysis / Recommendations ...

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