Manoj Vaibhav Gems 'N' Jewellers coming up with IPO to raise upto Rs 281.52 crore

Manoj Vaibhav Gems 'N' Jewellers

• Manoj Vaibhav Gems 'N' Jewellers is coming out with a 100% book building; initial public offering (IPO) of 1,30,94,117 shares of Rs 10 each in a price band Rs 204-215 per equity share. 
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on September 22, 2023 and will close on September 26, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 20.40 times of its face value on the lower side and 21.50 times on the higher side.
• Book running lead managers to the issue are Elara Capital (India) and Bajaj Capital.
• Compliance Officer for the issue is Bandari Shiva Krishna.

Profile of the company

The company is a leading regional jewellery brand in South India led by a first generation woman entrepreneur Mrs. Bharata Mallika Ratna Kumari Grandhi along with her daughter Grandhi Sai Keerthana. It is a hyperlocal jewellery retail chain with presence in the micro markets of Andhra Pradesh & Telangana with 13 showrooms (inclusive of two franchisee showrooms) across 8 towns and 2 cities. It has a market share of ~4% of the overall Andhra Pradesh and Telangana jewellery market and ~10% of the organised market in these two states in FY2023. It was one of the earlier entrants in the organised jewellery retail market of Andhra Pradesh and continue to focus on regional expansion into the high growth untapped regions within the micro-markets of Andhra Pradesh & Telangana thereby creating a market for branded jewellery in the area of its operations. 

The company caters to all economic segments of the micro markets of Andhra Pradesh and Telangana through its dedicated branded showrooms and have a strong rural market focus and a dedicated urban focus also. It has positioned itself as a retailer focussed on ‘Relationships, by Design’ where it focuses on offering designs, high quality, transparency and customer service to its customers. It connects with target groups through exhibitions to understand the taste and preference of the customers through its “Go to Marketing Strategy”. Rural markets have a larger pie of the retail jewellery market and the inelasticity of rural demand for gold offers large potential for growth. 77% of its retail showrooms are in Tier 2 and Tier 3 cities catering to the semi urban and rural demand of Andhra Pradesh and Telangana. The remaining 15% of its retail showroom are located in Mini Metro city of Hyderabad and 8% of its showroom is located in Tier 1 city of Visakhapatnam catering to the urban consumers. It follows a hub & spoke model with small sized showrooms operating peripheral to the larger showrooms. This allows it to offer new products to the semi urban and rural customers on a continuous basis and capture a share of that market.

Proceed is being used for:

• Finance Establishment of proposed 8 new showrooms, i.e Capital expenditure cost for the proposed eight (8) new showrooms and Inventory cost for the proposed eight (8) new showrooms.
• General corporate purposes.

Industry overview

The Indian jewellery retail sector’s size in FY 2023 was close to $70 billion. The sector’s organized retail share stood at approximately 32%, comprised of national and regional players, while the rest of jewellery retail continues to be dominated by the unorganised segment, comprised of over 500,000 local goldsmiths and jewellers. The jewellery retail market is expected to grow to approximately $124 billion by FY 2027 on account of the growing economy and rising disposable income, increasing consumer demand for gold, growth in gold prices and rising demand for other categories like diamonds, other precious stones and costume jewellery. India has traditionally been a gold jewellery market with a limited but growing participation of studded jewellery. There are regional preferences in acceptance of studded jewellery. There is cultural difference, religious and trust factors as well as other factors leading to purchase of jewellery which have ensured the prominence of gold jewellery.

Indian consumers’ jewellery consumption is influenced by multiple factors such as region, income, cultural notions and genera lly vastly differs across states. Southern states make up 40% of the Indian gold jewellery market while the Eastern states account for 15%. Gross weight of gold worn by a bride in Kerala is more than double the weight of gold worn by a bride in Gujarat signifying that cultural factor score over per capita income when it comes to regional skews observed in jewellery purchase in India. Customer service expectation also varies from one region to other. Wedding jewellery demand is influenced by local traditions and designs. While the gross weight of an average wedding jewellery purchase is 200 gm in Uttar Pradesh, it is 350 gm in Kerala. In the southern states of India, consumer purchasing behaviour gravitates towards traditional plain gold jewellery where margins are typically lower. Consumers in the Northern and Western regions of India are more receptive to studded jewellery and impulseled lighter-weight jewellery purchases (14k, 18k jewellery) viz-a-vis their southern counterparts. Plain gold jewellery typically has gross margins ranging from 10% to 14%, while diamond-studded jewellery has gross margins ranging from 30% to 35%. Consequently, as the studded ratio (studded jewellery/total revenue) goes up, profitability improves, thereby incentivizing the expansion of south focused retailers towards the north, west and east.

Pros and strengths

Key leading home-grown regional brand built on hyperlocal retail strategy: The company is concentrated in the micro markets of Andhra Pradesh and Telangana over a period of almost three decades. Given its track record in these micro markets, it understands the sentiments and preferences of the local customers Localisation and introduction of organised retail play to cater to the needs of the people of Andhra Pradesh and Telangana have been critical positive factor for it along with transparency and trust factor. Based on these it has been able to build its brand and business. Its brand building is also based on the long-standing relationship that it has built over the years with its suppliers and job workers, many of whom have been dealing with it for over the last 15 years. Such long standing relationships have ensured that it cater to its customers local preferences with quality, variety and at competitive prices. It continues to add new job workers and suppliers to cater to the changing needs and preferences of the customers.

Early mover advantage in the state of Andhra Pradesh: The company has been amongst the first movers in the organised jewellery business in the state of Andhra Pradesh by starting its business as a proprietorship concern in the year 1994 from its first showroom in Visakhapatnam. It continues to focus on regional expansion into the high growth untapped regions within the micro-markets of Andhra Pradesh & Telangana. It has a market share of 4% of the overall Andhra Pradesh and Telangana jewellery market and 10% of the organised market in these two states in FY2023. Its product range and offering have allowed it to cater to all segments and genres of customers, thus augment its brand strength and build a loyal customer base. From a single retail showroom as a proprietorship concern in 1994, it is now a total of 13 retail showroom (inclusive of 2 franchisee retail showrooms) spread across Andhra Pradesh and Telangana with a total of 95,892 sq.ft. and intend to open new retail showrooms in Tier 2 and Tier 3 cities of Andhra Pradesh and Telangana in FY24 and FY25.

Focus of fortifying business through Rural Market focus: The company caters to all economic segments of the micro markets of Andhra Pradesh and Telangana through its dedicated branded retail showrooms and has a strong rural market focus. Besides the rural markets having a larger pie of the retail jewellery market and offering huge potential for organised players, the inelasticity of rural demand for gold offers large potential for growth. In rural market the volume of the gold matters for consumers not the value. 77% of its showrooms are in Tier 2 and Tier 3 cities catering to the semi urban and rural demand of Andhra Pradesh and Telangana. The remaining 15% of its showroom are located in the Mini Metro city of Hyderabad and 8% of its showroom is located in Tier 1 city of Visakhapatnam. Its focus on rural market as an organised player allow it to educate the customers regarding the quality, standard and certification of the products. It follows a hub & spoke model in its respective region of operation with small sized showrooms operating peripheral to the larger showrooms, thus allowing it to offer new products to the semi urban and rural customers on a continuous basis as per their demand and choices.

Follow Go To Market mode: The company follow the Go To Market (GTM) model, through which it has developed strong connections and built long-lasting relationships with its customers. Thus, ensuring repeat business for it. Through its undeterred efforts, it has been able to build robust database of customers who patronise with its brand. The GTM model has enabled the Company to differentiate its brand vis-a-vis its competitors. This model is highly cost effective and ensures higher footfall at the retail showrooms as well as improve customer loyalty. The GTM model helps in collecting critical market data viz., demographics of such location, existing businesses in the surrounding areas, the site quality such as site visibility, footfall generation, parking and accessibility of the location to the customers, etc. It has enabled it to undertake in house research and study of the varied characteristics of each market that it operates in or are looking to expand thereby helping it to map the market and reaching out to the right consumers by knowing their preferences and offering them with the right product mix.  

Risks and concerns

Significant working capital requirements: The company’s business requires a substantial amount of working capital, primarily to finance its inventory, including the purchase of raw materials. Moreover, it may need working capital for the expansion of its business at regular intervals due to its business requirements. Its sanctioned working capital loans as of August 15, 2023 was Rs 3610.00 million and the outstanding working capital loan as on August 15, 2023 were Rs 3329.18 million, which are repayable on demand. It may need to raise additional capital from time to time, depending on business requirements. Some of the factors that may require it to raise additional capital include (i) business growth; (ii) unforeseen events beyond its control; and (iii) significant depletion in its existing capital base due to unusual operating losses. While it does not anticipate seeking additional financing in the immediate future as a part of its plan post the initial public offering, any additional equity financing may result in dilution to the holders of the Equity Shares.

Operate in a competitive market: The markets in which the company operates are highly competitive. Its competitors include both organised pan-India jewellers as well as unorganized local players in the various markets in which it operates. Some of its competitors have achieved significant recognition for their brand names due to their presence over the years. Industry consolidation, either by virtue of mergers and acquisitions or by a shift in market power among competitors, may accentuate these trends and give its competitors an upper hand. In addition, some of its competitors in smaller local markets have advantages of having strong reputations and established trust with customers due to various factors and presence over the years, which could be difficult for it to challenge or replicate in a sustained manner in the future. The company faces competition from existing jewellery retailers, both organised and unorganised, and potential entrants to the jewellery retail industry that may adversely affect its competitive position and profitability. 

Showrooms spread across states of Andhra Pradesh and Telangana only: The company has a total of 13 showrooms (inclusive of 2 Franchisee showrooms) spread across states of Andhra Pradesh and Telangana, catering to the consumers of these two states mainly. It does not have its presence in any other states of India and as of now does not have any plans to expand its presence to any other states of India. Its concentration of sales in these two states increases its exposure to adverse developments related to competition, economic downturn, demographic changes and any force majeure event in these states. In addition, its business may be more susceptible to natural disasters and other catastrophes, public disturbances like riots, strikes, telecommunication failures and political unrest than the operations of more geographically diversified competitors. Any change in political scenario, change in economic condition, natural calamity or force majeure event in the states of Andhra Pradesh and Telangana may have a negative impact on its business, sales and results of operations. 

Depends on Promoters and senior management: The experience of its Promoters and senior management has been critical to its success and business growth over the years. Their in-depth knowledge of the market and the business operations have ensured its growth in the business. As a result, any loss of the services of any of its Promoters or senior management could materially and adversely affect its business, financial condition and results of operations. The replacement of senior management may not be straightforward or achievable in a timely manner as they have years of knowledge and experience in this business, and it may be required to wait indefinitely to fill positions until it find suitable candidates. Furthermore, attracting, hiring and retaining experienced and qualified senior management with years of experience in this business sector could require increasing compensation and benefits payable to such personnel, which could affect its operational costs and accordingly, its financial condition and results of operations. 

Outlook

Manoj Vaibhav Gems 'N' Jewellers also known as Vaibhav Jewellers is a regional jewelry brand in South India. The company offers gold, silver, and diamond jewelry, precious gemstones, and other jewelry products through retail showrooms as well as through its website. It caters to all economic segments of the micro markets of Andhra Pradesh and Telangana through their retail showrooms and their website with a focus on both rural and urban markets. It has positioned itself as a retailer focussed on 'Relationships, by Design' where it focuses on offering designs, high quality, transparency, and customer service to its customers. The company has 13 showrooms (inclusive of two franchisee showrooms) across 8 towns and 2 cities in Andhra Pradesh & Telangana.  It procures jewellery on an outright basis from its list of suppliers as well as it supplies bullion to job workers for creating varied designs of jewelleries as per its specifications. It sells a wide range of gold, silver, diamond jewellery and precious gemstones and other jewellery products with wide collection of designs to meet the needs of all types of customers on all occasions throughout the year including festivals, weddings, special days such as Akshaya Tritiya and all other festive occasions. On the concern side, the company manufactures its products through its network of job workers and procure raw materials from Banks/Authorised Dealers. While it places orders with its list of suppliers, they are not contractually bound to deal with it exclusively, and it may face the risk of its competitors offering better terms, which may cause them to prefer its competitors over it.

The issue has been offered in a price band of Rs 204-215 per equity share. The aggregate size of the offer is Rs 267.11 crore to Rs 281.52 crore based on lower and upper price band respectively. On the financial front, the company’s total income increased by 19.65% to Rs 20,313.03 million for the financial year 2022-23 from Rs 16,976.98 million for the financial year 2021-22. Its profit for the year increased by 63.91% to Rs 715.96 million for the financial year 2022-23 from RS 436.79 million for the financial year 2021-22. Meanwhile, the company’s strategy is to deeply penetrate the micro markets of Andhra Pradesh and Telangana with organised retail play and focus on rural areas as well as Tier 3 cities while catering to their taste, preference and demand and allowing them to choose from a very localized and culturally connected designs. It intends to incentivize the well performing employees through its award programme in front of their family and village which helps in brand building and result in effective hiring & retention of its employees. It also intends to use its digital marketing ability to connect to various customers on a daily basis thus ensuring that it create a positive value of its brand.